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Changes in Local Property Tax

18/04/2016

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Ireland

Local Property Tax (LPT) was introduced by the Finance (Local Property Tax) Act 2012 and is a tax payable on a property based on the chargeable value of a residential property. The chargeable value is defined as the market value that the property could reasonably be expected to be sold for on the open market (“the chargeable value”) on the 1st May 2013 (“the valuation date”).Any unpaid LPT is deemed to be a charge on the property and the responsibility for paying the liabi...

Local Property Tax (LPT) was introduced by the Finance (Local Property Tax) Act 2012 and is a tax payable on a property based on the chargeable value of a residential property. The chargeable value is defined as the market value that the property could reasonably be expected to be sold for on the open market (“the chargeable value”) on the 1st May 2013 (“the valuation date”).

Any unpaid LPT is deemed to be a charge on the property and the responsibility for paying the liability, if left unpaid, will fall on the purchaser. It is therefore extremely important that evidence of payment of LPT for all liable years is provided to a purchaser on closing. On the closing of a sale, a vendor produces an LPT history receipt showing the history of LPT payments made since the valuation date and what valuation band was submitted. It is not uncommon to find that property owners have not submitted the correct chargeable value on their annual LPT return and arrears may arise.

LPT is payable on the 1st November (“the Liability Date”) every year, and it is the responsibility of the owner who resides in the property on the Liability Date to discharge the LPT for the full year. The LPT is then apportioned between the vendor and purchaser on closing, so that the vendor is refunded for the amount paid up to the closing date.

Changes in LPT

Since its introduction on 1st May 2013, the chargeable value of many properties has increased, which in turn has affected the amount of LPT payable on a property. If the chargeable value of a property has increased, the property owner has to apply for clearance from the Revenue Commissioners (“Revenue”). This process involves the owner submitting a completed form (“the LPT5 Form”) to Revenue, and based on the value submitted, Revenue may or may not grant LPT clearance in respect of the property.

In response to the increased market value of properties since the valuation date, Revenue has increased the values in which general clearance in relation to LPT applies.

In summary, the main changes regarding general clearance, which are effective from 1st November 2015, are as follows:

1. General clearance applies to properties sold for €300,000 or less, regardless of what chargeable value was submitted on the valuation date.

2.The margin by which the sale price exceeds the chargeable value on the valuation date has been increased:

  • for properties outside Dublin city and county, from 15% to 25%;
  • for properties in Dublin city and county, from 25% to 50%.

Example: A property owner selling their property in Dublin city or county can allow for an increase of 50% in the chargeable value of their property since the valuation date and as such, do not have to apply to Revenue for clearance provided the increased value falls within the 50% allowable margin.

3. The margin is further increased if a property owner has enhanced the property since the valuation date by carrying out construction/refurbishment work to the property. The margin is increased by the value of the works carried out.

Example:  A property situated in Dublin valued at €1,200,000 on the valuation date sells for €1,920,000. General clearance allows for a sales price of up to 50% more than €1,200,000 (i.e. €1,800,000). However, after the valuation date, the vendor carried out refurbishment works to the property costing €300,000. General clearance applies because the margin of €1,800,000 is increased to €2,100,000.

It is important that a property owner is in a position to furnish receipts verifying the cost of the work undertaken, if requested by Revenue.

4. The time period prior to the valuation date within which there must be evidence of a sale of comparable property to support the chargeable value submitted has been increased from 6 months to 9 months.

It is envisaged that the above changes will reduce the number of instances in which a vendor has to apply to Revenue for LPT clearance.

Budget 2016

It was announced in Budget 2016 that the re-valuation date for LPT will be postponed from 01 November 2016 to 01 November 2019. This means that property owners will continue to pay LPT based on the original valuations submitted back in 2013 until 2019. Legislation giving effect to these measures has not yet been enacted.