The Gazette 1994

GAZETTE

MWH JUNE1994

Ca l cul at ing a Resident ial Proper ty Tax Liabi l i ty

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 6 . 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) 7 . The valuation date is 5 April 8 . 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 9 . 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 10 . 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. Valuing a relevant residential property

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.

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 5 . 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

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 2 . In addition to being a residential property it must also be a "relevant residential property" 1 which is any "residential property" that is occupied by the owner as a dwelling. 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 4 . Where a lease is held for less than 50 Who is an owner?

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