Property tax

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A property tax (or millage tax) is a levy on property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state, a county or geographical region, or a municipality. Multiple jurisdictions may tax the same property. This is in contrast to a rent and mortgage tax, which is based on a percentage of the rent or mortgage value.

There are four broad types of property: land, improvements to land (immovable man-made objects, such as buildings), personal property (movable man-made objects), and intangible property. Real property (also called real estate or realty) means the combination of land and improvements. Under a property tax system, the government requires and/or performs an appraisal of the monetary value of each property, and tax is assessed in proportion to that value. Forms of property tax used vary among countries and jurisdictions. Real property is often taxed based on its classification. Classification is the grouping of properties based on similar use. Properties in different classes are taxed at different rates. Examples of different classes of property are residential, commercial, industrial and vacant real property.^[1] In Israel, for example, property tax rates are double for vacant apartments versus occupied apartments.^[2]

A special assessment tax is sometimes confused with property tax. These are two distinct forms of taxation: one (ad valorem tax) relies upon the fair market value of the property being taxed for justification, and the other (special assessment) relies upon a special enhancement called a "benefit" for its justification.

The property tax rate is often given as a percentage. It may also be expressed as a per mil (amount of tax per thousand currency units of property value), which is also known as a millage rate or mill (which is also one-thousandth of a currency unit). To calculate the property tax, the authority will multiply the assessed value of the property by the mill rate and then divide by 1,000. For example, a property with an assessed value of $50,000 located in a municipality with a mill rate of 20 mills would have a property tax bill of $1,000 per year.^[3]

Property taxes by jurisdiction

Property tax rates, assessment rules, and valuations vary widely by jurisdiction.

Australia

Australia has property taxes known as property or land rates. Land rates and frequency of payment are determined by local councils. Each council has land valuers who appraise the land values. The land's value is the value of the land only; it does not include existing dwellings on the property. The assessed value of the land determines the total charges of rates. Australian property owners also pay water rates. Some councils include them in the total of the rates notice and provide a breakdown of water and land charges. Other councils may charge them separately. Depending on the municipality, water rates can be either a flat fee, user payment or a combination of both. Prospective buyers can get details about land and water rates from the local council before purchase.

Australia also has stamp duty, applied at the time a property is sold, by the purchaser to the Office of State Revenue (in the case of NSW - each of the states and territories have their own revenue collection agencies). In addition to stamp duty there is also a Land Transfer Charge under the NSW State Revenue Legislation Amendment Bill 2010 (1 July 2010). The Charge will be levied as an ad valorem tax to be paid by the purchaser, for property above $500,000 in value, and is payable at the time a transfer document is lodged for registration with Land & Property Information (LPI).

Stamp duty rates are applied on a sliding scale of 1% to 6.75% based on the value of property and the state of Australia.

Canada

Many provinces in Canada levy property tax on real estate based upon the current use and value of the land. This is the major source of revenue for most municipal governments in Canada. While property tax levels vary among municipalities in a province there is usually common property assessment or valuation criteria laid out in provincial legislation. There is a trend to use a market value standard for valuation purposes in most provinces with varying revaluation cycles. A number of provinces have established an annual reassessment cycle where market activity warrants while others have longer periods between valuation periods.

Calculating Individual Property Taxes

In Ontario, for most properties (e.g., residential, farms), the property taxes can be calculated by multiplying the phased-in assessment indicated on the Property Assessment Notice by the tax rate.

Municipal tax rate x phased-in assessment for the particular taxation year = municipal portion of tax

county/regional tax rate x phased-in assessment for the particular taxation year = county/regional portion of tax

education tax rate x phased-in assessment for the particular taxation year = education portion of tax

municipal portion of tax + county/regional portion of tax + education portion of tax = Total Property Tax

In some cases (e.g., commercial, industrial, multi-residential properties), the Province or municipality may implement measures that affect the actual taxes paid on a property.

Land Transfer Tax

Land transfer tax is a provincial tax levied when purchasing a home or land in Canada. All provinces have a land transfer tax, except Alberta and Saskatchewan. In most provinces the tax is calculated as a percentage of the purchase price. In Toronto there is an additional municipal tax.

Ontario, British Columbia, Prince Edward Island and the City of Toronto offer land transfer tax rebates for first-time homebuyers. ^[4][5]

British Columbia

In British Columbia the property transfer tax is equal to one percent tax on the first $200,000 of the purchase price, two percent on the remaining amount up to $2 million, and three percent on the rest.^[6] An additional 15% tax which applies only to foreign home buyers in Greater Vancouver started on August 2, 2016. The tax applies to buyers who are neither Canadian citizens, nor permanent residents. The definition of foreign buyer includes international students and temporary foreign workers. Anti-avoidance measures will be applied with fines of $100,000 for individuals and $200,000 for corporations for those who do not comply.^[7]

Chile

Land property taxes, called "territorial tax" or "contributions", is an annual amount paid quarterly by the property's owner. It is determined as a percentage of the property's "fiscal value", which is calculated by the Internal Revenue Service, based on the property's land and built area, the value of the construction materials, its age and its use. The fiscal value, which is usually much lower than the market value, may be disputed by the owner. The annual levy varies between 1 and 2% of this value, depending on the property's use (residential, agricultural or commercial). Residential properties valued below US$40K (as of 2013) are not taxed; those above that threshold are taxed only on the amount exceeding it.^[8] The collected taxes go to the municipality administering the property's commune.^[9] All municipalities contribute a share of the revenue to a "common municipal fund", which is then redistributed back to municipalities according to their needs (commune's poverty rate, etc.).^[10][11] Additionally, municipalities charge a quarterly trash collection tax, which is often paid together with the territorial tax (if applicable).

Denmark

The property tax in Denmark is 1% for property valued at less than DKK 3 million and 3% for property valued above DKK 3 million.

Greece

Greece has a Municipal and a Government property tax. The municipal property tax (ΤΑΠ/ΔΤ/ΔΦ) is included in electricity bills and incorporates, among others, charges for street cleaning and lighting. The Government property tax (ENFIA) is a combination of the individual asset's tax based upon floor-area and a progressive real-estate wealth tax per individual which is based on the estimated net-worth of all properties and can reach 2%.

Hong Kong

In Hong Kong, there is a kind of tax named a property tax, but it is not an ad valorem tax; it is actually classified as an income tax.

According to HK Inland Revenue Ordinance IRO s5B, all property owners are not be subject to this tax they received a consideration, like rental income for the year of assessment. The property tax shall be computed on the net assessable value at the standard rate.

Year of assessment

The period of assessment is from 1 April to 31 March of the following year.

Net assessable value

The formula is:

Net assessable value = 80% of Assessable value.

HK property tax payable = Net assessment value X Property tax standard rate

Assessable value = Rental income + Premium + (Rental bad debt recovered — Irrecoverable rent) – Rates paid by owner.

Jamaica

This tax is paid annually and is based on a percentage of the unimproved value of a property.

India

Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on Possessor (certainly, not true custodian of property as per 1978, 44th amedment of constitution). It resembles the US-type wealth tax and differs from the excise-type UK rate. The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual rental value (ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually four percent. Vacant land is generally exempt. Central government properties are exempt. Instead a 'service charge' is permissible under executive order. Properties of foreign missions also enjoy tax exemption without an insistence for reciprocity. The tax is usually accompanied by a number of service taxes, e.g., water tax, drainage tax, conservancy (sanitation) tax, lighting tax, all using the same tax base. The rate structure is flat on rural (panchayat) properties, but in the urban (municipal) areas it is mildly progressive with about 80% of assessments falling in the first two slabs.^[12]

Ireland

A Local Property Tax came into effect in Republic of Ireland on 1 July 2013, and is collected by the Revenue Commissioners. The tax is on residential properties, with the owner of a property being liable (though in the case of leases over twenty years, the tenant will become liable). The revenue raised is used to fund the provision of services by local authorities. Such services currently include public parks; libraries; open spaces and leisure amenities; planning and development; fire and emergency services; maintenance and cleaning of streets; and street lighting.

The tax is based upon the market value of the property, taxed via a system of market bands. The initial national central rate of the tax is 0.18% of a property's value up to €1 million, and in the case of properties valued over €1 million, 0.25% on the balance. From 1 January 2015, local authorities are able to vary LPT rates -/+ 15% of the national central rate.

In the case of properties valued over €1 million, no banding will apply – 0.18% will be charged on the first €1 million (€1,800) and 0.25% on the balance. The government estimates that 85% to 90% of all properties will fall within the first five taxation bands.^[13][14]

Luxembourg

Property tax in Luxembourg is an impersonal tax calculated on the basis of the property unitary value determined by the Luxembourg tax authorities and levied by the communes. The annual property tax is the result of the following formula: property unitary value * assessment rate * communal rate. The assessment rate is determined by the legislator and generally ranges from 0.7% to 1%. The communal rate is set by the communal authority and varies from 120% to 900% depending on the municipality.

Luxembourg has minimal property taxes comparatively to its neighbours in Benelux or in the European Union. It amounts to more or less €150 for a €500 000 apartment in Luxembourg City.^[15][16]

Netherlands

Property tax (Dutch: Onroerendezaakbelasting (OZB)) is levied on property on a municipal basis. Only the owners of residential property and people who rent and/or own commercial space (shop, office, workshop) are taxed. People who rent a home do not pay property tax since 2006. Municipalities combine their property taxes with a tax for garbage collection, and a tax for the sewer system. Owners and users of property and land also pay taxes based on the value of property to the waterboards for the protection against floodings and cleaning of surface water and sewer water ("waterschapsbelasting"). The Dutch state is taxing owners of houses by charging "huurwaardeforfait": a percentage of the value of a house is added to the income of the owner, so the owner of a house is paying more income tax. All property related taxes are based on the value of the house estimated by the municipality: the "WOZ-waarde" ("Wet Onroerende Zaakbelasting", Law Property Tax).

United Kingdom

See also Business rates in England and Wales

In the UK there is no tax on the ownership of residential property or land, a situation almost unique in the OECD.^[17][18][19] Instead, the Council Tax is usually paid by the resident of a property, and only in the case of unoccupied property does the owner become liable to pay it (although owners can often obtain a discount or an exemption for empty properties).^[20]

Her Majesty's Revenue and Customs (HMRC) guidelines state:

"Council Tax is a tax on property. In principle it may be an allowable deduction in those instances where other property-based expenses are deductible."^[21]

The Valuation Tribunal Service has cleared up many previous doubts regarding the exact nature of the Council Tax and confirms that:

"The tax is a mix of a property tax and a personal tax. Generally, where two or more persons reside in a dwelling the full tax is payable. If one person resides in the dwelling then 75% is payable. An empty dwelling attracts only a 50% charge unless the billing authority has made a determination otherwise." ^[22]

The Council Tax levied depends on the value of the property, but is not calculated as a simple percentage. Instead, the property is allocated to a Council Tax band, of which there are 9 in England and 8 in Scotland and Wales. The valuation of the property is carried out by the Valuation Office Agency under the auspices of Her Majesty's Revenue and Customs (HMRC).^[23][24]

Several former systems were dropped because of their unpopularity and (in the case of rates) the gradual separation of the voter base from the revenue base:

• Schedule A income tax, a central government tax that was levied on the imputed rent, that is the rent that owner-occupiers of land would have been receiving from a tenant had they not been living in the houses they owned. However, actual (as opposed to imputed) rent is still subject to income tax under Schedule A.
• Rates, a local government tax that was levied in proportion to the assessed value of property; this proportion itself was fixed or set by a schedule or formula that determined rateable value by reference to actual or imputed rental value, but the amount levied floated according to the budget decided on by councillors (originally only elected by ratepayers), giving rise to a charge distributed proportionally over all the relevant properties. Rates are still (2010) levied on business property, and residential property in Northern Ireland.
• Before the introduction of the Council Tax, rates were briefly replaced by the Community Charge (popularly known as "poll tax"), which proved even more unpopular than the rates.

United States

In the United States, property tax on real estate is usually levied by local government, at the municipal or county level. Rates vary across the states, between about 0% and 4% of the home value.^[25] The assessment is made up of two components—the improvement or building value, and the land or site value. The property tax is the main tax supporting local education, police/fire protection, local governments, some free medical services, and most of other local infrastructure. Also, many U.S. state and local jurisdictions impose personal property taxes.

Egypt

Property tax was approved in the parliamentary session of 2008, and was applied legally beginning in 2010 in accordance with Article 14 of Law 196 of 2008. The law imposes a tax on each property built. Public buildings are excluded (such as government buildings), as are religious buildings (mosques and churches).

Places without property tax

Africa

•  Kenya^[26]
•  Mauritania^[27]
•  Namibia^[28]

Europe

•  Faroe Islands^[29]
•  Malta^[30]

Oceania

•  Palau ^[31]
•  Norfolk Island^[32]
•  Cook Islands^[33]

See also

• Allodial title
• Land value tax

Further reading

• Slack, E., & Bird, R. M. (2014). The Political Economy of Property Tax Reform, OECD Working Papers on Fiscal Federalism 18, OECD Publishing.

References

External links

• Property Tax and Millage Calculator