A property tax or millage rate is an ad valorem tax on the value of a property, usually levied on real estate. The tax is levied by the governing authority of the jurisdiction in which the property is located. This can be a national government, a federated state, a county or geographical region or a municipality. Multiple jurisdictions may tax the same property. This tax can be contrasted to a rent tax which is based on rental income or imputed rent, and a land value tax, which is a levy on the value of land, excluding the value of buildings and other improvements.
Under a property-tax system, the government requires or performs an appraisal of the monetary value of each property, and tax is assessed in proportion to that value.
The four broad types of property taxes are 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) is the combination of land and improvements.
Forms of property tax vary across jurisdictions. Real property is often taxed based on its class. Classification is the grouping of properties based on similar use. Properties in different classes are taxed at different rates. Examples of property classes are residential, commercial, industrial and vacant real property. In Israel, for example, property tax rates are double for vacant apartments versus occupied apartments.
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. The other (special assessment) relies upon a special enhancement called a "benefit" for its justification.
The property tax rate is typically given as a percentage. It may 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 (one-thousandth of a currency unit). To calculate the property tax, the authority multiplies the assessed value by the mill rate and then divides 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.
Property classes, tax rates, assessment rules and valuations vary by jurisdiction.
Australian property taxes are 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 consider structures on the property.
Australia has stamp duty, applied at the time a property is sold, paid by the purchaser to the Office of State Revenue (in the case of New South Wales (NSW))—each of the states and territories have their own revenue collection agencies. A Land Transfer Charge applies under the NSW State Revenue Legislation Amendment Bill 2010. The Charge is to 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.
Brazil is a Federation Republic, and its federated entities (internal States and Municipalities), as well as the Federal government, levy property taxes. They are all declared in the Federal Constitution.
These are the current property taxes:
- Tax on Rural Territorial Property – federal: levied upon real state property on rural areas;
- Tax on Urban Territorial Property – municipal: levied upon real state property on urban areas;
- Tax on Motorized Vehicles Property – state: levied upon the property of cars, trucks, motorcycles, and the likes;
- Tax on Big Fortunes – federal: it is declared on the Federal Constitution, but there is still no regulation defining its incidence.
Many provinces levy property tax on real estate based upon land use and value. This is the major source of revenue for most municipal governments. While property tax levels vary across municipalities, a common property assessment or valuation criteria is laid out in provincial legislation. The trend is to use a market value standard for valuation purposes with varying revaluation cycles. Multiple provinces established an annual reassessment cycle where market activity warrants, while others have longer periods between valuation periods.
Calculating Individual Property TaxesEdit
In Ontario, for most properties (e.g., residential, farms), property taxes can be calculated by multiplying the phased-in assessment indicated on the Property Assessment Notice by the tax rate.
The municipal tax rate x phased-in assessment for the particular taxation year = municipal portion of tax.
The county/regional tax rate x phased-in assessment for the particular taxation year = county/regional portion of tax.
The education tax rate x phased-in assessment for the particular taxation year = education portion of tax.
The 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 TaxEdit
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.
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. An additional 15% tax that applies only to non-resident foreign home buyers in Greater Vancouver started on August 2, 2016. The definition of foreign buyer includes international students and temporary foreign workers. Anti-avoidance measures include fines of $100,000 for individuals and $200,000 for corporations.
First time home buyers programEdit
The First Time Home Buyers Program is a program by the BC government that offers qualifying first-time homebuyers a reduction or elimination of the property transfer tax. It can be used in conjunction with the B.C. Home Owner Mortgage and Equity Partnership.
New home exemptionEdit
The Newly Built Home Exemption is a program that reduces or eliminates the property transfer tax on new homes. The amount is limited to $13,000 for qualifying individuals who must be either a Canadian citizen or a permanent resident. The property purchased must be located in British Columbia, have a fair market value of $750,000, be smaller than 1.25 acres and be used as a principle residence. It can be used in conjunction with the B.C. Home Owner Mortgage and Equity Partnership.
The land property tax, called "territorial tax" or "contribution", 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, construction materials, age and 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 US$40K. Revenues go to the municipality administering the property's commune. All municipalities contribute a share of the revenue to a "common municipal fund" that is then redistributed back to municipalities according to a their needs (commune's poverty rate, etc.). Additionally, municipalities charge a quarterly trash collection tax, which is often paid together with the territorial tax (if applicable).
The property tax in Denmark was abolished in 1997.
The law imposes a tax on each property. Public buildings are excluded (such as government buildings), as are religious buildings (mosques and churches). Families owning private properties worth up to LE 2 million ($290,000) are exempt. commercial stores with an annual rent value over LE 1,200 are not exempt.
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%.
According to HK Inland Revenue Ordinance IRO s5B, all property owners are not be subject to this tax unless they received a consideration, like rental income for the year of assessment. The property tax is computed on the net assessable value at the standard rate. The period of assessment is from 1 April to 31 March.
Net assessable valueEdit
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.
Property tax or 'house tax' is a local tax on buildings, along with appurtenant land. It is and imposed on the Possessor (not the custodian of property as per 1978, 44th amendment 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 is delegated to 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 requiring reciprocity. The tax is usually accompanied by 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 brackets.
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. The property owner is liable (though in the case of leases over twenty years, the tenant is liable). The revenue funds 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 street cleaning and lighting.
The tax is based upon market value, 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. Properties valued over €1 million are assessed 0.25% on the excess. 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 applies – 0.18% is charged on the first €1 million (€1,800) and 0.25% on the balance. The government estimates that 85% to 90% of all properties fall within the first five taxation bands.
This tax is paid annually and is based on a percentage of the unimproved value of a property.
Property tax in Luxembourg is calculated on the basis of the property's "unitary value" determined by tax authorities and levied by the communes. The tax is calculated as 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.
Property tax (Dutch: Onroerendezaakbelasting (OZB)) is levied on property on a municipal basis. Only the owners of residential property and people who rent/own commercial space are taxed. People who rent a home do not pay property tax. Municipalities combine their property taxes with a tax for garbage collection and for the sewer system. Owners and users of property and land also pay taxes based on the value of property to the water boards for flood protection and water and wastewater treatment ("waterschapsbelasting"). A percentage of the value of a house ("huurwaardeforfait") is added to the income of the owner, so the owner of a house pays more income tax. All property-related taxes are based on the value of the house estimated by the municipality.
In the UK the ownership of residential property or land is not taxed, a situation almost unique in the OECD. 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).
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."
The Valuation Tribunal Service states 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."
The Council Tax 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, (9 in England and 8 in Scotland and Wales). Valuation is carried out by the Valuation Office Agency under the auspices of Her Majesty's Revenue and Customs (HMRC).
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. 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. Many state and local jurisdictions add personal property taxes. (See exceptions below.)
Places without property taxEdit
In Alaska, "...only a small portion of the land mass is subject to a property tax. ...only 24 municipalities in Alaska (either cities or boroughs) levy a property tax." There is no tax on the private land in American Samoa, the Territory of Palmyra Island or Kingman Reef in the Pacific Ocean insular areas.
- Slack, E., & Bird, R. M. (2014). The Political Economy of Property Tax Reform, OECD Working Papers on Fiscal Federalism 18, OECD Publishing.
- Millage Rate
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