As widely anticipated, an annual property tax on residential property based on a properties market value has been introduced as the successor to the household charge which is now abandoned. The tax is named the “local property tax” and local authorities will have some discretion to vary the rate in the future. As publicised in advance, a two tier system will operate with a higher rate on more valuable residences. A rate of 0.18% applying for properties with a market value of less than €1m and a rate of 0.25% applying to that part of the value in excess of €1m.
The tax will apply on a self-assessment basis with the requirement to file a return in May each year. The tax itself will be payable by 1 July annually. A half year charge will apply for 2013 with the tax applying in full from 2014. For landlords, the non-principal private residence charge (NPPR) will also apply in 2013 in addition to the half year charge of the local property tax. The NPPR charge will not apply from 2014 onwards.
The Revenue Commissioners will collect the tax, and methods for submitting returns electronically and in paper form will be available. It is estimated that the tax will yield annual revenue of €500m. In the context of inevitable tax increases the tax is preferable to increased taxes on income and provides a more sustainable form of revenue from property assets in comparison to stamp duty.
In advance of the budget it had been expected that some change to the rate of capital acquisitions tax and the level of tax free thresholds for capital acquisitions tax would arise. What was not expected was any further increase in the rate of capital gains tax. The prevailing view being that the higher the rate of capital gains tax, the potentially lower the number of transactions that may arise, with a consequential impact on the revenue yield. Both taxes have been increased by 3% to 33%. While the increase in the capital gains tax rate may be unexpected, the corresponding increase for capital acquisitions tax must be viewed in the context of an anticipation of a potentially much higher rate which has not materialised.
The tax free thresholds for capital acquisitions tax have been reduced by 10%. Given the number and level of reductions in the threshold levels since their all-time high in 2009, one would hope that no further reductions materialise. The level of parent child tax free threshold is now at the same level as that applicable in 1995, which given the impact of inflation in the intervening period means in real terms a current threshold level which is much lower than that applying in 1995. On a positive business note no changes have materialised to the important reliefs applicable for business and agricultural property.