What Self-Employed people need to know about the Local Property Tax

Perhaps having learned some lessons from the high level of resistance to, and non-payment of, the Household Charge, Revenue have approached the issue of taxpayer compliance to the new Local Property Tax (LPT) differently and have made every effort to ensure this tax will be collected.

It is crucial for self-employed persons to be aware of how the provisions of the LPT may affect them. Hugely important to take note of is the fact that Revenue has linked the submission of a LPT return to the submission of annual income tax returns.

As you will probably be aware, a late filing surcharge applies if you are late in filing your income tax return. This surcharge is calculated as a percentage of your tax liability. A 5% surcharge applies where your income tax return is submitted no more than 2 months after the deadline. This increases to 10% where the return is more than 2 months late.

Revenue has now linked the late filing of a LPT return to the filing of an income tax return. This means that if you do not file your LPT return, your income tax return will be deemed to have been filed late, even if it was not. This will trigger a late filing surcharge to be raised on your income tax return.

No tax clearance certificates will be issued to individuals where there is an unpaid LPT. If you need a tax clearance certificate to be able to deal with certain customers (such as under a Public Sector contract), you will need to be very conscious of the impact that non-payment of the LPT could have on your business.

If you are due any other type of tax refund, unpaid LPT may be offset against your refund.

If you are in receipt of any kind of social welfare payment, the LPT may be deducted directly at source from the payment.

As will also be the case with PAYE workers and other individuals, the Revenue now also has the power to attach the amount of LPT due to your bank account. This means that they have the power to take unpaid tax amounts directly out of the bank accounts of people who do not pay the tax, by ordering a bank to hand over the money from the person’s bank account.

Finally, as will be the case with all property owners, PAYE or self-employed, unpaid LPT will be added as a charge to your property. This means that you will not be able to sell your property until you have paid all LPT outstanding on it, plus interest due and also penalties where appropriate.

It seems that the Revenue has put a lot of thought into ensuring compliance with the LPT. There are very few places for people to hide and costly consequences for those who may try.

Contact Details:

www.fenero.ie

01-6877400

info@fenero.ie

Overview of the New Local Property Tax

Overview of the Local Property Tax

The new local property tax will tax effect from 1 July 2013. The property owner will be liable to the tax (and not tenants where the property is rented). Co-owners will be jointly and severally liable for the tax. A half-year payment will be charged in 2013 and a full year payment will be due from 2014 onwards.

The tax will be charged at a rate of 0.18% on properties valued at less than €1 million and at a rate of 0.25% will apply to any excess value over €1 million. Importantly these rates will be known as the “central rates” but from 2015 onwards, local authorities will be able to vary the rate of these “central rates” by up to +/- 15%. Therefore different rates will apply depending on the local authority that you live under.

The amount of tax paid will be determined on a self-assessment basis. i.e. the property owner must establish the market value and calculate the applicable tax amount to be paid. The property tax will be collected by the Revenue Commissioners.

The Revenue will be setting up a dedicated Lo-Call number to deal with enquiries about the tax from 7^th January 2013.

How much tax do I have to pay?

The tax rate will be applied to the market value of your property to arrive at the amount of tax payable. However for the purposes of calculating the tax, property values will be organised into bands.

The first band is €0 - €100,000. Subsequent bands will be organised in values of €50,000 width up to €1 million i.e. the second band is €100,001 to €150,000; the third band is €150,001 to €200,000 etc. The tax liability will be calculated by applying the tax rate to the mid-point of the band. For example, if your property is valued at €130,000 it will fall into the €100,001 to €150,000 band. The mid-point of this band is €125,000. Therefore you will pay 0.18% on €125,000 (and not 0.18% on €130,000). An online calculator is available on the Revenue website to help you work this out at: http://www.revenue.ie/lpt_reckoner/index_en.html

How do I value my property?

In March 2013 the Revenue Commissioners will be sending out an explanatory booklet on the operation of the local property tax including procedures for arriving at the property’s market value. Property owners will also be free to use the services of an independent property valuer if they choose. The new Property Prices Register is also intended to assist people in valuing their property.

You will be required to determine the market value of your property as at 1 May 2013. This valuation will then remain valid for the purpose of your Local Property Tax Return for three years up to and including 2016. This will useful in that you will not need to repeat this exercise each year and also if you improve or renovate the property which may increase the property value before 2016.

However it is not clear from information currently available whether you can choose to revalue your property and resubmit details again before 2016 if you wish to – this would be important in the context of falling property prices.

You will be required to submit a Local Property Tax Return to Revenue stating your valuation either online or using a paper return (however if you own more than one property you cannot avail of the paper return option). Paper returns will be required to submitted by 7^th May 2013. If you are filing online you will have until 28^th May 2013.

Michael Noonan has advised that a number of methods will be used to identify valuations which are far below market value in an attempt to curb any tax evasion which might arise though the intentional undervaluing of a property. This includes a “heat map” showing the average market value of properties in a particular area. The idea is that if one property owner values their property substantially lower than their neighbours, it should be quickly flagged by the Revenue for further investigation.

The government have said they expect that 85% to 90% of properties will be valued at below €300,000.

Are there any exemptions to the Local Property Tax?

The exemptions to the tax will be broadly in line with those applied to the Household Charge. Additional exemptions will also apply to First Time Buyers and to new or previously unused properties.

Second hand properties purchased by a first time buyer in 2013 will be exempt until the end of 2016.

New and previously unused properties which are purchased from a builder or developer between 1 January 2013 and the end of 2016, will be exempt until the end of 2016.

How and when do I pay the tax?

The tax will be operated and collected by the Revenue Commissioners. You can choose to make one single payment or instead to spread out the payments in equal instalments between 1 July and 31 December 2013. If you are opting for one single payment by a single debit instruction, this will be taken from your bank account on 21 July 2013.

There will be a range of payment options including credit/debit card, direct debit and cash payment through certain providers. You can also opt for voluntary deductions at source meaning payment can be deducted from your salary or certain social welfare payments. If you do not elect for a particular payment method, the Revenue will automatically collect the tax at source.

Interest charges will apply to late payment of tax.

What if I cannot afford to pay?

For owner occupiers with a gross income of up to €15,000 (single) and €25,000 (couples), the tax can be deferred in full until financial circumstances improve or until the property is sold. For owner occupiers with a gross income of up to €25,000 (single) and €35,000 (couples), 50% of the tax can be deferred in full until financial circumstances improve or until the property is sold. However interest at 4% per annum will apply to all deferred amounts.

What about the existing Household Charge? And the NPPR tax on second properties?

The Household Charge will cease with effect from 1 January 2013 as this local property tax is to replace it. In addition the NPPR (non principal private residence) charge on second homes will cease with effect from 1 January 2014. Any unpaid Household Charge or NPPR taxes will remain as a charge on the related property however.

Disclaimer: Please note that the information provide above is based on detail announced in the Budget on 5^th December 2012 and is subject to enactment of the Finance Bill 2013.

Contact Details:

www.fenero.ie

01-6877400

info@fenero.ie

Landlords! Don't overpay taxes by underclaiming your mortgage interest payments!

If you have to file an income tax return in relation to rental income earned in 2009, you will probably be aware that the amount of allowable mortgage interest was reduced from 100% to 75% in 2009. What is less well known is that the reduction to 75% applies only from 7 April 2009 (Budget Day). You can therefore claim 100% of your mortgage interest up until this date.

A common misconception is that mortgage interest for the whole of 2009 must be reduced to only 75%. However by doing this, you are overstating your rental profits and overpaying tax.

As mortgage interest is the single largest expense which can be deducted against rental income, getting this wrong can cost you hundreds of euro in tax.

The illustration below shows how the allowable amount of mortgage interest should be calculated:

Total mortgage interest paid in 2009: €7,000

Apportioned between pre and post 7 April 2009:

Pre 7 April = 97/365 x €7,000 = €1,860
Post 7 April =268/365 x €7,000 = €5,140

The total €1,860 relating to the pre 7 April period can be claimed. Only 75% of the €5,140 relating to the post 7 April period can be claimed, reducing this amount to €3,855. This gives total allowable mortgage interest for 2009 of €5,715.

Had you just simply reduced the full €7,000 by 75% you would only be claiming €5,250.

So make sure that you are claiming your full expenses entitlement for 2009 and are not overpaying tax!

As an aside, for first time landlords, don’t forget to register your tenancy with the PRTB. You are not entitled to claim tax relief on mortgage interest payments at all without a valid PRTB registration letter. This can be a very expensive mistake to make.

For more tax saving tips and information, contact Fenero at info@fenero.ie or visit our website www.fenero.ie

Thinking of renting out your property?

If you have recently bought an investment property or you are thinking of renting out your own home, don't forget to do the following:

1. Inform the TRS section of Revenue that you have started renting out the property

TRS on mortgage repayments is not available on properties which are not your principal residence. If you forget to inform the Revenue and continue receiving TRS when you are not entitled to it, you can find yourself in a situation whereby you must repay all the TRS received in error. This can quickly add up and become costly. In order to inform the Revenue that you no longer wish to claim TRS, you must complete a TRS4 form which is available for download from www.revenue.ie

2. Register the tenancy with the PRTB

When you rent out your property you are required to register details of the tenancy with the PRTB within one month of letting the property. The cost of registering the tenancy is €70. If you fail to do this within one month, this cost of subsequently registering the tenancy increases to €140.

However, more important is the relationship between registration with the PRTB and claiming mortgage interest payments against your rental income. The singlest biggest expense which most poeple have to deduct against their rental income is the interest portion of their mortgage repayments. However, it is important to be aware that mortgage interest is only deductible where you have registered with the PRTB. Failure to register with the PRTB can therefore have costly tax implications.

More information can be found at www.prtb.ie

3. Pay the new NPPR tax

A new charge on "non principal private residences" was introduced this year. A payment of €200 is required to be paid to the local authority in respect of each NPPR. For 2009, this payment was required to be paid before 31st October. An additional charge of €20 per month is charged for each month that you are late in making payment.

Further information is available at www.nppr.ie . Payment can also be made online at this website.

4. Be aware of possible stamp duty implications

If you availed of a stamp duty exemption when you purchased your property, you should be aware of any possible clawback of this exemption which may arise when you rent out the property.

First time buyers can be exempt from paying stamp duty on the purchase of their first property, but this only applies when the property becomes the individual's main residence. If you are a first time buyer purchasing your first property with the intention to rent it out as an investment property, you are not entitled to the stamp duty exemption. If the property becomes an investment property within the first two years of ownership, a clawback of the stamp duty exemption applies and you may become liable to pay stamp duty on the property. Again, this can be an expensive outcome.

It is important to be aware of the possible tax implications that arise when you let a property. If in any doubt, contact Fenero.

Revenue to target unpaid tax on the sale of investment properties

The Revenue have decided to target unpaid capital gains tax (CGT) liabilities from the sale of investment properties. No CGT is usually payable on the sale of your main home, but it is due on the sale of second and investment properties. The Revenue have stated that they have obtained evidence that a significant number of individuals sold investment properties during 2008 without paying the CGT which was due.

Revenue have sent letters to an initial 7,000 individuals whom they understand to have sold an investment property during 2008. The letter outlines the law in relation to CGT on the sale of investment properties and other second homes.

If you sold an investment property in 2008, a CGT return and payslip should have been filed before 31st October 2009. However, the actual payment of the tax due should have been paid much earlier. If the property was sold between 1 January 2008 and 30 September 2008, the payment should have been made to the Revenue by 31 October 2008. CGT payments on the sale of properties between 1 October 2008 and 31 December 2008 should have been made by 31 January 2009.

The Revenue can charge interest on the late payment of tax at a rate of approximately 10% per annum. If you believe you may have an unpaid tax liability it is advisable to address this sooner rather than later in order to minimise potential interest charges.

The Revenue have prepared a set of FAQs to assist individuals to establish whether they may have a CGT liability. This can be found at:

http://www.revenue.ie/en/tax/cgt/mailshot-faqs.html

Free online digital marketing tutorials

A small Dublin based firm has recently started offering free online tutorials covering aspects of digital marketing.

The service is targeted at small businesses and start-ups who may lack basic knowledge of online marketing methods e.g. SEO, Twitter etc. Each tutorial is less than 3 minutes long in order to provide a quick and easy introduction and basic reference guide.

Here is what they have to say about themselves:

Digital Marketing School is a free online video resource for anyone who has an interest in the world of digital marketing, from a beginners level, right up to seasoned professionals.

We aim to help people with some of the basics, put some meaning behind the buzzwords, and give a broad understanding to newcomers of what is possible in the world of digital marketing
We’ll also be looking at more advanced areas, new evolutions in technology, and where the digital marketing industry is going in the coming years.

Each month, we’ll also have a guest speaker from the industry, discussing a digital marketing campaign that really captured their imagination.