Whilst Europe’s Finance Ministers clap themselves on the back for averting a short-term crisis in the Euro-area, they must still confront the yawning gaps between state income and expenditure which is contributing to ever-spiralling deficits. One often cited source of additional income in Ireland may be a general property tax. External bodies like the OECD have recommended we put such a tax in place and of course a general property tax would widen the tax net which appears to be an objective of our own Department of Finance. Before assuming the role of Chairman of NAMA, Frank Daly made a significant contribution to the future of taxation in the State with his Commission on Taxation Report in 2009. There are detailed recommendations in the report but possibly the most headline-grabbing is a 0.25% tax that would raise over €1bn annually. With a further €3bn (at least) to come out of the national deficit next year, this type of tax may well be high on the government’s prioritised options in November. This entry takes a brief look at how some of our neighbours handle property tax.
As our neighbour’s political parties dance a gavotte before they’ll see who ends up governing, it is perhaps timely to examine one of the party’s manifesto policies on residential property. The Liberal Democrats promised a mansion tax in their 2010 Manifesto which was to apply to properties valued by the UK’s existing Valuation Agency at over £2m. Only the excess over £2m was to be taxed at 1% per annum eg a property worth £2.1m would pay 1% on £100,000 each year. The Lib Dems that every 1 in 400 properties in the UK is worth over £2m and that the tax applied to 70-80,000 properties each year would yield £1.7bn in 2010 alone. Further information on its application is available here. Of course the UK has a community charge of about €1-2,000 per annum for all properties at present which goes to fund local services.
The United States – after construction costs, the main cost of owning a property and can be upto 5% of property values. However, as always with comparisons, whilst the headline rate may look high it should be examined alongside income taxes which are relatively low and in many parts of the US, property tax funds schools and hospitals.
Greece – our Mediterranean cousins and next-door neighbours in PIGS have an annual property tax for property worth more than €243k (single person) or €486k (couple). It averages about 0.5% per annum on the excess over the two minima above. In addition there is a twice monthly payment in their electricity bills which amounts to about 0.25% of the property value each year. There is talk of a further mansion tax that would target properties worth more than €800,000.
Ireland – we abolished residential property tax in 1997. The tax applied to property that was owned and occupied on 5th April each year. In the last year of operation the rate that applied was 1.5% to the excess over IR£101,000 (equivalent to €310,000 today using the Permanent TSB/ESRI national indices, 38 in Q1 1997 and 91.9 in Q1 2010 and an exchange rate of €1=IR£0.7876) AND the household income must have been greater than IR£30,100 (very roughly equivalent to €80,000 today applying wage inflation from various CSO sources). We presently have a new non principal residence tax of €200 per annum which has taken in close to €70m in the last 12 months.
One way or the other we will need cut our deficit next year by €3bn and given the commitments given on public sector pay, a new property tax looks probable. We could have a mansion tax or a more general residential property tax. Personally I would like to see a specific landbank tax and possibly mansion taxes introduced before a more widespread property tax ever saw the light of day.
NAMA Wine Lake 