Introduction

The Local Government (Charges) Act 2009 introduced the €200 local authority levy on ‘second homes’, plans for which were originally announced as part of the October 2008 budget. The new levy is targeted at holiday homes and rental residential properties, whether rented or vacant, and it is estimated that circa 400,000 properties will be liable to the charge.

The charge does not apply to a person’s home and thus is generally referred to as the “Non-Principal Private Residence Charge”, or the NPPR Charge.

This new charge came into effect on 31st July 2009 and the 2009 charge was payable by 30th September, although in practice there is a further 30 days ‘grace period’ in that submissions made up to 30th October shouldn’t generate late submission costs.

Who and what is liable?

The NPPR Charge applies to any person – including companies as well as individuals – which owns a residential property on the “Liability Date’ that is not their sole or main residence (see below - this year the ‘Liability Date’ fell on 31 July 2009 but this will move to March for 2010 onwards). It should be noted that the legislation defines the owner as the person who is entitled to receive the rent from the property if it were let.

The levy applies to ‘dwellings’, i.e. any property situated within the State that is used, or is “suitable for use”, as a dwelling. This would cover houses, apartments, flats, bed-sits, etc. The requirement that the building be ‘suitable for use’ makes it clear that vacant residential units are also liable to the charge. However a vacant unit that is uninhabitable would not be assessable, e.g. because it is in a state of severe disrepair. We may see more detailed guidelines on this aspect in time.

The legislation – and the guidelines from the Department of the Environment, Heritage & Local Government – make it clear that the charge applies to self-contained residential units as opposed to individual buildings. Therefore a building consisting of 4 bed-sits could represent 4 separate chargeable units.

However there is some ambiguity on this issue. For example, where one person owns a house which he/she has converted into 4 separate rental units, there is some debate as to when – if ever – these 4 units become separately chargeable. The department’s guidelines place emphasis on factors like whether the units have independent access to services like water supply and cooking facilities, but others argue that the fact that all units are held under one legal title means that a single charge applies. Further guidance is needed on this issue.

Like most taxes, the charge is universal in its application so that all residential properties are potentially liable unless specifically excluded from the charge. The legislation and regulations do provide that certain properties and/or owners are exempt, including

• A property which is the sole or main residence of the owner.
• Property not located in the State.
• Newly constructed houses which have not yet been occupied and/or sold (i.e. unsold housing stock held by developers).
• Divorced/separated spouses who still own but no longer live in the family home.
• People moving from one home to another who temporarily own both.
• ‘Granny Flats’ are exempt (i.e. unit near the individual’s home occupied rent-free by a relative).
• People who move into nursing homes but retain ownership of their home.
• Properties let under the Rent-a-Room Scheme.
• Residential properties liable to commercial rates (e.g. some holiday cottages).
• Mobile Homes are excluded.
• Houses owned by charities, local authorities, heritage homes, etc etc.
• Properties held by an Estate prior to probate being granted.

It is worth noting that some of these exemptions are quite narrow in their application and anyone who feels that the exemption applies should refer to the actual legislation to ensure that their understanding of the exemption is correct – see for example the section dealing with ‘granny flats’ which sets down quite specific rules as to what does and does not qualify.

It should be noted that the exemption for people moving houses will operate on the refund basis, i.e. the owner must first pay the charge and then subsequently seek a refund if the ‘old house’ is sold within the defined time period (again advisors should review the legislation - S.4(2) of the Act - as the scope of this exemption can be narrower than expected).

Calculation of the Charge:

The charge for 2009 has been fixed at €200, but the legislation makes it clear that this can be varied by the Minister and we may see inflation-linked increases in the years to come.

The charge applies on a “per-property” basis, and applies whether the property is occupied or vacant. A property co-owned by 2 people would be liable to a single €200 charge which can be paid by either owner.

Administration:

The charge applies to owners of NPPRs on the Liability Date, which for 2009 is 31st July 2009. The Liability Date for 2010 will be 31st March.

The charge must be paid within 2 months of the Liability Date. Therefore the due date for 2009 was 30th September 2009, but again this will move to 31st May in 2010. The legislation provides for various sanctions for failure to comply, e.g.

• A late payment fee of €20 per month, or part of a month, automatically applies
• Defaulters could also face penalties of €2,000 plus €100 per day.
• Any unpaid charge can remain as a charge against the property.
  

In addition to paying the charge, a declaration known as the Non Principal Private Residence Registration Form must also be completed and submitted.

The form and payment can be made via the relevant local authority (determined by the location of the property) or can be posted directly to the NPPR, PO Box 11654, Dublin 8. Alternatively payments and submissions can be done on-line via the web-site below.

Please note that, while this new tax will be administered by local authorities, it is a self-assessment tax so it is the responsibility of the property’s owner to determine if a property is liable to the charge and, if so, to ensure that the proper declarations and payments are made on a timely basis.

Corporation/Income Tax:

It is worth noting that, in their correspondence with local authorities about the implementation of this scheme, the Dept. of the Environment, Heritage & Local Government indicated that the Revenue Commissioners do not believe that this €200 charge is an allowable expense when calculating Rental Income for income tax/corporation tax purposes.

Summary:

The local authorities will be liaising with other bodies such as the PRTB, the Revenue Commissioners and the ESB in order to ensure that all relevant properties are covered by the NPPR Charge. Therefore it is important that owners of NPPRs meet their obligations in a timely manner.

This is a new tax and will probably take time for all the anomalies and problems to be identified and resolved. However for most people the position is relatively straightforward; a separate payment of €200 must be submitted for each property held on 31st July last, apart from their home, together with the relevant declaration form.

Further information is available from local authorities and at www.nppr.ie.

Brendan Twohig is Tax Director with MK Brazil, Waterford.  Brendan will be speaking on the OmniPro CPD programme in December when he will present a range of taxation topics for accountants in business.  See our website for details. 

http://www.omnipro.ie/cpd_calendar/events/index.php?com=detail&eID=115

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