Jerome Reilly: New tax on all our homes will follow us to the grave
Study the fine print of the legislation and you will find a raft of new powers for the taxman, writes
It is already clear that tens of thousands of people will not be able to afford the new residential property tax.
The banks loaned €32bn to landlords for buy-to-let properties, but 29 per cent of those mortgages are more than three months in arrears.
That is almost twice the 14.7 per cent arrears rate for owner-occupied properties.
But according to Central Bank statistics there are 83,251, or 10.9 per cent, of private residential mortgages also in arrears of more than 90 days.
So the question must be asked of the Finance Minister Michael Noonan and his Government: if people have not been able to pay their mortgage for their own home for more than three months, how can they be able to afford hundreds of euros in property tax?
The answer, apparent from the new legislation, is that people must pay – maybe not now but they will pay, even if the Revenue has to follow them to the grave.
In the property tax legislation published on Friday – the legal nitty-gritty which explains how the new tax will work – Section 118 gives power to the taxman to deduct the property tax from any State payments the property owner might receive.
That means that money can be deducted from payments from the Department of Social Protection. It means that the property tax can be taken from farmers from their State payments by the Minister for Agriculture and passed on to Revenue.
And the Revenue will be able to 'pick and mix' in a case where a citizen has more than one property.
Section 121 of the legislation states: "Where local property tax is payable by a liable person in respect of more than one relevant residential property, the Revenue Commissioners may set any payment made by the liable person against any or all of the relevant residential properties."
If you end up owing property tax and plan to sell the property you will have to pay the outstanding bill before the completion of sale as well as any penalties and interest.
But if the tax remains unpaid, the amount owed plus penalties and interest will stay with the property – which raises the spectre of a new homeowner being landed with the previous owner's property tax bill.
Presumably it will be up to conveyancing solicitors to make sure the seller is up to date with his property tax so as not to leave the buyer with a huge charge not of his making.
There is even a section (Section 139) which states that those who owe property tax and receive a "windfall gain" – a win on the prize bonds, for example – must pay their outstanding bill.
There will be no escape and the new property tax could change the residential property market forever.
Conceivably it could mean that more and more people will decide to rent long term rather than buy and that people will have to dispose of properties they received as inheritances simply to pay the outstanding property tax charges levied on the property.
The new property tax, combined with other budget changes that mean rental income will be liable for PRSI payments, will cause further chaos in the market.
Expect thousands of houses and apartments, bought by "amateur" investors who wanted to provide a retirement nest egg for themselves or for their children to come to the market in the next year.
The tax burden is now simply too great for the smaller buy-to let investors.
Not only will they have to find €585 a year in property tax on their primary residence if valued at €325,000 but they will also have to pay the property tax on their investment property based on its market value
Now after the Budget they have learned that any rental income will be liable for four per cent PRSI – if they have been lucky enough to secure tenants.
Will that hike rent prices? Will landlords simply pass on the four per cent PRSI and the property tax to tenants by way of increased rent?
But in another blow to small buy-to-let investors, there could be problems in off-loading houses and apartments that have become a noose around their necks.
Mr Noonan introduced specific measures to boost the new house market.
As well as first-time buyers being exempt from property tax until 2016, those who buy new or previously unoccupied homes or houses in ghost estates will also be exempt from the tax for the next three years.
It means that buy-to-let investors will be at a competitive disadvantage when trying to sell an older property if there is a new estate in the locality which will be tax free until 2016.
The Government also failed to protect those crippled financially by negative equity or mortgage arrears.
The revenue target from Government for the new property tax is €250m in the first six months of operation in 2013 and €500 in 2014.
For most people the property tax on their home will be between €300 and €500.
But there are distinct, regional variations in house and apartment prices between Dublin, the major cities, and the rest of the country.
According to the Dublin Chamber of Commerce, the tax on property value is unfair for those living in Dublin and other cities,
"This plan completely lacks regional fairness, as those who live in urban areas pay significantly more than rural areas for the same type of house," said the Dublin Chamber's chief executive Gina Quin.
"For example, the cost of a three-bed family home in Dublin is 80 per cent higher than a similar size house in the midlands. So, a family in Dublin on the same income as someone in the midlands will have had to pay considerably more for their home, and be taxed for the privilege."
James Nugent, managing director of Lisney estate agents, said it was a mistake and totally unfair to have a system based only on the value of a property with no other considerations.
"Based just on value, homeowners in large urban areas, particularly Dublin, will have to pay considerably more than those in the rest of the country. This is unfair given that homeowners in Dublin cost their local authority less per residential unit because providing mass services is more economical than providing facilities and amenities over a wider and scattered geographical area.
"Historically, Dublin homeowners paid the highest prices for their property and consequently the largest stamp duty.
"In addition, Dublin homeowners have the biggest mortgages and, sadly, the highest levels of negative equity.
"And there is little chance of avoiding paying the tax which will be collected by the Revenue Commissioners and based on the market value of the property," he added.
In the coming months it is inevitable that home owners in estates – especially where no house has been sold in recent times to set some sort of market value – will collectively 'set' a market value for their homes that will apply until 2016
Guidelines will be issued by the Revenue to help householders work out market value or else homeowners may seek a professional valuation.
The value will be set on May 1, 2013.
The Revenue will be in communication with all homes before then.
Once set, the valuation will stay unchanged until the end of 2016.
The Revenue is adamant that they will follow up on outstanding household charge bills. It will cap the 2012 charge at €130 if paid by the end of next April.
If it remains unpaid, there will be further penalties.
From July 1, the unpaid household charge will rise to €200 and will be added to the local property tax bill.
The non-principal private residence charge on second homes will apply in 2013.
So owners of second homes will have to pay six months' property tax on their non-primary residence plus the full year of second home tax of €200.
There is no escape.