FAQ A guide to deferral options

[Brendan Burgess]

Revenue Guide to Deferring Payment of LPT

There are four grounds for deferral

• Gross Income Threshold
  €15,000 for a single person + 80% of gross mortgage interest
  €25,000 for a couple + 80% of gross mortgage interest
• Hardship Grounds
• Personal Representative of a Deceased Person
• Personal Insolvency

50% deferral

Owner-occupiers may apply to defer 50% of the LPT if they are below the following thresholds
€25,000 for a single person + 80% of gross mortgage interest
€35,000 for a couple + 80% of gross mortgage interest







You must make a return even if you are applying to defer payment



Simple interest will be charged at 4% on the deferred amount


The tax and interest will remain a charge on the property until it is sold



Applications for deferral or partial deferral of LPT on the basis of Income Threshold should be made on the LPT1 Return Form only.


Individuals applying for deferral of LPT on hardship grounds must, in submit the LPT1 Return form and complete the LPT2 Form

 

[Brendan Burgess]

How much interest will I pay if I defer the LPT?

The rate of interest is 4% simple rate.

For simplicity, say your property is worth €300k, your LPT due is c.€500 in 2014 and you defer it.

After 10 years, you sell your house.
You will pay €500 LPT for 2014 + €200 interest (€500 x 10 years x 4%)

If you defer the tax every year for the next 10 years, you will owe:

interest on {br}LPT for |
2014 |40%
2015|36%
2016|32%
2017|28%
2018|24%
2019|20%
2020|16%
2021|12%
2022|8%
2023|4%
Total|220%

So

House value|€300k
Property tax due|€495
10 years deferred |€4,950
Interest |€1,089| €495 x 220%

This is about €800 in 2013 terms if you allow for inflation of 3%.
But you are deferring the tax payments as well, so it's great value.


See attached spreadsheet

 

[Bronte]

This represents 2% of the current value of the property.

Your figures make sense to me. 2% is not bad actually. And the actually cost of 1K interest is working out at about .30%.

Presumably inflation means that 2% in real terms would be less. As 500 today, being paid 10 years hence would be less that 500 Euro.

 

[Brendan Burgess]

Hi Bronte

I updated the post in the meantime to say

This is about €800 in 2013 terms if you allow for inflation of 3%.
But you are deferring the tax payments as well, so it's great value.

 

[Brendan Burgess]

How much interest will I pay if I defer the LPT?

number of years deferred|
1|4%
2|12%
3|24%
4|40%
5|60%
6|84%
7|112%
8|144%
9|180%
10|220%
11|264%
12|312%
13|364%
14|420%
15|480%
16|544%
17|612%
18|684%
19|760%
20|840%

If you defer the LPT for one year and pay it after one year, you will pay interest of 4% on the Annual LPT due.

If you defer the LPT for 10 years, and pay it after 10 years from the sale of your house, you will pay a total of 220% of the LPT due.

 

[Bronte]

I don't understand the last table you posted?

 

[mandelbrot]

I don't understand the last table you posted?

Multiply 840% by 0.18% (the rate of LPT) and you get....
1.512% - Which is what I calculated previously! So Brendan's figures above agree with mine; that last table just shows the cumulative cost, expressed as a % of the annual charge.

It's a bit simplistic insofar as it doesn't allow for future changes in either LPT rate or property value, but it's a useful exercise to show to people who cry about how can the tax be dealt with on their elderly parents' house.

 

[Brendan Burgess]

I don't understand the last table you posted?

Sorry Bronte

I have added an explanatory note to it now.

Brendan

 

[Bronte]

I'm totally lost with you two. But you are both accountants. I know I have a blind spot in relation to tables. So please bear with me.

I prefer when it's laid out like this.

Property of 300K, property tax is 495. You defer for 10 years.


Actual Tax

So after 10 years you owe 495 X 10 so 4950. That's very simple. And no loss to the person paying it 10 years hence. Plus if there's inflation this amount has been actually eaten away. Plus you had the use of the money, plus you can now pay it out of the proceeds of sale. Plus as a percentage of the property value it works out at less than 2% of the property value.

Interest on the Tax 4% simple interest

In post 2 BB said it was 495 X 10 X4% = 198. But it's a different calculation because that's a 10 year deferal of the tax from year one. For year 2 it would be the tax deferred for 9 years... Is that what that table is meant to show?

Perhaps a worked example might help.

Actually I think I get it now. You take the 495 X 220% and get 1089. So interest after 10 years is 1089.

Therefore after 10 years deferral you pay tax of 4950 and interest of 1089. total 6039. So back to the post I made above you end up after 10 years paying 2 % of the property value as the tax including interest.

The 220% scared me and would also do so for a lot of people. But 2% is fine (imo)