Money Times With Jill Kerby

The Irish and Italians now share property tax pain WE are not the only country coming to terms with a new property tax. In Rome, Christmas spirit (and Christmas shopping) have been dampened by the Italians having to pay the second installment of the reinstated property tax on primary residences, the IMU, this past week. The first instalment of the 0.4% tax on the market value of a house had to be paid last July. With the existing taxes on second and subsequent properties, the IMU is expected to raise €20 billion for the Italian exchequer. Residential property tax (on first homes) was only abolished by Berlusconi's government four years ago. This might explain why, despite the unpopularity of this tax, it may not cause the same level of resentment there as here, where it is over 30 years since our family homes were taxed. At 0.4% of the market value of the property (and property values are being hiked a massive 60% by some Italian local authorities) it is a large sum to pay for many Italians, especially in Rome, where a tiny apartment of 30-35 square metres in the city will typically cost €450,000-€500,000. The amount exempted by the IMU on this tax is just the first €200, with another €50 per child up to the age of 26 allowed, to a maximum exemption of €400. Meanwhile, the second residence tax of 0.67% of the market value still applies but like our new property tax (which can be adjusted upwards by 15% by the local authority), the Italian second residence tax can be adjusted upwards by 20%, to a maximum of 1.06% of the market value. In Rome, where property prices are so high and a good-sized centre city apartment is easily worth €1 million (and may have been in the family for centuries), the 0.4% tax is going to cost such an owner €4,000 a year. Meanwhile, everyone complains about worsening local authority services and higher transport costs (Rome's notoriously low bus/metro fares have gone up 50% this year). Most ordinary people in Rome rent their homes and they now expect rents to go up (if their leases permit such a rise) as building owners try to recoup their even higher commercial property tax. Many Italians became homeowners in the last decade, taking advantage, as we did, of very low interest rates. This 0.4% tax on a more typically priced €300,000 two/three-bedroom apartment in a more distant suburb, will cost those Romans €1,000, on top of the higher income taxes and assorted levies that they are now paying. Back in Ireland, our local property tax (LPT) must be paid from July, but you must register and self-determine the amount of tax due in May. At 0.18% of the market value of your property (rising to 0.25% on the value above €1 million), an owner with a €300,000 home will pay €540 compared to the €1,000 (including the first €200 exemption) an Italian will pay. The only full deferrals permitted here (at 4% flat interest per annum) are for single people earning less than €15,000 or couples earning less than €25,000. A 50% deferral is available for single people earning less than €25,000 or €35,000 for a couple. Mortgage holders can deduct 80% of their mortgage interest from their income, which may assist them in qualifying for these deferrals. The cut in Child Benefit and the LPT will be the two individual items from the recent budget that will hit families hardest in 2013. A family with three children living in a house worth €200,000 will see their income fall by €456 a year in reduced Child Benefit payments and the €180 property tax (€360 for a full year). With higher car taxes, DIRT and excise on alcohol and tobacco, these are the most obvious places for a family to make up the shortfall. Switching any savings you have to tax-free post office savings will save the one third of interest lost to DIRT. Families are unlikely to be able to give up their car very easily but this would amount to probably the most significant saving of all. Smokers and drinkers spending easily €2,000 a year could save that by giving up cigarettes and alcohol. It may be a deeply unpopular notion but where families are struggling, teenagers who earn money in part-time jobs should be asked to make a contribution to the household. A 20% family income tax is not an unreasonable amount in these recessionary times and the amount collected from a teenage boy or girl earning €150 a month from babysitting or stacking shop shelves can add up to €360 a year towards the family property tax or, from next year, towards the new water charge. Unless you have a spare room to rent (under the tax-free rent a room scheme) or can find some other way to increase your income in 2013, the usual budget suggestions for families apply: Review your big ticket items, such as the mortgage, food, utilities and insurance. Can you make interest-only payments on the mortgage? Can you cut another 10% from the food budget or waste less? Have you switched to a less expensive health insurance plan (if you still have such insurance)? How many mobile phones does your family really need?