Member News

Update on Property Tax Issues: March 2018

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep members up to date with the latest developments in property taxes both in the USA and Europe.

IPTI has put together a selection of brief reports from articles contained in IPTI Xtracts which can be found on its website (www.ipti.org).

As far as Europe is concerned, this month’s report includes articles on Cyprus, France, Greece, Ireland and the United Kingdom. There is a separate IPTI report on the United States, with a focus on New York.

By Paul Sanderson 

Cyprus: North seeks tax to finance Greek Cypriot property claims
The head of the north’s Immovable Property Commission (IPC), Ayfer Erkmen, has called on the ‘government’ to introduce a type of capital gains tax to help pay off mounting compensation claims submitted by Greek Cypriot property owners, Turkish Cypriot press reported on Monday.

Under the proposal, people who acquired Greek Cypriot property after the 1974 invasion could be hit with a 15 per cent tax bill, the report in Cyprus Today said.

It said latest figures show that the IPC has paid out almost £270m sterling in compensation to Greek Cypriots since 2006 although the amount accounts for less than one fifth of the 6,413 applications that have been lodged with it to date.

The pace of payouts has slowed in recent years because of funding issues, although new applications are on the up again following the collapse of peace talks at the Swiss resort of Crans-Montana last summer, the reports said.

Under the new proposal, a person holding an ‘esdeger’ (exchange) title deed – issued for equivalent land and property abandoned by Turkish Cypriots in the south – would be forced to stump up the cash to help pay for future compensation settlements.

Homeowners would be able to take out a special loan to pay the tax, Erkmen said, adding that they would then benefit from a subsequent rise in the value of their property, which he said would become ‘legalised’ in the eyes of the European Court of Human Rights.

‘Whether this tax is charged on an annual basis or … at the point of sale, is one issue that needs to be talked about,” Erkmen added. The reports said that buyers need to understand that there was talk behind the scenes of introducing a special financial plan that would provide for the creation of a body, backed by banks, that could offer low-interest loans for the payment of the tax.

Once the Greek Cypriot owner was compensated, the value of the property would appreciate by two to three times its current value instantly, Erkman said.

He said he had talked the Turkish authorities – which effectively bankroll the IPC – out of introducing a whopping 60 per cent levy. Erkman said funding from the ‘TRNC government’ of roughly £14m sterling per year, based on current exchange rates, was not enough to settle the thousands of outstanding claims.

He also said that a total of 21 new applications had been made to the IPC in the first two months of 2018 and that 2017 saw 87 more applications compared with the previous year.

 

France: Taxes on Prestige Properties in France Can Be Complicated
Property taxes in France aren’t exactly transparent, no matter the region. France has two annual property taxes: Taxe Foncière and Taxe d’Habitation, plus a wealth tax, according to experts.

Factored into the land or property tax (taxe foncière) is the “the cadastral income,” which is determined by halving the property’s rental value, said Jessica Duterlay, a tax associate at Attorney-Counsel, a law firm with offices in Nice and London.

“The property tax is equal to the cadastral income multiplied by the rates fixed by the local authorities,” she said. “These rates may be modified from one year to the next.”

Unless the home is rented out for most of the year property owners are also on the hook for the occupancy tax (taxe d’habitation).

“The tax is payable if the secondary home is habitable, meaning the individual has the right of occupancy and it is furnished, not empty,” according to Delphine Belin, a lawyer who advises U.S. citizens on French property matters. If the tenant is there most of the year, he or she pays. If empty, the owner pays the tax.

French tax authorities use the rental value of the property to calculate the occupancy tax as well, the lawyers said. These are calculated annually, and each town has its own rates.

Deductions and income-based ceilings are available for primary residences, Ms. Duterlay said, but “since this is a secondary residence, the owner cannot benefit from [those] allowances.”

Some cities and towns also levy taxes if homes are vacant, she added. Those taxes are established by the cities and could result in the owner paying a range of 5% to 60% in extra taxes.

For individuals whose net taxable wealth is greater than €1.3 million (US$1.6 million), there is also an additional wealth tax (impôt sur la fortune immobilière), payable every year. This was previously an annual levy of up to 1.5% on the value French property and assets, including savings and investments, but, as of January 2018, it’s now a tax on real estate only, Ms. Duterlay said.

There are upfront costs at the time of purchase as well, she said, including a communal tax at the rate of 1.20% on the purchase price and a departmental tax on the purchase price. That tax is 4.5% on the purchase price in almost all areas, she said. Also, there is another government one-time levy of 2.37%.

Greece: Cost to drop for property transactions, inheritances, etc.
Property transactions will become less costly as of April, as far as the tax load is concerned, in areas where “objective values” – property rates used for tax purposes – are reduced. The Finance Ministry is planning to make no changes to all tax rates related to sales, parental concessions, donations and inheritance.

The new objective values will go into force upon publication, so as to avoid any tax rebates for contracts signed since the start of the year. Allowances will only be made for this year’s Single Property Tax (ENFIA) so that it is calculated according to the new zone rates.

The ENFIA rates will be altered so as to cover any fiscal gap created by the reduction of the objective values, while plans also include a possible replacement of the “personal exemption ceiling” for the supplementary property tax with a “family exemption ceiling.” This means that the combined assets of parents and their dependents will be added up and taxed as a total. The scheme would expand the number of property owners paying the supplementary tax and meet the bailout program’s demand for the expansion of the tax base.

In the more expensive areas of Attica, where zone rates are expected to drop by 10-15 percent or more in some cases, the decline to the tax on parental concessions and donations will be considerable. For instance, for a property whose current objective value stands at 250,000 euros, a zone rate decline of 15 percent (taking the objective value to 212,500 euros) would bring the tax from 1,000 euros to 625 euros.

The Finance Ministry has already calculated that its takings from inheritance taxes, donations and parental concessions will be significantly decreased this year compared to 2017. Taxes and levies from inheritance are projected to fetch 74 million euros, down from 97 million last year; parental concession and donation taxes are seen to bring just 40 million from 52 million in 2017; and transaction taxes are expected to lead to almost the same revenues as last year (196 million euros), as the losses from the reduction of the objective values are going to be offset by the anticipated increase in transactions. The transaction tax rate will remain at 3 percent.

Ireland: Land or property tax favoured by OECD to address housing supply
Angel Gurría said there are well located pieces of land in Ireland that are underutilised

The Secretary General of the Organisation for Economic Co-operation and Development has said he favours a recurrent land tax, or a property tax, in order to address housing supply.

Speaking on RTÉ’s News At One, Angel Gurría said: “I’m talking about a recurrent tax on the value of the assets that you have, which typically have to be updated/upgraded, ideally every year.

“So basically, if you are going for property taxes, do it on the basis of realistic values, and then upgrade those values over time, so that they do not fall behind.”

He also said there are well located pieces of land in Ireland that are underutilised and suggested some rezoning of land for residential purposes.

When asked about the Irish courts being too slow at repossessions, Mr Gurría said: “Mortgages are no exception; they are a loan like any other loan.

On the other side, if in some cases because of the social vulnerability of some groups the State would decide to support some of these groups that has to be specifically addressed; specifically decided – it has to be an expenditure decision by the people who approve the Budget, which are the parliament.”

He added this needs to be explained to the taxpayer that they may have to support their fellow countrymen and woman.

He said: “Don’t try to do social justice in the courts and don’t do social justice in the banks. The question is who does what here?”

Mr Gurría also said his organisation is still on track to publish an interim report on taxing the digital economy next month.

He said that taxing the digital economy is not about targeting individual companies such as Apple or Google, but about how an increasing digitised economy will be taxed as the entire world is going digital.

United Kingdom: Business rates to be applied to energy storage in 2022 as government seeks help
The Valuation Office Agency (VOA) is calling on the sector to engage with the development of business rates that will be applied to energy storage projects in 2022, including those attached to subsidy-free solar farms.

The division of Her Majesty’s Revenue & Customs (HMRC) is currently investigating how to apply new rates to the revenues accrued by energy storage technologies, including standalone and co-located projects with all generation technologies, Solar Power Portal has learned.

Following last year’s widely reported and controversial review, which saw a ‘solar tax hike’ of six to eight times the previous levels applied to existing solar installations, the VOA is now casting its eye towards energy storage, which currently are not included in the business rating list at all.

The new rates to be applied to storage for the first time are likely to impact subsidy-free solar farms currently being developed.

Historically, business rates have been applied to the subsidy payments made to solar projects under the Renewable Obligation and feed-in tariff schemes. However, with the UK moving to a subsidy free environment, these are likely to be applied only to the generation capacity of the solar park that it exports to national or distribution grids.

With many of these projects planning to use battery storage to build a subsidy-free business case, the VOA is seeking out where new battery projects are being planned or built and if they are co-located with solar farms.

Using technology and revenue values in 2020, two years before the next review as set in legislation, rateable values could be applied in two ways to these projects. The VOA is considering the use of a capital expenditure or contractors’ revaluation, taking into account a range of initial project costs to form an annual equivalent of business rates applied to revenues.

A second method would see a receipt summed expenditure model used which would use income streams for frequency response and other sources, versus the expenditure on the project, to work out a rateable value which would then be applied.

The “issue”, according to the VOA, is that while generation outputs from solar plus storage facilities would fluctuate throughout the year, so would the prices the solar generation was able to recoup on the wholesale market.

This would result in hypothetical revenues from frequency response and arbitrage, for example, being used to make rateable values, with a possible rebate scheme – similar to that used currently on wind farms – being considered.

For this to be effective, the VOA would need engagement from industry and trade bodies in identifying the value of these less transparent revenue sources to ensure accurate business rates are applied.

Speaking to SPP about the agency’s work, a VOA surveyor said: “We’re in the early stages and are hoping to get trade bodies on side to provide us with some insight. We were first of all thinking co-located sites would be only looking at storage for the solar and then selling it on some of the time whereas as was evident at the [Energy Storage Summit], that’s one string to their revenue stream. If we can get trade bodies involved we’ll be in a much better standing.

“If the industry doesn’t come forward with meaningful dialogue then we [remain] duty bound. It’s better that everybody joins together.”

There is concern that solar and storage developers will be hesitant to come forward with their business cases on the grounds of commercial sensitivity, however the VOA has assured the market that any such information will remain within the government body.

Discussions have already held with the Solar Trade Association, which has told SPP that the process to establish business rates for energy storage will need to be fair and consistent across all applications.

Chris Hewett, chief executive of the STA, said: “The VOA process will take some time, and we want to be as open as possible to support their research. It will be important that the valuation of battery storage is consistent, regardless of the technology it is co-located with, or if it is a stand-alone project.

“As with PV, we will be taking a close interest in how storage is valued if it is largely for self-consumption in behind-the-meter contexts. If the treatment here mirrors that of PV, then it is an issue we will raise with the government policymakers, rather than the VOA.”

Back in September the STA won a partial victory on business rate increases applied to solar when the VOA allowed installations that export power to the grid to be spared from rising costs. However, those used for self-consumption remained subject to the hike and the Renewable Energy Association, which is expected to have a meeting with the VOA in the coming months, has warned against the same measures stifling the growth of the energy sector.

James Court, head of policy and external affairs at the REA, said: “We hope the VOA learns the lessons from the solar re-valuation in deciding business rates for storage. This is still a nascent technology, which both the government and industry agree can play a hugely significant part in the decarbonisation of the energy system.

“If the VOA enforces too big a burden on a sector that is still in early stages of working out business models, the UK could be set back years as the rest of the world steams ahead in this crucial area.”    

Compliments of International Property Tax Institute (IPTI), a member of the EACCNY