knowledge | 7 September 2021 |
The Finance (Local Property Tax) (Amendment) Act 2021: Key Points
With all of the focus on the delivery of residential property since local property tax (“LPT”) was first introduced in 2012, a review of the operation of LPT has taken a back seat, until now. The Finance (Local Property Tax) (Amendment) Act 2021 (the “2021 Act”), enacted on 22 July 2021, updates the regulation and collection of LPT in a number of important ways. All owners of residential property will need to become familiar with their obligations, and changes to relevant exemptions, in the coming months, to ensure they are ready to comply by November 2021 and beyond.
Next Valuation Date: 1 November 2021
LPT has stood still since 1 May 2013 but this all changes on 1 November 2021. A new valuation period begins on 1 November 2021, running for 4 years and triggering an obligation on liable persons to submit returns for the year 2022 by 7 November 2021. Provided the LPT is paid and the liability or payment method doesn’t change, no further returns will need to be submitted until 7 November 2025.
The full extent of “relevant residential property”
LPT applies to all “relevant residential property” in the State in use or suitable for use as a dwelling. The 2021 Act clarifies that for properties in excess of 0.4047 hectares (1 acre), it is those parts of any yards, gardens and other lands, which would be the most suitable for occupation and enjoyment with the dwelling, up to a total area (excluding the main residence) of 0.4047 hectares (1 acre), that is to be taken to form part of the residential property when ascertaining the chargeable value for LPT.
Chargeable values: bands and rates
In a move that’s widely expected to either maintain or lower the current tax payable in respect of most properties, the 2021 Act updates the applicable rates, introduces fixed charges at the lower end of chargeable values and widens the chargeable value bands otherwise. These new bands apply to the liability for years 2022 onwards and so are the relevant values to be taken into account in the returns to be submitted for 2022 on or before 7 November 2021.
Exemptions & Deferred Payments
Significant changes are made to the availability of exemptions from LPT. Two new exemptions are introduced: for properties built with defective concrete blocks and where a north-south implementation body is the liable person, but the following exemptions set out in the Finance (Local Property Tax) Act 2012 (the “Principal Act”) will no longer apply:
1. any property purchased during 2013 by a first time buyer; and
2. the exemptions linked to property being newly constructed, ie:
- newly constructed property purchased since 1 Jan 2013;
- unsold, unoccupied and non-income-producing trading stock of an owner/developer; and
- property in unfinished housing estates.
In addition, the exemption for properties adversely affected by pyrite will cease to apply for new applicants after the end of the 2-year period following the enactment of the 2021 Act.
While all other original exemptions remain available, the 2021 Act requires any liable person relying on an exemption to submit an application to Revenue in order to avail of it.
The possibility to defer an LPT payment remains, subject to satisfaction of certain conditions. Income thresholds to be met as part of these conditions have been increased under the 2021 Act.
Social Housing Transactions
The provision whereby properties in respect of which a local authority or an approved housing body (an “AHB”) is the liable person are deemed to be in Band 1, irrespective of the market value of those properties, continues to apply. Band 1 properties attract a standard LPT charge of €90 per annum. The Principal Act also provides that where the liable person in relation to a property changes during a valuation period, the chargeable value on the previous valuation date (as stated in or ascertained for the purposes of a self-assessment or a Revenue assessment) continues to apply until the next valuation date. Notably, the 2021 Act now provides that where a local authority or an AHB is the liable person before a transfer, such a transfer is excluded from the application of this provision. In this way the Band 1 valuation that applies to local authority or AHB properties ceases to apply to the property once sold and the purchaser must file a return and pay LPT based on the actual value of the property.
Significantly for owners and investors in residential property let or intended to be let for social housing, the 2021 Act provides that where a local authority or AHB leases a residential property from the owner of the property for a period of at least 20 years, it is the owner of that property and not the local authority or AHB, as would otherwise be the case, who is the liable person in relation to that property for the year 2022 and onwards.
Interaction with Revenue and the submission of returns
Several changes are made to the requirement to submit returns and interaction with Revenue. In addition to the requirement to submit an application to claim an exemption mentioned above, the 2021 Act requires returns to be delivered where liability changes during a valuation period; eg when:
- newly completed properties become chargeable
- exempt properties lose their exemption
- property is purchased from a local authority or AHB
It also entitles Revenue to collect certain information about the occupation of properties on a valuation date as part of a return and to make an estimate of an amount of LPT in advance of a liability date.
Revenue is also no longer required to accept all self-assessments in respect of properties valued at under €1 million that were valued in accordance with published Revenue guidance. Future LPT self-assessments will be subject to the usual Revenue compliance regime that applies to other self-assessed taxes.
With regard to the surcharge payable for non-compliance with either the requirement to submit a return or LPT, the 2021 Act reduces the current surcharge that is applied in practice, once a liable person is once again compliant, from 100% of the amount of a person’s LPT liability to 50% of the LPT liability.
Commencement & Operation
The 2021 Act was signed into law on 22 July 2021 and came into operation on the same date. Certain provisions, including the rate changes and the change to the liable person for social housing leases, are expressed to apply to the liability for the year 2022 and onwards. In this way they don’t affect or apply to this year’s 2021 liability but will be relevant to the return submitted in November 2021 for 2022. With November fast-approaching, the time to become familiar with the new requirements is now.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.