Friends have selected the LPT band below Revenue’s recommendation. Can it backfire?

Talking to friends and work colleagues, I have found that the majority of them have selected the local property tax (LPT) band below the recommended Revenue band.

All agree that the Revenue one was correct, but they are not planning on selling at any time in the near to mid-future. If they do sell in a number of years from now, they are of the assumption Revenue will not backdate to this year.

On principle, I feel I am being unfairly taxed. If the above assumption is correct, are those of us who are being honest in relation to the tax doing the right thing?

I think Revenue should have changed the rules and have all who select a band below the recommended rate justify their LPT tax band. It would not take a lot for them to run the analysis and see where houses of the same design and size (ie housing estates) should all be on the same LPT band.

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Friends have selected the LPT band below Revenue’s recommendation. Can it backfire?

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Mr B.P.

Gaming the taxman is, in Ireland, an occupation as old as time itself. That doesn’t make it right but the good news, from your perspective, is that you are not paying a price for your friends’ subversive tendencies.

Am I surprised to hear people are playing cute on what the actual value of their home is? No, but it’s all a bit pathetic really. I mean, if you’re going to rip off the Revenue, you think you’d make it worth your while.

Pitching your property tax one band below what you know it should be will scam the Revenue for less than €100 over the course of a full year. That’s assuming the property is worth less than €1.26 million, otherwise the figure involved is about €250 a year. I’m guessing most of these people would spend that and more on a single meal out with their partner.

And, of course, Revenue is fully aware of the risk. LPT – as with capital gains tax and capital acquisitions (inheritance or gift) tax – is self-assessed. That means the Revenue Commissioners are, to some degree, taking people on trust. Not entirely, of course, as they have gone to the trouble of providing an estimate of the band they think each of us should fall into.

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That estimated band is based simply on a broad average of property values in the particular area, but any area will have more modest homes and other high-end properties. That’s why Revenue makes clear that, regardless of its estimate, everyone needs to make a return. Well, it is one reason. The other is that by getting everyone to actively make a choice on a valuation band, they are forcing them to take ownership of the decision for which they can, ultimately, be held liable.

The reasoning of these folk in justifying their decision is also a bit suspect. They are certainly correct that you do need to be careful to ensure your property is accurately valued for local property tax when you go to sell it. Selling a home requires Revenue clearance that all local property tax returns have been filed and that payments are up to date.

And if the sale price is significantly above the stated valuation, you can certainly expect a demand for a new valuation and back payment of money owing on the basis of that updated figure going back at least to the most recent revaluation date.

So, if you sold a home now for 25 per cent above its local property tax valuation – or it fetched more than €500,000 in Dublin or €400,000 elsewhere in the State – you can expect a Revenue review and quite possibly a bill dating back to the start of 2022.

But you can also be challenged even if you never put your home on the market. Revenue can, and does, send out letters asking homeowners to justify the valuation they have put in their returns. I know because I was subject to just such a letter in the early days of the tax. Fortunately, I had the paperwork to show how I had reached the valuation submitted and Revenue accepted my position.

People playing fast and loose with valuations would be foolish to assume they are safe simply because they are not selling. Modern computing power will allow Revenue check the returns and anything that looks out of kilter with neighbours or the local area can expect a challenge.

Might they get away with a single band adjustment? Sure they might. Then again, they might not.

Revenue has four years to challenge the new valuations and, unless they accept the reasoning presented, will certainly seek payment of additional tax going back to the most recent valuation date at least.

I’m not sure how you feel you are being unfairly taxed simply because others are gaming the system. If you have followed the guidance and provided an accurate valuation, you are being fairly taxed.

Asking everyone to justify opting for a lower tax band than the estimate would be time-consuming for Revenue. It would involve not just an automated analysis of actual data but also a manual checking and follow-up of the supporting documentation justifying it.

Even in housing estates, there are different sizes, styles and values of homes.

Are you paying for the dishonesty of others? No, although it does mean less money will be available to your local authority to provide services to all of you in the council area.

The “take” from local property tax is very small – €311 million last year out of total tax revenue of €152.9 billion, which comes to barely 0.2 per cent of all taxes collected.

The tax is deliberately set at a level which will mean very little change for any homeowner. Gaming the system after that just feels kind of cheap.

No one wants to feel foolish for unquestionably paying tax when others are playing the system, but you could yet end up being the one with the last laugh.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice.