Distribution of the Local Property Tax: equalization funds, surpluses and tax rates

Key Point:

In 2020 the Local Property Tax (LPT) yield amounted to €488 million. Between the years 2015 and 2020, 21 Local Authorities experienced funding deficits and required equalisation funding. The level of equalisation funding allocated to LAs in 2020 amounted to just over €135m: representing an increase of €33m or 32% from €102m in 2015. During the years 2015 and 2020, 12 LAs achieved surplus LPT funds. The LPT surplus retained for discretionary purposes amounted to €65.8m in 2020, compared to the balance of surplus LPT funding available to self-fund roads and housing services totalling €107m. A central element of the LPT policy was the power granted to LAs in 2014 to vary the basic rate of LPT by up to 15%. Between the years 2015 and 2019, only a small number of LAs exercised this power for the purposes of generating additional funds for local services. However, 19 LAs increased the basic rate of their LPT by between 2.5% and 10% in 2020. By contrast, four LAs reduced their LPT basic rate by between -10% and -15%. LAs in the County Dublin region were the most consistent in reducing their LPT during these years. Residential property prices have increased by 63% nationally (excluding Dublin) and by 28% in the County Dublin region between 2014 and 2020. However, LPT valuations have not been raised. Failure to keep track of property price inflation entails a substantial loss of potential revenue.

Policy overview

The LPT is an annual tax charged on the market value of all residential properties in Ireland. It came into effect on 1 July 2013 and is collected by the Revenue Commissioners. This tax is charged on residential properties, with the owner of a property being liable[a]. The revenue raised is used to fund various services provided by LAs such as: public parks, libraries, open spaces and leisure amenities, planning and development, fire and emergency services, maintenance and cleaning of streets, and street lighting. As a revenue source, the LPT accounted for 7% of total LA income in 2020 (Department of Housing, Planning and Local Government, 2020a).

Distribution of Local Property Tax: revenue deficits and surpluses between the years 2015-2020

In implementing the LPT, the government decided that 80% of LPT revenue is retained locally to fund public services, while the remaining 20% is used to fund other LAs that do not have a sufficient property base to meet their funding requirements. Furthermore, every LA is entitled to receive a minimum amount of funding from the retention of LPT known as the baseline. Equalization is the process through which all LPT allocations are funded up to this baseline[b].


In the case of LAs with large property bases, additional income is received from LPT compared to their baseline (i.e. minimum funding level needed for that LA to function). LAs use this surplus funding in two ways: 1) retain a portion of the funding for their ‘own use’; 2) use the remainder (if any) to fund services in the Housing and Roads service division areas. This is a process known as self-funding[c].


Table 1 shows the distribution of surpluses and equalization funds during the years 2015, 2017, 2019 and 2020. In 2020, the total LPT yield amounted to just over €488m. This represented a decrease of €12m, or 2%, compared to 2015. If we compare the LPT retained locally (i.e. 80% of the total LPT yield) to the LPT baseline, the data suggests that there has been a significant fall in total surplus revenue: with a decrease of €80m or 68% from €117m in 2015 to €37m in 2020. This has been due to: 1) the increase in equalization funds required by LAs below the baseline/minimum level of funding required and 2) a decrease in the amount of LA surplus revenue for discretionary funding and self-funding of housing and road services.
During the years 2015 and 2020, total equalization funding increased by €33m or 32%: increasing from €102m in 2015 to €135m in 2020. During these years, 21 LAs were below the baseline/minimum level of funding required. These LAs included: Carlow, Cavan, Donegal, Galway (County Council), Kilkenny, Laois, Leitrim, Limerick, Longford, Louth, Mayo, Monaghan, Offaly, Roscommon, Sligo, Tipperary, Waterford, Westmeath, Wexford, Cork (City Council) (2017, 2018 & 2019) and Kerry (2017, 2018, 2019 and 2020).


In terms of the LPT surplus revenue retained by LAs with a large property base and additional income, there has been a slight fall in the amount of surplus retained for discretionary purposes: decreasing by over €620,000 from almost €66.5m in 2015 to over €65.8m in 2020. By contrast, a greater decrease is evident in the balance of surplus LPT revenue available to self-fund housing and road services. In 2020, the balance of surplus available for LAs to self-fund was just under €107m. This represented a decrease of almost €47m, or 30%, compared to 2015. During these years, 12 LAs were above the baseline/minimum level of funding required. These LAs included: Cork City Council (2015, 2016 & 2020), Kerry (2015 & 2016), Clare, Cork, Dún Laohaire-Rathdown, Dublin, Fingal, Galway City Council, Kildare, Meath, South Dublin and Wicklow.

Table 1: Distribution of Surpluses and Equalization Funds during the years 2015, 2017, 2019 and 2020 (€Million)

Source: Department of Housing, Planning and Local Government (2015, 2017 and 2020b). Note: Due to rounding, numbers presented in this table may not add up precisely to the totals provided. For a detailed breakdown on a per LA basis see Appendix 1.

Changes to the Local Property Tax Base Variation Rate

From the 1 July 2014, all LAs were granted the power to vary the basic rate of LPT by up to 15%. In the case of LAs that decide to increase the LPT rate, the full amount of additional LPT collected is retained by those LAs. If a LA decides to reduce the LPT rate, the full cost of that reduction is reflected in a decreased LPT allocation to that LA.

Table 2 shows the LPT Adjustment Factor Variation (LAFV) rates during the years 2015, 2017, 2019 and 2020. In 2015, the total LPT funding provided pre-variation was over €500m. During this year, 17 LAs resolved to introduce ‘no change’ to the LAVF rate. These LAs retained the total LPT funds provided pre-variation which amounted to €195m. While no LA increased their LAVF rates in 2015, 14 LAs resolved to reduce their LAVF rates (between -1.5% and -15%). The loss in potential revenue for LAs with a negative LAVF rate was €43m, with total LPT revenue allocated post-variation in 2015 amounting to €460m.   

LPT funding provided ‘pre-variation’in 2017 was €527m: an increase of €25m on 2015. In 2017, 23 LAs opted to introduce ‘no change’ to the LAVF rates:  with those LAs retaining total LPT funds amounting to over €312m. By comparison to 2015, 3 LAs resolved to increase their LAVF rates (at a rate between 5% and 10%). This provided almost €4m in additional funding to these LAs combined. Five LAs resolved to reduce their LAVF rate in 2017, at a rate between -3% and -15%. This represented a combined loss of over €30m in potential revenue for these LAs. The total LPT allocated post-variation in 2017 was €500m: with the total loss in potential LA revenue amounting to €27m.

Similar trends were also evident in 2019. During this year, 22 LAs decided to introduce ‘no change’ to LAVF rates: an increase of 5 LAs compared to 2015. The total revenue retained by these LAs combined amounted to almost €300m. Five LAs opted to increase their LAVF rate (between 2.5% to 10%), with four LAs deciding to decrease their LPT rate (between  -10% and -15%) in 2019. The additional revenue received by LAs with a positive LAVF rate amounted to over €3m. LAs with a negative LAVF rate experienced a total loss of €28m in potential revenue. The total LPT allocated post-variation in 2019 was €503m: with the total loss in potential LA revenue amounting to almost €25m.

In contrast to previous years, the number of LAs opting to introduce ‘no change’ to their LAVF rates decreased significantly in 2020: with 8 LAs introducing no changes to the LAVF rate, compared to 22 LAs in 2019. The total revenue retained by these LAs amounted to over €100m in 2020. Moreover, the number of LAs raising the LAVF rate increased substantially in 2020: with 19 LAs increasing their LAVF rate (between 2.5% and 10%). This generated additional revenue amounting to almost €20m for these LAs. Four LAs resolved to reduce their LAVF rate (between -10% and -15%): with the total loss in potential revenue amounting to €28m. The total LPT allocated post-variation in 2020 amounted to €517m, with the total loss in potential revenue amounting to almost €9m.

Table 2: Local Property Tax Adjustment Factor Variation during the years 2015 – 2020 (€Million)

Source: Department of Housing, Planning and Local Government (2015, 2017, 2019 and 2020b) Note: Due to rounding, numbers presented in this table may not add up precisely to the totals provided. For a detailed breakdown on a per LA basis see Appendix 2.

Impact of LPT as a LA Revenue Source

Despite the cumulative rise in the total number of LAs resolving to increase their LVAF rate between the years 2015 and 2020, a significant loss in additional revenue for discretionary purposes and to self-fund housing and roads is evident among LAs who opted to reduce the LVAF rate. LAs in the County Dublin region (Dublin City, Dún Laohaire-Rathdown, Fingal and Dublin South) in particular, were the most consistent in achieving funding surpluses (due to the large property base) and also reducing their LAVF rate by 15% between the years 2015-2020[d]. The decision by these LAs to reduce their LAVF rate resulted in a dramatic loss of potential revenue amounting to over €176m between the years 2015 to 2020.


Table 3 shows the annual LPT bill for properties coming within the lowest, middle and highest valuation bands when the LVAF is at a basic rate (i.e. no change) and following an increase or decrease to the LAVF rate. The amount of LPT payable is calculated by multiplying the mid-point of the valuation band into which the value of the property falls by a tax rate of 0.18%. For example, a property with a value between €250,000-€300,000 (Band 5) the basic LPT payable amounts to €495. If a LA resolves to raise the LAVF rate by 10% the annual LPT bill increases to €545, and to €569 following a 15% increase to the LAVF. Alternatively, if a LA resolves to decreases the LAVF rate by 10% or 15% this reduces the LPT bill to €446 or €421 per year. For properties within the higher valuation bands, between €750,000 and €800,000 (Band 15), the standard rate of LPT payable per year amounts to €1,395. Following a 10% increase the total amount payable rises to €1,535 and to €1,604 after a 15% increase. Following a 10% or 15% reduction in the LAVF rate, the total amount payable reduces to €1,256 or €1,186.

Table 3: Local Property Tax Annual Bills by Property Valuation Band, 2020

Source: Department of Revenue (2020)

The opportunity to gain additional revenue becomes more apparent when we compare the base price for residential properties established for the LPT in 2014 with the current market value of residential properties and rising inflation. Figure 1 shows the residential property price index between the years 2014 and 2020 (August). Residential property prices nationally (excluding the Dublin region) have increased by over 63% between the years 2014 and 2020. Similar trends are also evident in the County Dublin region, where residential property prices have risen by just over 28% during these years.

Figure 1 Residential Property Price Index, 2014-2020 (August) (Base Year 2015=100)

Source: CSO (2020)

This significant increase in the value of residential properties, both nationally and in County Dublin, raises important public policy concerns surrounding the appropriateness of the current LPT baseline which determines the value of residential properties and the tax to be paid by homeowners and which is not adjusted to take account of changes in property values.

References

Central Statistics Office (2020) Residential Property Price Index [Online] Available at: https://statbank.cso.ie/px/pxeirestat/Database/eirestat/House%20Prices/House%20Prices_statbank.asp?SP=House%20Prices&Planguage=0

Department of Housing Planning and Local Government (2020a) Local Authority Budgets 2020 [Online] Available at: https://www.housing.gov.ie/sites/default/files/publications/files/final_2020_local_authority_budget_publication.pdf

Department of Housing, Planning and Local Government (2020b) Local Property Tax Final Allocations to Local Authorities for 2020 [Online] Available at: https://www.housing.gov.ie/sites/default/files/publications/files/final_2020_lpt_allocations_after_local_variation.pdf

Department of Housing, Planning and Local Government (2019) Local Property Tax Final Allocations to Local Authorities for 2019 [Online] Available at: https://www.housing.gov.ie/housing/chargestaxes/local-property-tax/local-property-tax-final-allocations-local-authorities-2019 

Department of Housing, Planning and Local Government (2018) Local Property Tax Final Allocations to Local Authorities for 2018 [Online] Available at: https://www.housing.gov.ie/housing/chargestaxes/local-property-tax/local-property-tax-final-allocations-local-authorities-2018

Department of Housing, Planning and Local Government (2017) Local Property Tax Final Allocations to Local Authorities for 2017 [Online] Available at: https://www.housing.gov.ie/housing/chargestaxes/local-property-tax/local-property-tax-final-allocations-local-authorities-2017 

Department of Housing, Planning and Local Government (2016) Local Property Tax Final Allocations to Local Authorities for 2016 [Online] Available at: https://www.housing.gov.ie/housing/chargestaxes/local-property-tax/local-property-tax-final-allocations-local-authorities-2016

Department of Housing, Planning and Local Government (2015) Local Property Tax Final Allocations to Local Authorities for 2015 [Online] Available at: https://www.housing.gov.ie/housing/chargestaxes/local-property-tax/local-property-tax-final-allocations-local-authorities-2015 

Department of Revenue (2020) Valuing Your Property [online] Available at: https://www.revenue.ie/en/property/local-property-tax/valuing-your-property/index.aspx

Appendix 1: Distribution of Surpluses and Equalization Funds (by Local Authority) during the years 2015, 2017, 2019 and 2020 (Million)

Source: Department of Housing, Planning and Local Government (2015, 2017, 2019, 2020)

Appendix Two: Local Property Tax Adjustment Factor Variation (by Local Authority), 2015, 2017, 2019 and 2020 (€Million)

Source: Department of Housing, Planning and Local Government (2015, 2017, 2019, 2020)

[a] Note: In the case of leases agreed with tenants over twenty years, the tenant becomes liable.
[b] The baseline is historically linked to funding previously received by a LA from the Local Government Fund as a General Purposes Grant and to the levels of Pension Related Deductions retained by a LA. Effectively, the LPT allocations replaces both of these previous sources of funding provided to LAs (Department of Housing, Planning and Local Government, 2020a).
[c] The portion retained as a surplus by LAs for their ‘own use’ is an amount equal to their individual baseline (minimum level of funding required) plus 20% of the total expected LPT income in their respective areas (before any to decision to vary LPT rates by +/- 15%) or in the case where the surplus is less than 20%, the full amount (Department of Housing, Planning and Local Government, 2020b).
[d] Note: While Fingal County Council reduced their LPT rate by 15% in years 2015, 2016 and 2017, the LA resolved to reduce the LPT rate by 10% from 2018 to 2020.

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