The Gazette 1994

GAZETTE

MWH

JUNE1994

Ca l cul at ing a Resident ial

Proper ty Tax Liabi l i ty

by Richard Grogan BCL*

Residential Property Tax ("RPT") was

introduced in the Finance Act, 1983.

The tax was radically overhauled in

the Finance Act, 1993 with the

introduction of clearance certificates.

The 1994 Finance Act has amended

further the scope and basis of this tax.

As practitioners, we will be expected

to advise many clients who are

obliged to submit returns for the first

time on 1 October next as a result of

the changes in the Finance Act, 1994.

Object of the tax

The intention of the legislation is to

tax all owners of relevant residential

property where both the income of the

owner and the value of the property

exceed certain specified limits.

What is a relevant residential

property?

A "residential property" is defined as

a building or part of a building used

or suitable for use as a dwelling. It

includes land which the occupier has

for his own occupation and enjoyment

as its garden or grounds'. The area of

the garden or grounds is not limited to

one acre for residential property tax

(unlike Capital Gains Tax where there

is the "one acre rule"). There is an

exception for specified gardens and

approved houses

In addition to being a residential

property it must also be a "relevant

residential property"

which is any

"residential property" that is occupied

by the owner as a dwelling.

Who is an owner?

An "owner" is a person holding the

freehold, or under a lease, agreement

or licence the duration of which

exceeds 50 years, or is the owner

under a mortgage of the equity of

redemption of one of the foregoing

Where a lease is held for less than 50

Richard Grogan

years the person will be regarded as

the owner if no rent is payable or if

the rent paid is less than the open-

market rent. A property which is

normally let for "a greater part of the

year" is deemed not to be occupied by

the tax payer as the tax payer does not

have the use of the property. There is

no definition of "a greater part of the

year". In practice, the Revenue appear

to accept that a lease for more than six

months satisfies the requirement.

Specifically excluded from this

definition of owner are employees

assessed under section 177 Income

Tax Act, 1967 on the benefit-in-kind

arising from the favourable

occupation of the property supplied by

the employer. The criterion for a

residential property to be a relevant

residential property is that it must be

occupied. "Occupied" has been

defined in the legislation as simply

having the use of the property

. The

test is to look at the position on 5

April. If the property was available for

occupation for the greater part of the

year ending on the preceding 5 April

or on 5 April itself, then it is deemed

to be "occupied". There is no

requirement for physical occupancy

thereby bringing holiday homes into

the tax. If a person is domiciled,

resident or deemed ordinarily resident

in the State then worldwide relevant

residential property is taxable. A non-

resident is liable on property situate in

the State. A non-resident is obliged to

take full foreign income into account

when calculating income for this tax.

This is in contrast to the position for

income tax where only foreign income

remitted to the State is chargeable to

tax. The relief under section 76(3)

Income Tax Act, 1976 (remittance

basis) does not apply to this tax.

Property normally let will not be

deemed "relevant residential property"

but will be regarded as "residential

property" for clearance purposes

Valuing a relevant residential

property

The market value of the property is the

test. The market value will be the

estimated price which the unen-

cumbered fee simple would fetch if

sold for residential use on the valuation

date (e.g. no deduction is allowable for

mortgages)

. The valuation date is 5

April

. A person will be assessed on net

market value of the relevant property

which is the market value less the

exemption limit. The limit is £75,000

for 1994/1995

. In ascertaining the

market value a reduction is made in

respect of such value as is attributable

to alterations/ improvements for the

purposes of accommodating or

facilitating a person who is

permanently incapacitated by reason of

mental/physical infirmity from

maintaining themselves. The incapaci-

tated person must normally reside in the

property

. In the case of

Madigan &

Madigan

-v-

AG and Others

the

Supreme Court held it is not a tax on

the owner's interest or equity in the

property but rather on the occupation

and enjoyment thereof. It is the value of

the residence that is taken into account.

Development potential is ignored for

Residential Property Tax purposes.

Current use value only is assessable.

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