Mick Wallace
Question:44. Deputy Mick Wallace asked the Minister for Finance the reason behind the introduction of a deferral system as part of the local property tax; and if he will make a statement on the matter. [14058/13]
View answerThursday, 21 March 2013
Questions (44)
Written answers
In February 2012, the Minister for the Environment, Community and Local Government established an Inter-Departmental Group under the chairmanship of Dr. Don Thornhill – the “Thornhill Group” – to consider the structures and modalities for a full property tax. As part of their terms of reference the Thornhill Group were to consider the design of a property tax to replace the household charge which is equitable and is informed by previous work and international experience. In designing the tax the Thornhill Group were guided by, inter alia, the principles of simplicity, transparency, equity and efficiency. The Thornhill Group had due regard to issues such as ability to pay and considered the provision of waivers or deferrals for households unable to pay the tax or where a payment requirement would cause hardship.
When considering reliefs, the Thornhill Group had regard to the following issues:
- The arrangements for payment of tax due arising from the ownership of properties should have regard to the ability of the owners to pay.
- Reliefs create costs which have to be paid for – either by taxpayers not benefiting from them, or by reductions in public expenditure.
- Reliefs should be designed to address clear economic and social policy needs.
- Considerable care would need to be taken in designing reliefs to ensure that the gains from the reliefs are targeted based on need and that there are not unintended and inequitably distributed gains.
- The LPT will not be assessed on incomes.
The Thornhill Group favoured allowing voluntary deferrals rather than waivers. Deferrals focused on particular categories of householders can address cases where there is an inability to pay the LPT. Income related waivers were considered to be an inefficient and costly method of targeting reliefs. They run the risk of creating inequities between taxpayers in broadly comparable situations. Income related waivers also create poverty traps and employment traps resulting in work disincentives. As a general principle, eligibility for deferral should be based on gross income.
The Group also stated that, in current circumstances, an additional case can be made to target assistance on owner occupiers suffering severe financial stress as a result of housing mortgage commitments undertaken during the housing boom period, aggravated in some cases now by reductions in income. The Government agreed with the recommendations of the Thornhill Group with regard to income related reliefs. The Government decided, as a matter of policy, and in order to keep the rate of the tax low, that universal liability should apply, and that reliefs should be targeted at owner occupiers where there is inability to pay the tax.
The deferral thresholds in the Local Property Tax legislation were based on the recommendations of the Thornhill Group. In recommending the thresholds the Group had regard to analysis it commissioned from the ESRI. An income level of €25,000 for joint and co-owners/spouses/civil partners/cohabitees was recommended in order to enable most households in the lowest 40% of income levels to have the option of deferral. This is considered appropriate, having regard to the findings in the ESRI study regarding potential impacts on households and having regard to the need for balance and equity in terms of the burden thereby imposed on those with higher (but still average or below average) incomes. The ESRI report notes that increasing the income thresholds will have an impact on the rate of property tax that will be applied. As the income threshold increases the rate would also be required to increase to achieve the same revenue yields.
The Government accepted the gross income thresholds for a full deferral, as recommended by the Thornhill Group, and adapted the recommended gross income thresholds for a partial deferral so that they are €10,000 rather than €5,000 above the thresholds for a full deferral.
Accordingly, the Finance (Local Property Tax) Act 2012 (as amended) provides for the possibility of deferring the charge to LPT for individuals on low incomes in certain cases. To qualify for a deferral, the residential property must be occupied as a sole or main residence. The gross income thresholds for a full deferral will be €15,000 for a single person and €25,000 for a couple, whether married persons, civil partners or cohabitants. A person may claim a deferral if their gross income will not “as can reasonably be foreseen at the liability date” exceed these thresholds in that year.
An increased gross income threshold applies in the case of properties occupied as a sole or main residence and subject to a mortgage. In such cases, the gross income thresholds may be increased by 80% of the mortgage interest payments. A deferral option in qualifying cases in this regard will apply until the end of 2017 and will assist individuals currently in mortgage distress.
A deferral of up to 50% of the LPT liability will be possible where the gross income of the liable person does not exceed €25,000 for a single person or €35,000 for married persons/civil partners/cohabitants.
A deferral of 50% of the LPT will also be available where gross income does not exceed the above thresholds (€25,000 single, €35,000 couple) as increased by 80% of the gross mortgage interest payments that a liable person expects to make by the end of the year for which the gross income is being estimated. This type of deferral will also be available until 31 December 2017.
Where a liable person no longer satisfies the necessary conditions, amounts deferred prior to the date on which eligibility ceased may continue to be deferred. Interest of c. 4% per annum will apply to any amounts deferred. The deferred amount, including interest, will attach to the property and will have to be paid before the property is sold or transferred.
Gross income from all sources consists of total income before any deductions, allowances or reliefs that may be taken off for income tax purposes and includes income that is exempt from income tax and income from the Department of Social Protection but excludes Child Benefit.
I appreciate that some property owners may find themselves unable to pay Local Property Tax but do not qualify for a deferral under the income thresholds. For this reason, additional reliefs introduced in the Finance (Local Property Tax) (Amendment) Act 2013 provide that a person who has entered into an insolvency arrangement under the Personal Insolvency Act 2012 may apply for deferral of the LPT that is due during the period for which the insolvency arrangement is in effect. The 2013 Act also provides that a person who suffers both an unexpected and unavoidable significant financial loss or expense, as a result of which he or she is unable to pay their LPT without causing financial hardship, may apply for full or partial deferral.