Mark Keenan: Self-assessment may land city dwellers with bulk of house tax
IS the Government about to repeat the mistakes of the past when it comes to taxing our homes? Self-assessment was one of the key reasons why Ireland's last residential property tax was a flop and why the tax ended up being paid almost exclusively by city dwellers.
Dubs and Corkonians coughed up more than 70pc of the national property tax take across the country in its last year before RPT was finally abolished by government in January 1997.
The old regime was based on the idea, just like the present proposal, that the owner would fill out the forms and make the necessary valuations themselves. The penalty for under-assessing your home's value was that when you came to sell it, the game would be up. The tax man, privy to the sale price, would compare the market value with your previous assessments. If there was a discrepancy, you had to pay up the balance. It meant a massive clawback, often of tens of thousands of pounds (in those days).
Self-assessment was therefore all well and good for taxing city dwellers who moved home perhaps two to four times in their lifetimes. For city dwellers, the fact that there were ongoing sales of identical homes in the vicinity (say in estates where all houses are much the same) meant that there were always similar sales to compare with even if you somehow managed to stay living in your home for long periods.
In rural areas, however, the property taxman found that living habits and property types made collecting the tax difficult. For one thing, country dwellers don't tend to live in multiple residences over the periods of their lifetimes. They build a house on family land and extend and alter it where need be. They stay put. Hence under the last property tax regime, there were few sales in country areas at which point the property taxman could claw back his cash.
Also, when it came to valuation for property tax purposes in rural areas, almost all houses were one off, self-builds of different types and therefore there was far more wiggle room when it came to estimating a value. Complicit local estate agents, often known to families, didn't help matters for the taxman by turning in very modest estimates indeed -- ultimately the city dweller in Dublin, Cork and Limerick pretty much stumped up for everyone else.
At the point at which the tax was abolished in 1997 it was realised that so many rural dwellers had availed of underassessed values or else had dodged the tax altogether that there was no point in chasing them up.
Self-assessment often led to undervaluations over long periods. The longer the RPT ran, the more it was blamed for slowing property sales in city areas.
Those who had undervalued their homes over many years found they could not sell because they didn't have the money to pay the massive clawback due when the sale went through and their cumulative undervaluations were rumbled.
In 1997, when the Government abolished property tax, it increased stamp duty to 8pc on the top rate. In the years ahead, contrary to what many people believe, we did actually have a property tax -- one of the most punitive stamp duty regimes in the world.
Constantly rising house prices (they hiked by 30pc in 1997 alone) in every year until 2007 gave the government a massive annual property tax take.
Indeed, Exchequer reliance on stamp duty became part of our economic downfall when sales stopped and values tumbled from 2008 onwards, leaving a massive hole in the Exchequer's resources.
To have any chance of making self-assessed RPT a success this time, the State will also need to employ a large enough squad of independent valuers attached to the Revenue Commissioners who would roam the country to value homes and spot-check submissions in much the same way the taxman conducts checks on the returns of the self-employed.
Otherwise, the "Dublin gets everything" moans often heard from rural dwellers might prove correct -- at least when it comes to residential property tax.