The main role of tax is to generate funds for the Government, although it can serve other valuable purposes. Some taxations have been specifically developed to encourage or deter particular activities for the benefit of society.
The Vacant Homes Tax (VHT) is such an example, having been established in the 2022 Finance Act. Initially, the tax was calculated as threefold the amount of a property’s Local Property Tax (LPT), and applied to homes occupied for less than 30 days in a year.
In the face of the most severe housing shortage the nation has ever faced, it is paramount to consider every feasible method to enhance the availability of homes. Consequently, ensuring that empty properties are put up for rent or sale makes perfect sense.
Estimates made prior to the VHT’s implementation, based on census data, indicated potential tens of thousands of empty homes. However, a mere 3,500 residences were ultimately eligible for VHT. Although much of the vacant and deteriorating buildings which plague Ireland’s cities and towns pertain to business sites, these are not impacted by the tax. The VHT was raised from three to five times the property’s base LPT charge in the 2024 Budget, effective from November 2023 to October the following year.
According to the Department of Finance, the primary aim of this tax is “to increase the availability of homes to rent or buy, by incentivising the owners of vacant residences to put their properties to use”. As of now, it is still uncertain whether this target has been achieved.
With the current tax rate, a vacant house in Dublin worth €500,000 would have a VHT of €2100 this year. Considering the annual home price increase of over 7 per cent, the potential capital gain for the owner would overshadow the taxation cost in the same timeframe.
Officials presented a summary document to Jack Chambers, the Minister for Finance, in June that addressed the concern of whether the rate was inadequately low. The document reiterated that the main goal of the Vacant Housing Tax (VHT) isn’t to increase government income but to strike the right balance between promoting the utilisation of available housing and excessively penalising a narrow category of real estate owners.
The essence of these statements is fairly evident. The factual response to the query relating to the tenuity of the existing tax rate will only be answered accurately with relevant data indicating whether there’s been a decline in the number of unoccupied properties nationwide following the tax’s implementation. If there’s no significant decline, it’s a clear indication that the VHT isn’t effective and should either be boosted to an instrumental level or eliminated entirely.