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LOCAL PROPERTY TAX

WHAT IS IT?

 

The Local Property Tax or LPT is a self assessed tax payable by an individual on the market value of his/her “residential property or properties” located in Ireland.

 

WHAT DOES THAT MEAN?

It means the LPT is a self assessed tax.  You are responsible for valuing your own property, filing your tax return and making the relevant payment.

 

WHAT’S MEANT BY “Residential Property?”

A “residential property” is any building (or part of a building) which is used or is suitable for use as a residence.  It includes the driveway, yard, garden, garages, sheds and any other land associated with the property up to one acre in area.

 

HOW IS THE PROPERTY VALUED?

Because the LPT is a self assessed tax the property owner must decide on the market value of the property.  Once the market valuation has been made it will hold for LPT purposes until the end of 2016 regardless of any improvements or renovations to the property or indeed any changes to the property market.

Revenue will not be valuing individual properties.  Instead they will provide guidance to assist the property owners in valuing their own property.  The LPT information guide uses the following resources as suggestions on how to honestly value your property:

  • Property Websites including www.daft.ie, www.myhome.ie, etc.
  • Local Estate Agents
  • The Property Services Regulatory Authority’s Property Price Register
  • www.revenue.ie for a guide on average values for a range of different property types  based on a number of factors including age of property, average price of type of property for each electoral district in Ireland.  There is also a Valuation Technical Paper available on this website to assist you accurately value your property regardless of where you live in Ireland.

If in doubt, it is advisable to get a valuation from an independent Auctioneer, Valuer or Estate Agent.

 

CAN THE VALUATION BE CHALLENGED?

There is a presumption of honesty with this new tax.  An exact valuation will not be required unless the property is valued at €1 million or more.  However, Revenue will challenge cases where it is obvious that an undervaluation has occurred in which case they can raise an assessment on the undervaluation.

If such a situation arises, the tax payer can appeal the assessment to the Appeal Commissioners.

 

HOW IS LPT CALCULATED?

The amount of LPT depends on the property value.

Property values are organised into bands.  The first band is for property values between €0 and €100,000.  After that all values are in €50,000 bands.  Where the property has a value of in excess of €1m an exact valuation is required.

Once the property owner has identified the band in which his/her property falls into, the LPT will be calculated automatically when filing on line via ROS (Revenue on line System).

It is not necessary to ask your Accountant / Tax Adviser to calculate this tax as there is a ready-reckoner provided to assist those completing their Returns.

But just in case you want to know how to calculate the tax liability, it’s computed as follows:

  • Apply 018% to the mid point of the relevant band.
  • If your property is valued at €1m or over then the first €1m will be assessed at 0.18% with the remainder at 0.25%

Again, please make sure you have an exact valuation if your property is worth €1m or over.

 

WHO HAS TO PAY THE LPT?

The simple answer is the owner of the property on the date the LPT falls due.

The filing date for 2013 is 1st May 2013.  For 2014 onwards it will be 1st November.

If you are in the process of selling your property but still haven’t sold it by 1st May 2013 then you will be considered the “liable person” for 2013 even if the property is sold before the end of the year.

The following individuals are liable to pay the LPT:

  • Any one who owns property situated in Ireland regardless of whether he/she lives in Ireland or not.
  • The landlord in situations where the property is rented under leases of less than twenty years.
  • Trustees in circumstances where the property is held in a trust.
  • Local authorities or organisations that provide social housing.
  • Any one who holds a “life interest” in a residential property.
  • An individual who legally occupies a property on a “rent free” basis.
  • Lease holders whose leases are more than twenty years.
  • The personal representative of a deceased owner including executors and administrators of the deceased’s estate.

If two or more people own a residential property they are both liable for the LPT.  It is essential that they agree who should file the return and pay the relevant tax.  If neither owner pays the LPT then Revenue can collect the tax from either party.

 

ARE THERE ANY EXEMPTIONS?

There are a number of exemptions including:

  • New and unused properties which have been purchased from a builder or developer between 1st January 2013 and 31st October 2016.  They will be exempt until 31st December 2016.
  • Residential Properties purchased by a first time buyer between 1st January 2013 and 31st December 2013.  These properties are exempt until the end of 2016 providing they are used as the individual’s principal private resident (sole or main residence).
  • Properties that are unsold and are not used as a residential property.  These properties must be constructed and owned by a builder / developer.
  • Registered Nursing Homes.
  • Diplomatic properties including embassies.
  • Mobile homes, vehicles or vessels.
  • Properties used by charitable bodies.  They must provide residential accommodation in connection with the recreational activities for which they were set up.
  • Residential properties owned by a charity or public body to provide accommodation to people with a particular need.  For example, sheltered housing for elderly or disabled individuals.
  • Properties which are certified as having significant pyritic damage in line with Government regulations.
  • Properties purchased or adapted for the use of a severely incapacitated individual who has received an award from P.I.A.B. (Personal Injuries Assessment Board) or from a trust established.  The property must be the individual’s main or sole residence.
  • Properties in unfinished housing estates (“Ghost Estates).
  • A property owned by an individual which has been vacated due to long term mental or physical infirmity.

 

HOW DO WE PAY THE LPT?

The liable person must complete the tax return and select the preferred payment option.

If you prefer submitting a paper return the due date for both filing and paying is 7th May 2013.  In other words you must enclose a cheque, bank draft or postal order with the completed form.

If you wish to submit a return on line there is an extended filing date to 28th May 2013 with the following options:

  • You can pay by single debit authority.  The payment deadline date in this instance is 21st July 2013.
  • If you wish to pay on a phased basis, the commencement date is 1st July 2013.

 

WHAT IS MEANT BY A “PHASED BASIS”?

A phased basis means:

  • A deduction from salaries, wages or occupational pensions.
  • A deduction from certain payments from the Department of Social Protection.
  • A deduction from certain payments made by the Department of Agriculture, Food and the Marine.
  • Direct Debits
  • Cash payments including debit and credit card payments which are made in equal instalments through an approved payment provider.

 

HOW WILL AN EMPLOYER KNOW TO DEDUCT LPT?

Revenue will advise the employer of the amount to be deducted.

If a payment is deducted from the individual’s salary at source it is not subject to charges or interest.

 

WHAT HAPPENS IF THE LPT RETURN IS NOT SUBMITTED?

Revenue will pursue the amount by raising a “Notice of Estimate” using a wide range of collection options including:

  • Mandatory deductions of the required amount from salaries, wages, pensions, Government payments.
  • Notices of Attachments on bank accounts.
  • Handing the debt to the Sheriff.
  • Referring the debt to the Revenue Solicitor.
  • Withholding refunds of other taxes due until the LPT is paid in full.

 

WILL INTEREST AND PENALTIES APPLY?

Interest and penalties on late payments will apply.

Not submitting an LPT Return could result in a penalty of the amount of the LPT that would have been payable on a correctly completed return up to a maximum of €3,000.00.  This penalty could arise even if the individual has actually paid the LPT.

A Tax Clearance Certificate will not be issued to the individual.

If you are obliged to file Income Tax, Corporation Tax or Capital Gains Tax Returns, you will incur a 10% surcharge at the relevant filing dates,  if you have not filed your LPT Return and paid the corresponding liability or entered into a payment agreement.  The surcharge will be capped at the amount of the LPT liability only in situations where the LPT position is subsequently brought up to date.

 

WHAT HAPPENS IF I OWN MORE THAN ONE PROPERTY?

Taxpayers who own more than one property are obliged to pay and file on line.  They do not have the option of submitting a paper return and accompanying cheque, draft or postal order.

 

WHAT IF I CAN’T PAY THE LPT?

In certain circumstances an individual can opt to defer the payment of taxes if certain conditions are met.

It is important to remember that a deferral is not an exemption.

The deferred tax will remain as a charge on the property until the property is sold or transferred to another person.

There are four categories of deferral of the LPT:

  1. Hardship Grounds
  2. Personal Insolvency
  3. Personal representative of a deceased person.
  4. Income Threshold

Revenue will review applications in respect of the first three categories and following its review will grant or deny the deferral application.  These deferrals are not restricted to owner occupiers.  They can apply to personal representatives of deceased liable persons, individuals who have entered into insolvency agreements under the 2012 Personal Insolvency Act as well as those who have suffered unavoidable and unexpected significant financial loss and cannot pay the LPT without excessive hardship.

The fourth category dealing with the Income Threshold does not involve an approval process.  The thresholds are based on gross income providing certain conditions are met.  The standard income threshold can be increased if the claimant pays mortgage interest and this category of individuals must be owner occupier i.e. it does not apply to owners of multiple properties.

 

I STILL HAVE QUESTIONS

If you still have questions, please contact us on 01-  872 8561 or visit the revenue site http://www.revenue.ie

Rental Income Summary

Rental Income

Rental income is calculated on the gross amount of rents receivable. A profit or a loss is calculated separately for each rental source. The rental income which is liable to Income Tax is the aggregate of the profits as reduced by the aggregate of the losses.

When completing an Income Tax Return, rental income from property situated in the Republic of Ireland is chargeable to tax under the provisions of Case V Schedule D while rental income from property situated outside the State is chargeable to tax under the provisions of Case III Schedule D.

It is important to remember that losses from one source cannot be written off against profits from the other. In particular, Irish rental losses cannot be written off against profits from foreign rental properties and vice versa.

Rental Income liable to Income Tax

The types of rental income liable to Income Tax can be more diverse than you might imagine. The following income is considered to be rental income, taxable under Case V, Schedule D:

  • The letting or rental of residential, commercial and/or agricultural property.
  • Easements.
  • The granting of sporting rights and permits.
  • Insurance payments received to compensate for non payment of rent.
  • Certain Premiums.
  • Improvements carried out by the tenant which is not required by the lease and for which he/she is not reimbursed, etc.

Deductible Rental Expenses

For rental expenses to be deductible there are three main rules:

  1. It must be incurred by the landlord.
  2. It cannot be of a capital nature.
  3. It must be incurred during the period in which the landlord is entitled to receive rental income. In other words, it cannot be considered pre or post trading expenses.

Specific Expenses include:

  • Rent, rates and insurance paid by the landlord.
  • Repairs & Maintenance costs paid by the landlord including water charges, electricity, satellite/cable television, cleaning and maintenance services, painting and decorating, replacing tiles and slates, damp treatment, fixing broken showers, windows, doors, etc.
  • Management Charges.
  • Letting Expenses
  • Advertising
  • Legal Fees including the drawing up of leases or debt collection.
  • Accountancy charges in relation to preparing rental income accounts and tax returns.
  • Interest on money borrowed to purchase, improve or repair the rental property.
  • Allowances for capital expenditure – These are known as Capital Allowances.

Please be aware you can never claim a deduction for your own labour. If you carry out repairs or gardening yourself, you cannot include this as a deductible expense against rental income.

The NPPR and Household charges are not allowable expenses against rental income.

Mortgage Interest

Broadly speaking, interest on money borrowed to purchase, improve or repair a rental property is deductible in calculating your rental income for tax purposes, subject to certain conditions.

The allowable deduction for interest accruing on loans used to purchase, improve or repair rented residential property is restricted to 75% of the total interest accruing.

This 75% restriction does not apply to non-residential property. In the case of offices, warehouses, etc. 100% of the interest is allowable against rents receivable.

A further restriction was introduced in 2006. Unless the landlord has complied with the registration and payment requirements of the PRTB (Private Residential Tenancies Board) in relation to each and all tenancies in the rented property then the interest on monies borrowed for the purchase, improvement or repair or rented residential properties will not be an allowable deduction against rents receivable.

If the loan to purchase the rental property includes stamp duty, legal fees, auctioneers’ fees, etc. then the interest on the loan must be apportioned. Only the interest relating to the actual cost of purchase, repair or renovation of the property is allowable.

Interest incurred prior to the first letting is not allowable (pre-letting expense) neither is the interest incurred after the final letting (post letting expense). Interest incurred during a period in which the landlord occupies the property is not allowable.

Capital Expenditure – Wear & Tear Allowance

Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and fittings provided by the landlord for the rented residential property. This includes furniture, showers, kitchen appliances, etc.

The rate is 12½% over eight years.

What Expenditure is not allowable?

  • Pre-letting expenses – expenses incurred prior to the date on which the premises was first let. There are exceptions to this rule and they include auctioneer’s letting fees, advertising fees and legal expenses incurred on first lettings.
  • Interest on money borrowed incurred in the period following the purchase of the property up to the time the first tenant enters into a lease and after the final letting.
  • Post-letting expenses – expenses incurred after the final letting,
  • Capital expenditure incurred on additions, alterations or improvements to the premises unless allowable under an incentive scheme or incurred on fixtures and fittings.
  • Expenses incurred on lettings that are exempt under the Rent-a-Room provisions.
  • NPPR
  • Household Charge
  • The landlord’s own labour

Rent-a-Room Relief

If an individual rents out a room in his/her sole or main residence as residential accommodation and receives up to €10,000 per annum this amount will be exempt from Income Tax, PRSI and the Universal Social Charge providing conditions are met.

The €10,000 limit includes rent, utility bills, laundry, food, etc.

If the individual receives in excess of €10,000, the Rent-a-Room exemption will NOT apply and the entire rent receivable will be liable to income tax, PRSI and the Universal Social Charge

An individual cannot avail of rent-a-room relief in respect of payments for accommodation in the family home by a child of the landlord under any circumstances. There is no restriction where rent is paid by other family members, for example, nieces and nephews.

The relief does not affect an individual’s entitlement to mortgage interest relief i.e. Tax Relief at Source.

The relief does not affect the individual’s entitlement to Principal Private Residence Relief from capital gains tax on the sale or disposal of the property.

You can opt out of the relief for a year of assessment by making an election on or before the return filing date for the year of assessment concerned.

Non Resident Landlords

If your landlord resides outside theRepublicofIrelandand you pay rent directly to them or electronically transfer the money into their bank account either inIrelandor abroad, you must deduct income tax at the standard rate of tax (currently 20%) from the gross rents payable.

Failure to deduct tax may leave the tenant liable for the tax that should have been deducted.

At the end of the year you are obliged to complete a Form R185 showing the tax deducted from the gross rents which you should then give to your landlord. The landlord can then submit this form to the Revenue Commissioners and claim this amount as a credit.

If, on the other hand the non-resident landlord has an agent who is resident in the state, then there is no obligation for the tenant to deduct tax from the rent. Instead the tenant should pay the gross rent to the agent.

The agent is then liable to pay income tax on the rents received from the tenant in the capacity of Collection Agent for the landlord. The agent is then required to register as self employed and submit an annual tax return and account for the tax due.

Foreign Rental Income

In general, rental income from property located outsideIrelandis calculated on the full amount of rents receivable, irrespective of whether or not it has or will be remitted intoIreland.

Broadly speaking, the same deductions are available in calculating the taxable rental income as if the rents had been received inIreland.

Income tax on these rental profits is chargeable under Case III of Schedule D.

In the case of an individual who is not domiciled inIreland, the taxable rental income is computed on the full amount of the actual sums received in the State without any deductions or reliefs for expenditure incurred.

Rental losses from the letting of property outside the State cannot be offset against rental income from the letting of property in the State and vice versa. Such losses can only be offset against future rental income from property outside the State.