THE Memorandum of Understanding on Specific Economic Policy Conditionality (MoU) will bring significant changes in the way Immovable Property Tax (IPT) is calculated in Cyprus, putting to an end the use of 1980 values.
The MoU calls for 1980 prices to be adjusted by the Consumer Price Index from 1980 to 2012 and the threshold at which IPT becomes payable to be increased to €150,000.
Since 1st January 1980 (the date on which the Land Registry’s estimates are based) until October 2012, the Consumer Price Index had risen 3.40 times.
Under the new regulations anyone who owns property with a 1980 value exceeding roughly €44,000 (€150,000 / 3.40) will become liable to pay IPT and will be required to submit an annual self-assessment to the Inland Revenue.
If a property is equally and jointly owned, for example by a man and his wife, the 1980 value of their property will have to exceed approximately €88,000 (€300,000 / 2 / 3.40) before either of them becomes liable for IPT.
(The October 2012 Consumer Price Index is the latest figure available from the Cyprus Statistical Service and it is likely that the figure of 3.40 may increase slightly by the end of this year).
Revised IPT rate schedule
|
Property Value (1980 value uplifted by CPI)
|
Proposed Tax Rate
|
|---|---|
| Up to ?€150,000 | nil |
| From ?€150,001 to ?€500,000 | 0.6% |
| From €?500,001 to €1,000,000 | 0.8% |
| More than ?€1,000,000 | 1.0% |
Problems will continue
However, problems with the current taxation system will continue. If a private house or a building has not been registered on the Title Deed, then an accurate assessment of its owner’s tax liability will be impossible.
To give you an idea of the extent of this problem, a well-known authority on local property matters said he suspected that 50% of private buildings/houses were not registered on the Title Deed in his newspaper column.
The Cyprus government has said there should be a comprehensive analysis of all properties and reassess their current market values for taxation purposes. This would take into account the spread of urban areas, changes in use and new developments.
Troika proposals
The troika has proposed changes in the way that property taxes are calculated. These will be implemented in 2014 following the introduction of a property price index in 2013.
This price index will be based on the value of the habitable area of the building and the area of land on which it is situated and will vary according to the property’s location and zoning and some other factors.
In addition, the MoU calls for annual adjustments so that taxes collected will be based on up-to-date estimates of property values.
To counteract the negative effects of increasing IPT, the MoU provides an extension in the reduction in Property Transfer Fees until 2016.