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29th March 2024
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HomeArticlesProblems will continue after property tax shakeup

Problems will continue after property tax shakeup

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.

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18 COMMENTS

  1. @Adrian – There is no difference in the treatment of Cypriots and non-Cypriots. The problem is that there is no legal requirement to include a building/house on a deed.

    In my own case, I bought land and built a house to my own design and requirements. I paid Property Transfer Fees on the land and built on it 10 years later when I moved to Cyprus. Once my house was completed and I received my Certificate of Final Approval I need not have done anything else; there was no legal requirement to add it to my deed.

    In cases where a building/house has not been issued with a Certificate of Final Approval, the local authority and the Land Registry has the right to revise the value of the property to reflect what is on the ground – and taxes will be levied on that revised value.

    When people (Cypriots and non-Cypriot) buy from a property developer, they are buying the land and the house as a complete package – and the house will be included on the deed as part of that package.

    Finally, according to Article 10 of the Streets and Buildings Law CAP. 96 “No person shall occupy or use, or cause, or permit, or suffer any person to occupy or use, any building unless and until a certificate of approval has been issued in respect thereof by the appropriate authority”.

    This law, like many others in Cyprus, is rarely enforced.

  2. Why is the Cyprus government planning to penalise those property owners who have obtained their title deeds and taken the trouble to add alterations to the deeds?

    They have already stung us once by charging a figure way in excess of that which we were expecting for the deeds. Why do they not even make any attempt to raise revenue from the 50% of people who have not registered buildings on the deeds? (eg by making it illegal to occupy a property that isn’t registered) I assume that this is another tax which aims to raise money mainly from foreign owners but allows many Cypriots to avoid paying.

    Do you believe that this is an instance where MEPs should be asked to put pressure on the Cyprus government to treat all property owners in Cyprus the same?

  3. Richard.

    You write that “I don’t believe in anarchy…” Neither did I but after having a lifetime’s exposure to the ‘artful ways’ as practised in Cyprus, I was a convert to ‘anarchy’ many moons ago.

    Why? For the simple reason that those who’ve perpetrated and continue the criminality in the property market in Cyprus are the ones who hold the reins of power and influence: the government, developers, banks and lawyers. They should all be swept away as they have absolutely no intention of changing anything and nobody should think for one minute that they will.

    Furthermore, the EU mandarins are dragging their feet as they don’t want to press matters too hard as they’re determined to maintain the status quo of the EU ‘project’ which in turn will guarantee their continuing existence.

    As for the troika’s hope/suggestion that title deeds will be issued for all in the next year or so, is that cast in stone and who’s going to enforce it even if it is?

    All these amnesties, shake-ups, etc. are nothing more than wheezes. You know it, I know it, the EU knows it and the whole world knows it. History tells me that in this part of the world nothing will change unless there’s blood on the carpet.

  4. An update to my earlier posting.

    I am informed by a developer that the 1980 value on my Registration Certificate of the property, which is described as a ‘building plot’ (translated from Greek) is in fact for the house and plot.

    When the house has been added to the Certificate, the 1980 value will not change, he tells me.

    That would be a great relief and mean that I have been unnecessarily spreading alarm and despondency.

    Thus the uplifted 2012 value would equate to just 374,000 Euros all in for IPT purposes, meriting an annual tax bill of 1,344 Euros, as Denton has calculated. It doesn’t matter that I paid four times this sum for it (more fool me).

    What will happen to the ‘IPT’ values in future, one can only guess.

    I would be interested in any further thoughts on this issue.

  5. Thanks Denton, I hope that I have miscalculated, but my calculation of the liability is on the same basis as yours. Using my existing plot value updated by the CLII would get the same figure as you; 1,344 Euros.

    The problem is that that the plot represented only 25% of the original contract price. When the building is added to the registration certificate a much bigger figure would be on the certificate. All this additional value would be taxed at the marginal rates. I think it could give rise to the sort of liability in my earlier posting: 1,344 + (125K @ 0.6%) + (500,000 @ 0.8%) + (500,000 @ 1.0%) = 11,094 Euros.

    Nigel; yes it seems that the rates you have given in the table are equivalent to the the rather Byzantine way that CTA and the leaked document express them; per thousand Euros. My house is not that big, but I bought at the peak of the market (2006) and paid the equivalent of 1.5 million Euros in CYP.

    I have yet to meet anyone who has paid IPT, so I suppose it is possible that I have misunderstood the whole thing. For instance; is it really payable on the total property value, or just on the plot value?

    I fear it is the former.

  6. @Johnny – the IPT rates are correct. The rates in the troika document were expressed in ‰ (per mille) as 6‰ 8‰ 10‰.

    (1‰ = 1/1000 = 0.1%)

  7. Google shows the building work in and around my villa during the last 6 months.

    All that is needed is the will to update the L.A. map.

    My concern is that there will be no transparency. I know that Greek Cypriot homes built at the same time as mine have got lower values, and that they paid much lower taxes for their title deeds.

    I have no objection to paying but it should be fair.

  8. Are the figures in the table ‘revised IPT rate schedule’ above correct?

    The proposed tax rates are stated as 0.6%, 0.8% and 1.0%.

    Or should they be 0.06%, 0.08% and 0.1%?

    I hope the latter and then I will only have to face a doubling of IPT and need not commit suicide.

  9. @Johnny Cyprus. Forgive me, but I wonder whether you may have miscalculated your proposed new IPT. According to the formula that Nigel posted in response to my query (see blog thread to Leaked Troika Proposals), if the 1980 value stated in your Title Deed is Eu 110,000 then the calculation is:

    ((110,000 x 3.4)- 150,000)x 6/1000 = Eu 1,344

    @Nigel, have I got this correct??

  10. @Nigel “The whole system is a farce”.

    That’s a pretty good start point for Bill Cash & team back in the UK being rallied up by those of us unfortunate enough to have bought a great sales-pitch for these “investments”.

    It strikes me that a cynical plan has been in place for a long time. Build like mad – big up the opportunity – lend funny money to the unsuspecting – conscript some legal people of dubious moral integrity – cover up the tracks & bury the bodies – don’t invest in infrastructure – crash the market – get people trapped – tax them to the hilt as easily as shooting rats in a barrel.

    It’s crime on a biblical scale – and unfortunately – not just in Cyprus either. Although many people in Cyprus have acted in more shameless ways than elsewhere – it’s going on all over the world. 99% of the world’s population seem to count for nothing any longer. Perhaps we never did – but at least we were all bimbling along with the illusion of being ‘well off’ even though we were being manipulated and played like a fiddle the whole time.

    The removal of Mubarak (and others) at least gave a temporary voice to the 99% – however things may have turned out for them. I don’t believe in anarchy – but I don’t have much faith in the folks behind this little lot either to be brutally frank.

    As Costasapacket says – we are all in this together – and probably about time to start to working more community angles. I know I’ve had exasperation on the forum here – but I’m sensing that more and more people are realising nothing is going to move on anything without self-help and cohesive action by those with vested community action.

    I know – one or two of you who know me are rolling your eyes skyward in anticipation of my Einstein quote again at this point. Sorry – indulge me – the genius was spot on:

    “THE SIGNIFICANT PROBLEMS THAT WE FACE CANNOT BE SOLVED AT THE SAME LEVEL OF THINKING WE WERE AT WHEN WE CREATED THEM”.

    Suggestions on a post-card (or even on a blog)…….

  11. @Johnny Cyprus – you must have a very large house and a very large plot in a very expensive area to be liable for €13,500/annum Immovable Property Tax under the impending new scheme.

    When the scheme comes in you will need to submit a ‘Declaration of Real Property’ to the Inland Revenue Department by 31st September every year.

  12. @Adrian – The problem here is that the planning systems and processes involved in issuing Title Deeds are firmly rooted in the days of quill pens and parchment.

    In my own case, I bought a plot of land and got the deed some four years later. When I moved here permanently in 2002 and built my house, it took the Planning Authority and Land Registry between them seven years to add my house to the deed.

    So you can understand why some people choose to forget about it – particularly as they are under no legal obligation to add their house to the deed.

    The whole system is a farce.

  13. Just a small point on my earlier submission, I suppose with the ‘top slicing’ feature, the liabilty might be about 11,000 Euros pa, all other things being equal.

  14. Owners ‘fortunate’ enough to have property registration certificates may have immediate cause for alarm at these proposals to introduce an effective wealth tax.

    I am lucky enough to have a certificate for my house, yet I have paid no annual IPT since settling a bill presented by my Developer in respect of four years back IPT, when the Title was transferred to me over two years ago.

    The reason no tax has been paid since is because my Certificate, like many, does not include my house. The 1980 property value stated is 110,000 Euros, less than the current threshold for payment of IPT. The figure stated is thus based on a rather optimistic valuation of only the building plot, as at 1980.

    That is not my fault; the certificate has been at Paphos Land Registry Office for over two years, in order that the necessary amendment may be made.

    If the proposals are implemented, then people like me are going to face a very large bill indeed. If the CPI adjustment is made to my 1980 plot value, then the result is 374,000 Euros, well above the proposed threshold for IPT. However, in the contract the building plot represented less than 25% of the total price paid. If one assumes that the build/plot cost ratio still holds, then there is going to be a figure of about 1,500,000 Euros on my registration document, if I ever get it back from PLRO.

    That would make me liable for 13,500 Euros per annum in IPT at the proposed rates. I would be expected to declare it on my income tax return, which as a non resident, I do not currently file. Maybe back tax too? Under the existing scheme, I might be due to pay around 650 Euros.

    Owners will be even less keen to finish properties and get their title registered and the market will be dead and buried for good. Surely this has to be a mistake?

  15. I think that you will find that most of the unregistered property is built on “family” land with a title deed so is safe from the banks. If you are getting a free ride you are going to object to any change.

    I would happily volunteer to go around checking property, traffic warden or tax evaders. Its better than sitting at home getting ripped off supporting a culture that does not expect to pay for anything.

    Sorry if I sound bitter but I do really like the Island of Cyprus

  16. This is a great opportunity for the Government to enlist the help of a number of local people, especially those who are currently unemployed and claiming social benefits, train them how to use a camera and some simple GPS surveying equipment and get them to check every piece of registered land in their local area or village to update its status.

    Yes of course they may come into conflict with those who currently have unregistered properties, but hey, it’s got to happen sometime so let’s get the ball rolling!

    After all, ‘we’re all in this together’…aren’t we?

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