Property Tax. 3. An alternative Building Energy Rating (BER) based Property Tax Proposal.

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1 Property Tax Problem Statement : Find an equitable way of applying a Property Tax that is both palatable to the homeowner and cost efficient in terms of administration costs. This document will look at: 1. Background to Property Tax 2. Our current understanding of how the proposed Property Tax will be assessed 3. An alternative Building Energy Rating (BER) based Property Tax Proposal. 4. Compare and Contrast the attributes/issues of each proposal. 5. Appendices

2 Property Tax in Ireland Background March 19, 2012 Posted by Money Expert The temporary Household Charge of 100 per property came into force in Ireland from January 2012, with a charge of 200 for Non Principal Private residences but this is only in place until a full Irish Property Tax system is set up. The property tax should be in place by 2014 but it is possible it could start as early as The household charge system is being used to build up a database of home owners in Ireland. The Government has now established a Property Tax Expert group to recommend an appropriate system of property tax. This expert group is due to report back to Minister for the Environment and Local Government by April The Commission on Taxation did a report on Property Tax back in 2009 and it is likely that their suggestions could form the basis of any Property Tax system. The Commission s report included the following suggestions on Property Tax: A tiered Property Tax based on the value of the house. Valuation would be self assessed by the property owner. Stamp Duty abolished for residential property purchases Exemptions for 7 years from the date stamp duty was paid on the house. Tax charged on vacant and occupied properties. The Non Principal Private residence (NPPR) would no longer be charged. Waivers for people on lower incomes

3 Property Tax in Ireland Current Understanding of charges The amounts of Property Tax suggested in the report were as follows: Estimated House Value Tax amount Range/Year < 150, to k to 300k 563 and k and 450k 938 and k and 600k 1313 and k and 750k 1688 and k and 1m 2188 and m and 1.5m 3125 and 3750 > 1.5m between 0.25% and 0.3% of the value It is estimated that about 1 billion a year could be raised by a property tax in Ireland with the rates shown above. There was also a report about Property Tax by the ESRI in 2010 which recommended slightly higher levels of tax (o.4%)

4 Property Tax in Ireland BER Related charges A Building Energy Rating (BER) is similar to the energy label on your fridge or your Car tax label (See Appendix Auto), with a sliding scale of A G. A-rated homes are the most energy efficient and G-rated the least efficient. The energy performance of a building is calculated according to a known algorithm. Using an algorithm based on Tax rate * Home CO2 rating, at current distribution of Ratings nationally, a Tax rate value of 0.08 could be set to achieve the required income stream of 1 billion a year. Adjustments to the Property tax (increment/decrement) would only require an adjustment to the Tax rate variable Example below : A D rated 3 bed 110m2 semi-d => 0.08 * 6.0 metric Tonne = 480 Property tax. Note: the value 6.0 Tonne CO2/yr is determined by multiplying an emissions value in CO2/M2/yr by the Total Floor Area in M2, therefore both the building Energy efficiency and size of the house are factored into the equation. Build Rat ing 2 Bed Apt (75m2) Energy Tax CO2/yr (tonne) Estimated Cost/yr Tax/yr 3 Bed Semi-D (110m2) Energy Tax CO2/yr (tonne) Estimated Cost/yr Tax /yr 3-4 Bed Detached (140m2)+ Energy Tax CO2/yr (tonne) Estimated Cost/yr A B C D E F <1950 G Tax /yr

5 Compare and Contrast the attributes/issues of each proposal BER Approach Current Approach Valuation Admin Taxation Based on BER Assessment. -Achieves a sliding scale and home is assessed on set scientific principles. -Professional audit performed -Independent Audit performed -Would not require re-evaluation unless Home Upgrade -Less Contentious/Divisive in that Homeowner accepts current energy bills that reflect similar criteria. -Also size of house is a factor! BER Based Admin System -While it should be acknowledged that a Property Tax Admin system has its challenges with a Co2 Emission Taxation system there is a certain amount of Admin Harmony and it has worked successfully in the Auto industry which could be mimicked.(see Appendix- Auto) -A database of Meter Point Reference Numbers (MPRN) currently exists in which all Homes are listed (May have legal issues re access for taxation purposes) -300k of 2 million houses already assessed -All new houses require rating so will fall in line Taxation based on valuation of a property. -Achieves a sliding scale but very subjective, especially in current market -Non professional if valuation done by Homeowner -Possible conflict of interest if valuation conducted by Homeowner - Could require constant re-evaluation to reflect changing Market forces -Contentious/Divisive if similar homes in different locations get different valuations thus pay different tax rates Admin similar to UK System? -The Council Tax system in the UK took years to implement and cost millions of pounds. They have a complicated system of income related rebates and other discounts and exemptions which requires thousands of staff and expensive computer systems to administer. -It will be interesting to see how quickly a similar system will be put in place here - given that we don t even have a property database for the country and are relying on people to register for the Household Charge to build the database!

6 Compare and Contrast the attributes/issues of each proposal Cont d Addresses Celtic Tiger anomalies Waivers Address Escalating fossil fuel prices BER Approach Building regulations introduced in 2005, 2008, 2011 have improved BER ratings such that a 2011 built house is 20% more efficient than a 2008 built house which in turn is 40% more energy efficient than a 2005 built house. This would be reflected not only in lower energy bills but also in the payment of a lower Property tax amount under the BER approach. This should help people who bought at the height of the property boom -Waivers for people on Lower income. Sustainable Energy Authority Ireland (SEAI) have grants and statistics that can help identify exemption cases. (See Appendix Home Improvements Grants). -A significant benefit of using a BER based Taxation approach is in Energy awareness. Home heating oil prices for instance has doubled in the last 3 years. In Britain the introduction of a smartmeter alone reduced home electrical consumption by 10%. -Fuel poverty is described as households who spend >10% of their disposable income on Energy Bills. In Ireland this is currently estimated to be >15% of Households. It is predicted to rise to >50% within 5 years and >75% within 10 years -Home heating upgrades undertaken by Homeowner will also reduce Property Tax! Current Approach Exemptions for 7 years from the Date Stamp Duty was paid on the house. -Waivers for people on Lower income -N/A

7 Compare and Contrast the attributes/issues of each proposal Cont d BER Approach Current Approach Green Economy Improved Environment -There are currently > 2 Million Domestic dwellings in Ireland of which approx 300k already have BER Certification. Industry figures say the retrofitting programme could be worth 14bn to the Irish economy. (It would take approximately 7,000 to move the average Irish home from a D rating to a more financially viable B Rating ) -An average of 8000 BER assessments are being conducted monthly under the Better Energy Home Scheme is the average BER fee per assessment There are > 1,000 registered Domestic BER assessors. -BER throughput would be about 10 per week -Help Lower pollution and Greenhouse gasses -Help to meet National CO2 emissions targets stemming from Kyoto/Copenhagen International agreements - See Appendix CO2 Emissions -N/A -N/A

8 Appendix - BER Certification There are currently > 2 Million Domestic dwellings in Ireland of which approx 300k already have BER Certification. Industry figures say the retrofitting programme could be worth 14bn to the Irish economy. (It would take approximately 7,000 to move the average Irish home from a D rating to a more financially viable B Rating ) An average of 8000 BER assessments are being conducted monthly under the Better Energy Home Scheme. A standard BER assessment is 200 There are > 1,000 registered Domestic BER assessors

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10 Appendix - Home improvement Grants Warmer Homes Scheme aims to improve the energy efficiency and warmth of homes owned by people on low income. Improvement work in Lieu of Local Authority Housing enables local authorities to improve/extend privately owned houses as an alternative to providing local authority housing. Housing Aid for Older Persons Scheme used to improve the condition of an older persons home. Housing Adaptation Grant for People with a Disability make suitable for a person with a physical, sensory or intellectual disability or mental health difficulty to live in. Mobility Aids Grant Scheme works designed to address mobility problems in the home Utility Company Incentives Utility companies are already providing substantial incentives to Homeowners to improve their energy rating in order that they meet their own Carbon emissions targets. A transition from government funded grants to Utility Company incentives is scheduled for end of 2013! Better Energy Home Scheme Measures Paid (since start of scheme up to 17th October 2011 Measure Type # Grants Paid Grants Paid (,000 ) Cavity 67,800 26,840 25% Roof insulation 75,900 18,760 18% Dry-Lining Insulation External Insulation High Efficiency Gas boiler with Heating Controls Upgrade High Efficiency Oil boiler with Heating Controls Upgrade 6,600 16,030 15% 4,600 18,430 17% 13,700 9,490 9% 10,600 7,390 7% % Percentage Integral BER 52,300 5,010 5% Heating Controls Upgrade only 5,000 2,490 2% Solar Heating % BER 84,000 1,670 2%

11 Appendix CO2 Emissions Note: An average Irish 3-Bed Semi-D produces 8 Tonne of CO2 per annum.

12 Appendix - Auto Taxing cars based on their carbon emissions has been so successful in spurring owners to upgrade their cars that tax band values have had to be increased in order to prevent overall tax base from being excessively eroded. The Automotive industry in Ireland is surprisingly similar to the housing market with the major exception being that new car sales exceeded 100k in 2011 whereas new house builds stood at 7,000 in the same year (down 80k from 2006) There are currently > 2 Million Private or commercial vehicles registered in Ireland. The distribution of Car Bands/Labels or Ratings is similar to that of Houses. Car energy costs and Co2 emissions are similar to a house. Car Labels are the equivalent to a BER Certificate so no tailored assessment required.

13 Appendix - Auto, Cont d Since 1st July 2008 vehicle registration tax (VRT) and annual motor tax for new cars are calculated on the basis of carbon dioxide (CO2) emissions from vehicles. Seven emission/tax bands apply and VRT and motor tax payable is determined by the relevant band for each vehicle. The system was introduced to incentivise consumers to purchase vehicles with lower CO2 emissions, an important step in reducing national greenhouse gas emissions and in meeting Ireland s commitments for the purposes of the Kyoto Protocol. Carbon dioxide (CO2) is one of the principal greenhouse gases contributing to global warming. In the context of the new CO2 based motor tax and VRT system, the Minister introduced, in cooperation and with the agreement of the Society of the Irish Motor Industry, a revised labelling system for new cars. The new labelling system will strengthen the existing EU requirements under Directive 1999/49/EC. VRT and Motor Tax Rates Band CO2 Emissions (CO2g/km) VRT Motor Tax Rate A 0-120g 14% 104 euro B More than 120g/km up to and including140g/km 16% 156 euro C More than 140g/km up to and including 155g/km 20% 302 euro D More than 155g/km up to and including 170g/km 24% 447 euro E More than 170g/km up to and including 190g/km 28% 630 euro F More than 190g/km up to and including 225g/km 32% 1,050 euro G More than 225g/km 36% 2,100 euro In terms of tax, a car with lower emissions, say 130g/km band B, would be cheaper to buy due to the lower rate of VRT and cheaper to run due to the lower road tax.