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Budget 2022 – the introduction of a new Zoned Land Tax

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Ireland

The recent Budget contained further measures to promote the construction of housing.

Amongst these is the introduction of a zoned land tax, ( "ZLT") intended to replace the current equivalent - the Vacant Site Levy. ("VSL")
 
Widening the Net

The ZLT will affect any land zoned and serviced for housing no matter how small.

Against that, the current VSL only affects sites larger than 0.05 hectares and it was felt that this excluded many smaller urban sites which could play a role is facilitating rapid housing construction using existing access roads and services.
 
For the ZLT to apply most of the site must be;
  • vacant or idle for in excess of 12 months.
  • be zoned for residential or regeneration purposes,
  • be in an area in need of housing.
A lower rate than the failed VSL

The tax will be levied annually at a rate of 3% on the market value of land. Critics argue that at 3% the ZLT will operate at a lower rate than inflation and provide no real disincentive for landowners  who sit on undeveloped sites.

The current rate of the VSL is in fact 7% but it also started at a rate of 3% when it was introduced in 2018.

The recovery rate on the VSL has been very poor and the Government's intent on seeing a higher level of recovery of the ZLT is demonstrated by the fact that it will be collected by the Revenue Commissioners rather than the Local Authorities.

Delayed Implementation

The budget speech has made it clear that the ZLT will not apply for some time and it has been indicated that there will be a two-year lead-in time for land zoned before January 2022 and a three-year lead-in time for land zoned after January 2022.

A large part of the reason given for this long lead-in time is the large scale mapping exercise required whereby each local authority will draw up maps of the variously zoned lands in its area.

The devil in the detail

Much is still not yet known about how the ZLT will operate. For starters, there are many questions that arise in relation to the administration of the ZLT and the system of valuation and appeals. It may also be problematic to set a test to allow determination as to whether the site is in an "area in need of housing".

Similarly, what represents a "serviced" site? Would that include any site that directly connects into the public roads and services regardless of the adequacy of the public roads and/or utilities in the specific area. Would sites that require a right of way or wayleave from a third party land-owner be excluded entirely on that basis or will there be an obligation on landowners to demonstrate that efforts have been made to secure such rights?
 
An inspection of the Vacant Sites Register shows that the VSL applied to a very limited number of sites and the Government has defended what could be seen a reduction in the tax on land hoarding from 7% to 3% by saying that the ZLT will be a lot more-wide ranging. 

Whether or not the new ZLT achieves the objective of converting idle sites into new homes will very much depend on the devil in the detail.
 
Written by Paddy Smyth and Neil Dineen 

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