Property Tax – what they didn’t tell you

The Revenue Commissioners can inspect a property for the purposes of determining its chargeable value. This represents the first time that Revenue has been given powers to enter the private dwelling of an individual.
The Revenue Commissioners can inspect a property for the purposes of determining its chargeable value. This represents the first time that Revenue has been given powers to enter the private dwelling of an individual.

Living over your pub is obviously convenient but it’s about to become a lot more expensive. Enid O’Dowd explores the implications of the new Property Tax for live-in publicans – and the rest of us.

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15 March 2013

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Now, thanks to the so-called Local Property Tax, hard-pressed publicans already living over their premises and already paying commercial rates, refuse and water charges, additionally face the new Property Tax to ‘pay’ for local services they already pay for.

Taoiseach Enda Kenny said in a radio interview recently that 65% of funds collected in any area would go to the local authority.
Question: if it is, as the government insists, a local property tax why isn’t 100% going to the relevant authority?

Valuing the residential part
Publicans will have to put a value on the residential part of the pub, a very difficult thing to do especially with pubs and property being very slow to sell. A pub with residential accommodation is generally only of interest to pub families. Drinks Industry Ireland asked the Revenue Commissioners for guidance.

They responded: “If the residential part of the pub is not included for the purposes of commercial rates, the amount of local property tax will be based on the ‘chargeable value’ of that part. This is essentially the price that the unencumbered fee simple of a residential property, or the residential part of a property might be expected to fetch in a sale on the open market were that property to be sold on the valuation date of 1 May 2013 in a manner that would secure the best possible price for the property. Such an open market sale would also require the retention of the benefit of any access to the property that would have existed prior to the sale.”

So now you know!

An internet search of asking prices for pubs with residential accommodation produced wide variations; the cheapest was a two-story building in Cork City at €175,000 and the most expensive was in Cavan at €1,200,000. This had four-bedroomed accommodation. Other prices included one in Athy at €599,950, one in Ballinasloe at €490,000, Carlow at €450,000 and an 11-bed roomed property in Ballymore Co Laois at €185,000. The bedrooms “need renovation”.

The Property Tax Bill

The Property Tax Bill was rushed through the Dail just before it closed for our politicians’ long Christmas break. Many people don’t realise it’s now on the statute book and it has draconian powers. For example the Revenue Commissioners can inspect a property for the purposes of determining its chargeable value. This represents the first time that Revenue has been given powers to enter the private dwelling of an individual.

Limited exemptions to the tax exist.

Payment can be deferred in cases of very low income until the property is sold or the owner dies but the deferred property tax bill attracts 4% interest. To get full deferment, a single publican would need a gross annual income of less than £15,000 and a married one less than €25,000. Fifty per cent deferment is possible if income is not more than €10,000 above those limits which can be increased by 80% of any mortgage interest being paid.

Given declining pub incomes some publicans might fall within these limits but remember you pay on sale or death plus interest.

Deferral of Property Tax

Calculating your income for deferral for Property Tax purposes is not straightforward. The Revenue Commissioners told Drinks Industry Ireland, “It will be determined on the liability date for that particular year. The liability date for 2013 is 1 May 2013 and for all later years is 1 November in the preceding year. The person (including a self-employed person) should calculate his or her gross income from all sources on the liability date and estimate the gross income for the remainder of the year. For example, when deciding whether you qualify for a deferral in 2014, you must calculate your gross income from all sources to 1 November 2013 and estimate what your gross income is likely to be for the remaining two months. The actual gross income figure will of course be included in the subsequent Form 11 filed with Revenue, information from which feeds into our risk analysis system”.

Capital allowances or pension contributions are not allowable deductions in calculating gross income for Property Tax deferral.
Where publicans have let the residential accommodation above their pub they’re also liable for the Property Tax. While they can try to pass the tax onto the tenant, this will depend on the lease agreement they have, when that expires and whether the tenant is willing to pay an increase to cover the Tax.  If they can’t recover it by increasing the rent appropriately, they can’t charge the Property Tax against their rental income even though they can charge the Rates on the pub against pub income.
However, Finance Minister Noonan signalled in the Dail on 16th January that he intends to introduce a provision to allow a deduction against rental “on a phased basis”. We’ll believe that when it happens!

Appealing Property Tax

The tax comes into effect from 1st July 2013. This month, the Revenue Commissioner are writing to residential home owners enclosing a return form, explanatory booklet and informing them what they consider is the indicative value of their residential property. You don’t have to accept this valuation but to use your own may involve engaging a professional valuer.

Hard copy returns must be filed by 7th May and online returns by 28th May.  

The Revenue Commissioners Information leaflet  ‘Frequently Asked Questions’ issued on 3rd January supposedly explains everything you need to know about assessing the value of your property.
Properties will be valued at the mid-point of €50,000 bands. Thus if your property is worth €305,000, it will be valued at the mid-point of the €300,000 – €350,000 band – ie at €325,000. Likewise, if your property is worth €295,000, it will be valued at the mid-point of the €250,000 – €300,000 band – ie €275,000.
The tax payable is the valuation x 0.18%.
 
Forcing payment

Payment for this Tax can be deducted from state payments such as pensions without your permission.

And Revenue may direct the publican as an employer to deduct Property Tax from a barman’s pay even when your employee has not given specific permission for this deduction.

Another point to note is that if your Property Tax return is late your Income Tax return (due later in the year) will be deemed to be late resulting in a surcharge on your Income Tax liability, including a surcharge on the Income Tax already paid.

And Tax Clearance Certificates will not be issued where the Property Tax return is submitted late.

There is a maximum penalty of €3,000 for non-submission of a return or not including all the required information in the return. Up to €3,000 may be charged to anyone knowingly making a false statement to reduce this Tax.

The property tax replaces the controversial household charge. Chartered Tax Adviser David Fitzgerald (www.taxperts.com) told Drinks Industry Ireland that anyone who did not pay the Household Charge will find that this converts to a tax of €200 on July 1st.

“The implication of this is that non-payment of the charge now becomes a non-payment of tax,” he says, “This in turn can mean that your normal tax return is rendered incomplete with all the consequences of penalties, interest etc for a late/invalid return. Such returns carry penalties of 5% or 10% of tax due but it should be noted that the 5%/10% penalty will apply to all tax due, not just to the underpaid amount”.

Finally, a most depressing thought: after paying the tax, your customers will have that much less money to spend in your bar.

 

 

 

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