Property tax to rise as price cuts hit €1m homes

According to a recent report, Property tax is to increase from next year, with Dublin homeowners continuing to pay vastly more than those in rural Ireland despite government commitments to dramatically overhaul the system.

The disclosure comes amid an apparent slowdown in the asking prices for luxury properties in Dublin valued at more than €1m.

New figures compiled by the Sunday Independent show a dramatic fall in asking prices for seven out of 12 properties advertised last week – including one south Dublin home which dropped €225,000 to an asking price of €1,100,000. The current property tax on a home valued at €1m is set at €2,650.

The Sunday Independent has learnt that Finance Minister Paschal Donohoe is planning to stick with calculating the tax based on property valuation when he announces the outcome of a much-anticipated review.

However, senior government sources said he would adjust property tax bands to ensure homeowners are not hit with massive payments once the freeze on the charge comes to an end next year, but some increases are expected.

In the first five months of the year, almost 150 homes in Dublin sold for more than €1m or had a combined value of €250m. Last year, a total of 826 homes, a 25pc increase on the year before, sold for over €1m.

However, a Sunday Independent analysis of a sample of homes priced at over €1m found that over half had dropped in value, some by significant amounts.

A four-bedroom house in Dalkey dropped €550,000 to an asking price of €2,950,000; a renovated Victorian period home in Rathmines fell €400,000 to €2,350,000; and a detached four-bedroom house in Terenure dropped €225,000 to €1,100,000.

Property tax is based on market value bands. The first band covers all properties worth up to €100,000.

Bands then go up in multiples of €50,000. If a property is valued at €1m or lower, the tax is based on the midpoint of the relevant band.

For properties valued at over €1m, the tax is charged on the balance over €1m, with no banding applied. The basic LPT rate was set at 0.18pc for properties valued at under €1m and 0.25pc on the amount of the value over €1m.

“The review conducted by the Department of Finance will be taking account of the very significant change in property values since the last valuation,” he added. However, the charge will continue to be linked to property value as the minister believes it is the fairest way of calculating the tax.

“There is unlikely to be a change in how the valuation takes place,” a government source said.

The move could cause Cabinet tensions as a number of senior Fine Gael ministers have called for an overhaul of how property tax is calculated.

Housing Minister Eoghan Murphy previously told this newspaper that he wanted to see a “fundamental change” in how the charge is worked out.

The Dublin minister, who is involved in the Government’s review of property tax, said the calculation should now be “linked exclusively to the perceived market value of a home”.

Arts Minister Josepha Madigan has also criticised the current system, saying Dublin homeowners are being “disproportionately hit” with property tax charges compared with those living in rural parts of the country.

Figures from the Revenue Commissioners show a third of the entire property tax raised last year was paid to the four Dublin local authorities.

Homeowners in Dun Laoghaire-Rathdown pay an average of €524, while the average in Donegal is €160 and in Leitrim only €130.

However, a source close to the Finance Minister said there were an “equal number of problems” with any other proposed valuation method, especially a system based on the physical size of a property.

“If the Government moved to a system based on the size of a property that simply means larger properties outside Dublin, and to a lesser extent in Limerick and Cork, may see a decrease in property tax but every other property outside of those areas would see an increase,” the source said.

A homeowner whose house was valued at between €250,001 and €300,000 in 2013 currently pays €495 in property tax. Owing to significant house price increases, the same property in some parts of the country could move up a band and now be worth between €300,001 and €350,000 and be facing a €585 payment next year.

However, under the new system, the charge for the higher band will be reduced to ensure the homeowner will pay a similar rate of tax to the amount they have been paying for the last five years.

Around 60,000 new homeowners, who have been exempt from the charge since 2013, will be included in the property tax when the freeze ends next year.

Speaking in the Seanad last week, Junior Finance Minister Michael D’Arcy said he did not expect property tax rates to “double or treble”.

“I do not know, but I have seen very few taxes decrease, they normally increase,” he added.

“The appropriate thing to do with taxation is to increase it in a careful incremental way by small amounts initially and that is how we increase the tax base.”

(Sunday) Independent 7/6/2018

 

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