Buyers face up to €180 property tax hike

Thousands of homeowners, encouraged by the Government to get on the property ladder when the market was on its knees, face significantly higher property tax bills than the rest of the country as a result of a valuation anomaly.

First-time buyers who bought homes since 2013 will be forced to pay up to €180 extra in Local Property Tax (LPT) when an exemption designed to stimulate the market comes to an end next year.

Some 11,000 first-time buyers who availed of the exemption now find themselves at risk of falling into the valuation trap as a result of the tax being applied to a current valuation of their home, as opposed to at 2013 levels which were up to 40% lower in some areas.

A further 4,000 buyers of second-hand homes to whom the exemption was not originally intended to apply to, but later did, find themselves in the same boat of facing larger than average bills.

Property prices in parts of Dublin have climbed by 40% since May 2013, while an average rise of 26% has been seen across the country.

A first-time buyer in Dublin whose home would have been valued at €190,000 in 2013, resulting in a bill of €315, will instead have to fork out €495 to take into account the 40% increase in the value of their home if the anomaly is not addressed.

Those with a home valued at €220,000 in 2013 terms will now have their property valued at €308,000 — also a jump of two valuation bands with an additional cost of €180 — resulting in a bill of €585 rather than €405.

Similarly, if the 26% increase is applied the first-time buyer in each case will have to pay €90 more than if they were on an equal footing with everyone else.

With ratings agency, Standard & Poor’s predicting property price growth of 9% this year and 5% in 2016, the difference could be even starker by the end of next year when the exemption ends.

The prospect of the valuation trap has come into focus in the wake of the Government’s indication that it is likely to freeze property taxes in a bid to curry favour with the electorate ahead of the general election.

With homeowners across the country facing huge hikes in their property tax bills should the planned re-evaluation of homes in 2016 go ahead, Finance Minister Michael Noonan has moved to ease such fears.

Mr Noonan recently pledged that homeowners would not face any “shock increases” next year, adding to earlier reports that bills would be frozen until at least 2018.

The indication was greeted with a sigh of relief by the vast majority of homeowners but leaves a small cohort of first-time buyers who don’t have a 2013 valuation of their home — on which to base their LPT payment once their exemption ends — in the lurch.

Freezing the majority’s LPT bills would essentially create a situation whereby those first-time buyers enticed into the market, at least partly by the carrot of the exemption, would have to shell out far more than their neighbours for the same charge from the start of 2017.

Fianna Fáil finance spokesman Michael McGrath said such a scenario would be unfair on the thousands of homeowners set to be landed with higher bills and called on the Government to address the issue.

“From 2017 these households will be liable and it would appear they will have to pay based on their value in 2016. While these homeowners benefitted from being exempt for up to three years, they may end up paying 40% more in 2017 based on the increase in property prices in the meantime. This should be addressed to ensure equity in the system,” Mr McGrath said.

A spokesperson for the Department of Finance said no official decision has been made on whether or not to freeze households’ property tax bills.