Section 123 of the Finance (Local Property Tax) Act 2012 provides that any local property tax (LPT), interest or other monetary penalty amount that is due and unpaid by a liable person shall be and remain a charge on the relevant residential property to which it relates. Section 124 of the act provides that the charge referred to in section 123 shall continue to apply without a time limit until such time as it is paid in full.

Section 126(1) of the 2012 act (as amended by section 12(e) of the Finance (Local Property Tax) (Amendment) Act 2013) provides that a vendor of residential property shall, before completion of the sale of the property, pay any local property tax, penalties, and accrued interest due and payable in respect of that property. Section 126(2) of the 2012 act (as amended by section 12(f) of the 2013 act) provides that LPT shall be paid, notwithstanding that a sale of a property is completed before that tax is payable, in accordance with section 119(1A) (inserted by the 2013 act).

Section 127 of the 2012 act provides that any unpaid LPT and any penalties and accrued interest shall remain a charge on the property to which it relates. This statutory obligation on the vendor does not mean that the amount of the LPT already paid by the vendor cannot be apportioned between the vendor and the purchaser at closing. It is the view of the committee that this should be done, except where an exemption from LPT applies.

The above type of statutory obligation was not envisaged at the time that General Conditions 8(c) and 27(b) of the Law Society’s standard contract for sale were drafted. As currently drafted, the two are mutually exclusive, whereas the manner in which LPT should be dealt with would require that both general conditions would apply. The committee therefore recommends that the following special condition be inserted in the Conditions of Sale:

“The Vendor shall discharge all local property tax relating to the Subject Property in advance of the completion of the Sale and furnish the Purchaser with confirmation of payment on completion of the Sale. The amount paid by the Vendor in respect of local property tax relating to the Subject Property shall be apportioned as between the Vendor and the Purchaser in accordance with the provisions of General Condition 27. General Condition 8(c) and General Condition 27 are amended accordingly.”

Practitioners should note that section 17(4) of the 2012 act provides that “the amount of local property tax to be charged for 2013 and determined in accordance with subsection (1) or (3), as the case may be, shall be an amount which is reduced by 50 per cent.” Therefore, the charge should be apportioned over the entire calendar year, as the charge relates to the full year. It is not the case that the tax applies only in respect of the period between 1 July and 31 December 2013.

Where an exemption from LPT applies and the LPT will, therefore, either not arise (that is, new properties) or will not be apportioned between the parties (for example, purchaser is a first-time buyer), evidence of entitlement to the exemption should be furnished by the relevant party, if necessary in the form of a statutory declaration.

Practitioners should note that Revenue has advised that, after 28 June 2013, it will be possible to check online what the LPT status of a property is. Between now and 28 June, Revenue has said it will provide this information by letter on request from a vendor’s solicitor and that a dedicated email address will be provided by Revenue for this purpose.

Advice to clients:

1. Advise vendors to print off their confirmations of payment if they are paying online.
2. Advise vendors who are paying by deduction at source from salary that they will not be given credit for amounts paid during the year until their employers file P35s after the end of the relevant tax year. If they are selling within the tax year, they will have to pay the full amount of LPT for the year up front before closing, and later claim a refund from Revenue of any amount deducted at source. If they know they intend selling during the course of a particular year, they might prefer to alter their method of payment so as to avoid the inconvenience of such a double payment.
3. It is recommended that a vendor would furnish a purchaser at the pre-contract stage with a note of the value band declared for a property by the vendor. Advise vendors to keep a copy of their returns for this purpose.
4. The operation of the LPT remains fluid and the committee will issue further practice notes as the matter develops.