Government plans for freeze on property tax may be illegal warns Chartered Accountants Ireland
Brian Keegan, director of taxation at Chartered Accountants Ireland, said the legal challenge would be similar to that mounted in the 1980s over the old property tax based on rateable values because the Government plans to dismantle the existing local property tax system, but still use frozen valuations for years to come.
Finance Minister Michael Noonan signalled last month that property valuations from May 2013 will be used for an extended period to calculate annual property tax bills, before being replaced by a new property tax in 2019, at the earliest.
But Mr Keegan said all sorts of anomalies will likely arise, including new housing developments attracting higher tax valuations than neighbouring long-established properties.
Such anomalies raise the risk of a homeowner mounting a constitutional challenge.
“As residential property prices increase and more new houses are built, we may even see properties being marketed as being ‘pre-May 2013’, with lower local property tax valuations than new residences,” he told the Irish Examiner.
He also said plans to freeze the current tax regime without having a new tax structure in place could leave the Government open to a legal challenge.
On budget day last month, Mr Noonan published a report on the local property tax led by top former civil servant Don Thornhill. That report recommended it be replaced by a local council tax and a new way for local authorities to assess and allocate property tax revenues.
Mr Noonan signalled he favoured the freezing of the current tax based on May 2013 valuations to 2019, when it is envisaged the proposed new tax structure would be in place.
It would be up to the new government to decide whether to act on the Thornhill recommendations.
Mr Keegan said under the Constitution it is acceptable to freeze property tax values for administrative reasons to get any new tax up and running. But there will be no firm link between the existing and now frozen tax regime and the new proposals called for in the Thornhill report.
“No one wants there to be a big jump in local property tax bills from 2017,” he said. But a better way would be to taper down the tax increases with up-to-date valuations and remove “any constitutional question mark”.
The Irish Examiner has highlighted the unfortunate timing of choosing May 2013 as the base for the house tax valuations because it marked the lowest point house prices reached after plunging since 2007.
The architects of the local property tax had not envisaged that house prices — and therefore implied property tax bills — would soar as quickly as they did following the collapse of the property market, which was among the steepest ever recorded in the world.
This newspaper detailed last summer that a Dublin apartment valued in May 2013 at €225,000 was now worth 48% more, at €333,675. The tax bill on such a property was set to soar from the current standard rate of €405 to €585. A Dublin house worth €425,000 and assessed for a tax bill of €765 two years ago was worth €595,850 last summer. The tax bill on this property, based on any revaluation next year, would shoot up to €1,035.
Outside Dublin, tax bills would also rise, though less steeply than in the capital. A house worth €225,000 in 2013 outside Dublin was now worth on average €253,575. The bill on this property would climb to €495 from €405.
