Every bi-monthly visit of the Troika, our EU/ECB/IMF paymasters, reminds us just how much – according to them – that we overspend, under-tax and pay ourselves.
On their most recent visit last week, they delivered the same message they have done for the past year: we are working very hard to complete every new set of homework, are passing our test results, but could still do better.
Money Express with Jill Kirby in association with Laya Healthcare. Read it first each week in the Leinster Express.
We were congratulated this time for the fact that a decision was finally taken to introduce a market value property tax from next year. That it was not to be a site value tax instead, which most informed commentators seem to agree would be more equitable and progressive, is of no interest to the Troika. They want their money back ASAP. They want us to bring our debt to GDP deficit down from 13% to 3% in the next three years, as agreed, when they put us on their financial life support package. The small details of how we get there is our problem.
Irish politicians being what they are, they’ve opted for the ‘simple’, quick property tax option – that is, to send inspectors around the country to value streets, neighbourhoods and hinterlands full of houses and/or check the latest sales data from the property registrar they’ve set up. Then they can tell the compliant taxpayer to slot their property into (probably) one of three or four value bands and then pay the assigned tax per band by a certain deadline.
Anyone who has registered for the household charge or second property charge will automatically go onto the property tax list.
HOW MUCH TAX The tax per value band will, I suspect, probably loosely work out at a percentage value of the property and that percentage will eventually rise to between 0.75% and 1% of the value, which is roughly in keeping with most Anglo/American type market value property taxes systems.
“After all, why should our lot try to invent the mousetrap all over again when the model already works in most of the US, Canada, Australia and plenty of European countries,” one mortgage broker suggested to me recently. “And of course when people start to protest, they’ll be reminded that this valuation is a lot cheaper than the council tax that applies in the UK and is paid by everyone – even people living in social housing.”
The politics of the property tax – how effectively back-benchers can influence their respective Fine Gael and Labour ministers - will also determine exactly who pays.
They will all want the unemployed, long term social welfare recipients exempted, including all pensioners earning below the tax free income limits of €18,000 for an individual and €36,000 for a couple, as well as all homeowners in arrears (over 100,000) and anyone who paid high stamp duty on houses they purchased during the property bubble years.
Since this will probably eliminate a vast number of households, it will be in your interests if you don’t fall into any of those categories, to at least make sure that your house, holiday home or buy-to-let property is as accurately valued as possible before the tax starts rolling out from next January.
In many countries, the property tax is capitalised onto the mortgage loan: if you have say the equivalent of a €1,875 tax fill on your €250,000 house (ie 0.75%) it is added to your mortgage (at €156.25 a month), is collected by the bank which then passes it onto the Revenue. Someone who doesn’t have a mortgage gets to pay their tax by monthly direct debit.
The government has yet to announce how the tax will be collected, but it is unlikely it will be collected along with all other self-assessment taxes at the October 31st end of year pay and file deadline.
Most estate agents are very happy to give people a free valuation of their homes (in the hope that you are selling), though the ‘free’ part might change if everyone decides they want it done for tax assessment purposes. Book early to avoid disappointment.
Also, you might want to read up on techniques homeowners around the world use to challenge what they believe are too high valuations of their homes. I googled, “how to challenge a property tax valuation” and 365,000,000 results appeared. They all say you need some evidence and perseverence to fight ‘city hall’.
If the government opts for the self-assessment tax bands there will be widespread undervaluation.
If they slot our homes into the bands and send out their own valuations then you will need your own independent valuation to challenge theirs plus other evidence: the rental yields of nearby similar properties to your own, for example.
A tried and tested open market formula to determine a fair value of a house is to take the annual rental yield, multiplied by a factor of 12 to 14 (that is, a reasonable number of years you would expect to recover its purchase price if you rented it out – the lower the factor the higher the rent you could charge).
A house in your neighbourhood, just like yours that commands a rent of €1,200 a month, or €14,400 a year, multiplied by say, 13 (years) is worth €187,200 to an impartial professional landlord.
Few of us are impartial judges of our own property values. We want them to be worth much more than they are. Nor is the government impartial: it wants our homes to be valued as high as possible so that they can collect as much property tax as possible.
Forewarned is forearmed.
Money Express with Jill Kirby in association with Laya Healthcare. Read it first each week in the Leinster Express