Introduction

We refer to the consultation which opened on 20 April and we note the focus of the consultation process and the particular areas on which views were requested.

CCAB-I was active in promoting an understanding of Local Property Tax and worked with its members towards creating a high degree of public awareness and facilitating high compliance levels. Over the span of the existence of the tax thus far, significant compliance levels have been largely achieved.

Local Property Tax is a small but important contributor to net tax receipts – typically in the order of 1% – which is low in comparison with other EU member states operating similar property taxes on residential accommodation6. There is no suggestion in the consultation document that the continued existence of local property tax is in question. Indeed studies from the OECD state that the continuation of a recurrent property tax is important for Ireland to protect against fiscal uncertainty7. That being the case, it is essential to ensure that the basis for levying the tax remains secure.

2. Providing a basis for future review as property values vary over time

It is commonplace that taxes are derived from the underlying values of the assets, goods or services on which they are levied. The capital gains tax take is largely dependent on the underlying capital value of the assets subject to CGT; excise duty on fuel oil is contingent on international markets. There is therefore no particular issue with continuing to levy a tax by reference to property values, provided that a consistent approach is taken which is compatible with the Irish constitution. In this regard, the base date of May 2013 for the valuation of property for LPT purposes is now seriously out of date.

Previous Irish court challenges have succeeded on the basis that is unconstitutional to operate tax based on historic out of date property valuations8. For that reason, we advocate that the database of property valuations be regularly updated, and we understand that this suggestion is in line with the Thornhill recommendations. Because the property valuation process to date has been largely self-assessment based, supported by tools such as the Residential Property Price Register, it should be possible to increase the valuation frequency to a period of either 3 or 5 years without an undue burden on the Revenue Commissioners and taxpayers alike. Regular revaluation is necessary, because property values can fall as well as rise. While there are concerns at present that local property tax is being levied by reference to prices at the nadir of the market in 2013, a market which has since recovered, it remains a possibility that valuations can fluctuate in future to a similar extent.

3. The relationship between property price movements and tax liability

The overall quantum of local property tax; currently approximately 1% of total Exchequer yield, is a matter for government. If a more frequent valuation is adopted, a consistent LPT yield can be achieved by adjusting the prevailing rates of local property tax downwards to ensure that the multiple of the property price and the appropriate rate results in an aggregate tax yield proportion appropriate to the total Exchequer yield.

While local authorities currently have it within their gift to modify the prevailing LPT rate within specified parameters, the main prevailing rate should continue to be set by central government. Only in this way can all local property taxpayers be satisfied that their burden will be equitable relative to the charge on the rest of the country.

4. Mechanisms for assuring relative revenue stability and providing a level of certainty in terms of liability for 2020 and beyond

As mentioned above, we suggest that government set a target percentage yield as a proportion of the overall tax yield for local property tax across anextended period of time, perhaps a decade. This percentage would be achieved by regularly reviewing and modifying the annual local property tax rate applicable, to ensure that the overall local property tax yield approximates to the percentage of the tax yield (currently 1%).

5. Considerations around continuing to operate the current range of LPT exemptions and deferral options

CCAB-I broadly concurs the recommendations in the Thornhill report in this regard. We do however make one important exception. We do not believe it is appropriate in the context of a review of LPT to exclude deductibility of LPT paid in the tax computation of Schedule D, Case V income of landlords.

Landlords are an essential feature of a fully functioning residential property market. The current shortage of supply of residential rental properties9 is driving upward pressure on rental prices and making it difficult for prospective tenants to find affordable homes. A key factor in the decision of landlords to exit the residential property market is the difficulty in achieving a reasonable return from the rental activity when debt repayments, costs of regulation and the high tax burden are considered.

In separate consultations to the Department of Finance, we have identified the necessity to re-design Schedule D, Case V tax rules to align more closely with the normal Schedule D, Case I/II trading and professional income rules. The deductibility of LPT payments should be considered in the context of a redesign of the tax rules on letting income, a redesign which is increasingly urgent given the crisis in the availability of rented residential accommodation in the Irish market at present.

The Government gave a commitment to provide a tax deduction for LPT as soon as public finances allowed in 2013.10 However the Thornhill Report published in 2015 advised against a tax deduction on the grounds that it is inequitable to the LPT system to allow landlords or homeowners a deduction. Whether or not LPT is deductible in arriving at assessable rental income is irrelevant to the design of LPT itself. It is instead pertinent to the design of the taxation of rental income.

LPT is a considerable cost directly linked to the provision of residential rental property. The housing crisis demands that immediate steps be taken to stem the reduction in rental housing stock and a LPT tax deduction against Case V profits is essential for the purposes of making residential rental ventures commercially viable.

Source: Chartered Accountants Ireland. www.charteredaccountants.ie

6 In Europe, the highest recurrent property taxes can be found in the France (3.2 % of GDP), the United Kingdom (3.1 %) and Greece (2.7 %). The EU average is 1.6 % of GDP. Recurrent property taxes in Ireland was 0.7% of GDP in 2015 – Taxation Trends in the European Union, 2017 Edition

7 P10. OECD Economic Surveys – Ireland, March 2018

8 Brennan V Attorney General, (SC, 1984), ILRM 355

9 The number of properties available to rent in the first four months of 2018 was 3,200, down from the previous two years (3,800 and 3,900) and well below the 16,000 in 2012. In 2009, almost 21,000 properties were available to rent during the fi rst four months of the year. Daft.ie Rental Price Report, An analysis of recent trends in the Irish rental market 2018 Q1

10 Minister Michael Noonan stated in July 2013 “The inter-departmental group, chaired by Dr Don Thornhill, which considered the design of a property tax (the “Thornhill Group”) recommended that the Local Property Tax (LPT) paid in respect of a rented property should be deductible for income tax or corporation tax purposes, in a similar manner to commercial rates. The Group recognised the considerable pressures on the public fi nances and the need to bridge the gap between expenditure and revenue, and therefore suggested that consideration be given to phasing in deductibility over a period of years. The Group also considered that it is for Government, having regard to the prevailing budgetary situation, to decide on the time span for phasing-in deductibility and on what percentage of LPT to allow as a deduction from gross rents for tax purposes. The Government accepted the recommendation of the Thornhill Group on this matter but has not considered the manner or the timing in which this will happen.”