Minister Donohoe announces changes to Local Property Tax
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From: Department of Finance
- Published on: 2 June 2021
- Last updated on: 7 September 2021
- Rate cut and bands widened for calculating LPT liabilities to ensure that most homeowners will face no increase when properties revalued on 1st November 2021
- Property valuations to be reviewed every four years
- New properties will be brought into the system each November
- Local authorities to retain 100% of LPT collected in their area
The Minister for Finance, Paschal Donohoe TD has today (Wednesday) published the Heads of the Finance (Local Property Tax) (Amendment) Bill 2021 following approval from Government at the Cabinet meeting yesterday. The Bill will give effect to a package of measures in line with the Programme for Government to address the future of the Local Property Tax.
Under the proposed changes to the regime the majority of homeowners are likely to see no change or a decrease in the amount they pay in Local Property Tax (LPT). Where increases arise, the majority will be by a single band (€90), notwithstanding significant increases in property values since 2013.
The rate of the tax is to be cut and the bands will be widened to make the changes affordable and to maintain the overall structure of the LPT.
The effect of these changes combined with bringing properties built since 2013 into the charge is projected to deliver a yield of €560million.
The Bill will provide that property valuations will be reviewed every four years, and will facilitate the regular addition of new properties into the LPT. All new properties built between valuation dates will be retrospectively valued as if they had existed on the preceding valuation date and become liable on the next liability date (1 November). This will maximise the LPT base and ensure equity.
Speaking about the proposed changes to the regime, Minister Donohoe said:
“Together with my Government colleagues, I have worked to find a methodology that will deliver on our commitment in relation to local property tax, that most homeowners will face no increase. We have decided to both cut the rate of the tax and widen the bands to make the changes affordable. This means that the majority of homeowners are likely to see either a decrease or no change. Where increases arise, the majority will be a single band (€90), notwithstanding the significant increases we have seen in property values since 2013. We have maintained the overall structure of the tax which is broadly understood and accepted.
The next step is to prepare the necessary legislation to implement these changes to allow Revenue make the necessary preparations for the valuation of residential properties and the introduction of the new charging structure.”
It is the Minister’s intention to have the Bill enacted before the summer recess to enable the Revenue Commissioners to make the essential technical and administrative preparations to implement the various changes to the LPT regime in advance of the valuation date of 1 November 2021.
ENDS
General Scheme of the Finance (Local Property Tax) (Amendment) Bill 2021
Notes to Editors:
Background to LPT:
The Local Property Tax was introduced in 2013 to provide a stable funding base for local authorities and to deliver significant structural reform by broadening the tax base in manner that does not directly impact on employment. The tax was calculated based on the valuation of the property on the 1st May 2013 with the next valuation date set for 1st November 2016.
In 2015, a review of the LPT was conducted at the request of the then Minister for Finance in light of property price developments since its introduction in 2013. The report recommended, and the Government agreed to postpone the revaluation date to 1st November 2019.
The Minister for Finance initiated a further review in advance of the 2019 revaluation date to seek to reform the tax to achieve relative stability in LPT payments for homeowners given the substantial increase in property prices seen since the introduction of the tax. A further deferral of the revaluation date occurred to 1st November 2020 which provided time for the Minister and officials to engage with the Oireachtas Budgetary Oversight Committee to consider the 2019 review and for the committee to issue its scrutiny report in September 2019.
The Programme for Government published in June 2020 committed to:
- bring forward legislation for the LPT on the basis of fairness and to ensure that most homeowners will face no increase.
- bring new homes, which are currently exempt from the LPT, into the taxation system.
- All money collected locally will be retained within the county.
The time taken for Government formation following the February 2020 General Election delayed decision making in relation to the future of the LPT. The initial focus of Government was on the response to the COVID-19 emergency. The pandemic also introduced significant volatility into the residential property market creating uncertainties as to whether 1 November 2020 was an appropriate point at which to determine property values. Furthermore, on a practical level it was not feasible for Revenue to arrange a valuation of residential properties within the time available in 2020. In the circumstances the Minister decided to defer the valuation for a year until 1st November 2021.
The proposed changes to the LPT regime announced today will be legislated for in the Finance (Local Property Tax) (Amendment) Bill 2021. The Revenue Commissioners will then make the essential technical and administrative preparations in advance of the valuation date of 1st November 2021.
New basis for calculating taxpayers’ LPT liabilities
The 2019 LPT Review analysed five scenarios in detail broadly based on a €500 million target yield excluding any local adjustment factor (“LAF”).
A key challenge encountered during both the work on the 2019 Review and the more recent analysis is the significant variation of property price increases geographically, and in particular the uneven pace and rate of increases in residential property values throughout the country since the original valuation on 1 May 2013.
A fundamental principle that informed the design of the LPT in 2012 was simplicity for taxpayers and for Revenue who collect the tax. In that regard the new basis for calculating LPT liabilities builds on the existing band structure and is a variation of Scenario 5 of the 2019 LPT Review.
The new approach maintains the number of bands at 20. Band 1 is expanded from €1 to €200,000 and Band 2 contains values in the range €200,000 to €262,500. The LPT charge is fixed at the current charge for Bands 1 & 2 (€90 and €225 respectively).
The other bands are widened by 75% to create bands of €87,500 (increased from the current range of €50,000). For properties in bands 3-19, a mid-point rate of 0.1029% will be charged. Properties in bands 12-19 (between €1.05m and €1.75m) are charged a mid-point rate of 0.1029% on the first €1.05m and 0.25% on balance over €1.05m.
Properties in Band 20 are charged on individual property values as before (0.1029% on first €1.05m and 0.25% between €1.05m and €1.75m, and 0.3% on balance).
New Band Structure:
| Current Band Structure | Proposed | |||
| Band | Charge | Band | Charge | |
| 1 | 0 – 100,000 | 90 | 1 -200,000 | 90 |
| 2 | 100,001 – 150,000 | 225 | 200,000 -262,500 | 225 |
| 3 | 150,001 – 200,000 | 315 | 262,501 - 350,000 | 315 |
| 4 | 200,001 – 250,000 | 405 | 350,001 -437,500 | 405 |
| 5 | 250,001 – 300,000 | 495 | 437,501- 525,000 | 495 |
| 6 | 300,001 – 350,000 | 585 | 525,001-612,500 | 585 |
| 7 | 350,001 – 400,000 | 675 | 612,501 - 700,000 | 675 |
| 8 | 400,001 – 450,000 | 765 | 700,001- 787,500 | 765 |
| 9 | 450,001 – 500,000 | 855 | 787,501 – 875,000 | 855 |
| 10 | 500,001 – 550,000 | 945 | 875,001 – 962,500 | 945 |
| 11 | 550,001 – 600,000 | 1,035 | 962,501 – 1,050,000 | 1,035 |
| 12 | 600,001 – 650,000 | 1,125 | 1,050,001 – 1,137,500 | 1,190 |
| 13 | 650,001 – 700,000 | 1,215 | 1,137,501 – 1,225,000 | 1,409 |
| 14 | 700,001 – 750,000 | 1,305 | 1,225,001 – 1,312,500 | 1,627 |
| 15 | 750,001 – 800,000 | 1,395 | 1,312,501 – 1,400,000 | 1,846 |
| 16 | 800,001 – 850,000 | 1,485 | 1,400,001 – 1,487,500 | 2,065 |
| 17 | 850,001 – 900,000 | 1,575 | 1,487,501 – 1,575,000 | 2,284 |
| 18 | 900,001 – 950,000 | 1,665 | 1,575,001 – 1,662,500 | 2,502 |
| 19 | 950,001 – 1,000,000 | 1,755 | 1,662,501 – 1,750,000 | 2,721 |
| 20 | Over €1m | 1,750,001+ | 2,830+ | |
| Rate = 0.1029 (fixed charge in first and second bands) |
Based on economic modelling, the table below gives the expected (not guaranteed) outcomes of the above approach. It is not possible to capture the full complexity of the property stock or price changes since 2013 and therefore not possible to provide guaranteed outcomes..
| Decrease | No change | Increase up to €100 (Generally one band) | Increase over €100 (Generally two bands) | Yield |
| 11% | 53% | 33% | 3% | €560m |
Regularly bringing new properties into LPT
All new residential properties built between valuation dates will be retrospectively valued as if they had existed on the preceding valuation date. New properties becoming liable for the LPT charge at the next liability date (the following 1 November) will be valued at the previous valuation date (1 November 2021) and Revenue will provide assistance to property owners to determine this value. This will maximise the LPT base and ensure equity.
The number of properties built since 2013 to be brought into the charge, (both previously excluded properties, and exempt properties) are estimated to be in the region of 100,000.
Property valuations every 4 years
The Bill will provide that property valuations will be reviewed every four years, rather than the current 3 years. This will provide a balance between the timely capture of changes in the property market and the need to limit compliance and administration costs. It also assists the regular addition of new properties into the LPT charge.
Exemptions
From its inception the LPT has been underpinned by the principle that keeping the number of exemptions low helps to keep the tax rate low for those who are liable to pay it. The exemptions for first-time buyers who purchased property between 1 January 2013 and 31 December 2013 and homes in ‘Ghost estates’ will be allowed to lapse and the temporary exemption in respect of pyrite damaged properties in certain eastern counties and Limerick will be phased out.
In relation to pyrite damaged properties, the Government has been very active in this area and has provided significant sums to fund pyrite remediation as well as providing LPT relief to qualifying homeowners. Since 2014 approximately €166 million has been provided for the pyrite remediation scheme. 2,816 applications have been received under the Scheme and, so far, 2,380 dwellings have been included. In 2020, 1,866 properties were LPT exempt under the pyrite exemption.
In recognition of the stressful situation facing homeowners affected by pyrite and mica in counties Donegal and Mayo, a temporary exemption from LPT will be provided for homes in those counties that have been damaged due to the use of defective concrete blocks in their construction and are eligible for the Defective Concrete Blocks Grant Scheme. This exemption will operate in a similar way to the existing exemption for pyrite damaged properties.
Currently properties vacated by their owners due to illness can be exempt from LPT. This exemption applies only where the property is not occupied by another person. It is proposed to remove this condition so that owners in these circumstances who make their property available for occupation will be exempt from LPT. In addition to freeing-up residential properties for rental this measure will also enhance security of the premises and assist the maintenance of homes for vulnerable individuals.
Deferrals
It is proposed that the income thresholds for LPT deferrals be increased to €18,000 (from €15,000) for a single owner and €30,000 for a couple (from €25,000) as recommended by the 2019 Review Group. The rate of interest on deferred LPT will also be reduced from 4 per cent to 3 per cent.
Other measures
The Bill will also contain a number of measures intended to improve the administration of the tax and amendments in the nature of minor technical adjustments. These involve minor changes to definitions and requiring exempt properties to file returns etc.
Illustrative examples
The below examples are illustrations of applying the above new bands and rates to non-representative properties in different geographical areas. They are not indicative of the typical property in the given area or of how much a house of similar value in 2013 will necessarily have appreciated in the interim.
A. House in Dublin
Valued at €260,000 in 2013, Current estimated value €445,000
Increase in value approx. 71%
Remains in Band 5 Liability €495
B. House in Cork
Valued at €235,000 in 2013, Current estimated value €300,000
Increase in value approx. 28%
Liability – drops from Band 4 to Band 3 Liability decreases from €405 to €315
C. House in Midlands
Valued at €80,000 in 2013, Current estimated value €186,500
Increase in value approx. 133%
Liability – €90 Remains in Band 1
D. House in Galway City
Valued at €123,000 in 2013, Current estimated value €240,000
Increase in value approx. 95%
Liability – €225 Remains in Band 2
E. House in Dublin
Valued at €250,000 in 2013, Current estimated value €475,000
Increase in value approx. 90%
Liability – Increase from €405 to €495 Band 4 to Band 5
F. House in Border county
Valued at €65,000 in 2013, Current estimated value €140,000
Increase in value approx. 115%
Liability – €90 Remains in Band 1
G. Higher Value property Dublin
Valued at €1.105m in 2013, Current estimated value €1.6m
Increase in value approx. 45%
Liability – increase from €2,063 to €2,502 (Move from Band 20 to Band 18)