THE increase in the thresholds for residential property tax (RPT), announced by the Revenue Commissioners, may look fair enough. They are not.
The market value of a person's home has to be over £101,000 before the tax becomes payable this year. That is 7.45 per cent higher than the previous threshold of £94,000.
The tax is payable if the total income of the household exceeds £31,100. That is 2 per cent higher than the threshold of £29,500 in 1995.
What the Revenue Commissioners have done is in line with the provisions in the Finance Acts which provide for an automatic adjustment of the market value and income thresholds for the tax.
This is based on the index of new house prices and the consumer price index. The problem is that this year's thresholds are too low, so taxpayers, particularly those in the Dublin area, are likely to end up paying more tax on October 1st, when the tax becomes due.
The latest housing statistics, produced by the Department of the Environment, show a 9.2 per cent rise in new house prices between the third quarter of 1994 and the third quarter of 1995. That is well above the threshold. Apparently the Revenue Commissioners used December figures, which are expected to be published at the end of this month to arrive, at the 7.45 per cent increase.
However, the valuation date for householders is April 5th, 1996. Property prices have bounded ahead since December and some auctioneers reckon that house prices have risen by between 10 and 15 per cent, in the past 12 months, particularly in some parts of Dublin. This means that many Dublin householders face higher RPT charges.
That is inequitable. The index date for new house prices should be close to the valuation date. The Revenue Commissioners used to base the house valuation threshold on the March figures. However, it brought the date back to December to allow the threshold figures to be published earlier.
Why not go back to the old system? Alternatively, why should householders not be allowed to value their property in December, the same date as the index?
It could be argued that the income threshold also appears to be on the low side. The Revenue Commissioners used the annual inflation figure to mid February 1996. That was 2 per cent, which was the lowest level since February 1994. The Revenue Commissioners could contend that the 2 per cent is generous when contrasted with prediction of a fall to 1.8 per cent in the second quarter this year. . .
Fair enough, but that figure is expected to be its low point. After that it is likely to rise again and finish at 2.4 per cent at the end of the year. So the average for the year could be around 2.2 per cent. Would that not be a more appropriate figure to base the income threshold?
But nothing seems appropriate, or equitable, about RPT. It takes no account of the size of a mortgage on the property and more tax becomes payable if the property is improved. Further, it is biased against those living in Dublin.
Someone living in a housing estate in Dublin, for example, could be liable, while the owner of a large property in a rural location would be exempt because the value old his house is below the threshold.
Last year 19,500 householders paid £9.5 million RPT. Dublin householders accounted for a whopping 74 per cent of the number of taxpayers and 77 per cent of the value. This gives some credence to the view that RPT is indeed a Dublin oriented tax.
The yield from RPT has risen from £1 million in 1983 to a peak of £14.2 million in 1994 before falling to £12.1 million in 1995 (£9.5 million paid plus £2.6 million in arrears), due to the changes in the exemption limits.
The Revenue Commissioners, in announcing the new thresholds last week, produced a table illustrating the impact of the changes. This showed a fall in the tax payable over different valuation categories. However, that was based on constant house prices. The reality is that those in the RPT net, whose houses have increased in value by more than 7.45 per cent in the year to April 5th, 1996, will end up paying more tax this year.
