The primary purpose of taxation is to generate revenue for the public purse. But governments are also far from averse to using tax as a policy lever – raising taxes to ‘encourage’ taxpayers to take a particular course of action, or else dangling the carrot of tax cuts as an incentive.
It was the former ‘stick’ approach that the Irish government was aiming for when it announced plans for the Residential Zoned Land Tax (RZLT). How do you ‘encourage’ more available land to be developed for residential housing to meet targets? You tax landowners on their holdings of undeveloped land, making it cost money to sit on unused land.
Popularly dubbed the ‘land-hoarding tax’, the RZLT is not due to come into force as far as charges are concerned until 2024. Yet the government’s plans have already run into obstacles, in the shape of legal challenges from landowners who are far from happy at the prospect of being pencilled in to pay the tax.
How the RZLT works
The RZLT’s origins lie in the government’s Housing for All strategy. Launched in 2021, the stated aim of the strategy is to ensure “that every citizen in the State should have access to good quality homes”. Delivery of this promise involves increasing the housing stock, to the tune of 33,000 new homes built every year by 2030.
To meet this target, the government turned its attention to land zoned for residential development – and in some cases, land where planning permission for development had already been obtained, but which, for one reason or another, was still left vacant.
Such ‘hoarding’ of land that is otherwise considered suitable for development often occurs when landowners and/or developers do not consider the present economic conditions (such as soaring inflation on material costs) favourable to pressing ahead. Or they might be waiting for a bounce in land prices so they can sell at a profit.
The reasoning behind the RZLT is to discourage this by making it expensive to sit on undeveloped land. To this end, landowners will have to pay 3% of the market value of all applicable land per annum, until it is developed.
Determining eligibility for the RZLT has been left to local authorities. Based on their own local Development Plans, the authorities have been charged with drawing up maps of all land that fulfils the following criteria:
- It is zoned for residential or mixed-use (including residential) purposes.
- The land is serviced sufficiently or capable of being serviced sufficiently to support residential development.
- It is not subject to a published list of exemptions.
Authorities around the country have published draft maps ahead of finalisation on 1st December 2023. And it is their inclusion on these draft maps that a range of landowners are challenging in the courts.
The challenges range from the technical and specific to more broad-based attacks on the validity of the whole policy. Dublin City University, for example, has challenged inclusion of some of its lands on the grounds that they are earmarked for educational purposes, a fact that the university claims makes them exempt under the terms set out in the legislation.
Property developer Kinwest Ltd, on the other hand, is challenging the entire provision for the scheme made in the Tax Consolidation Act on the grounds that it is unconstitutional and an unjust contravention of its property rights.
How successful these representations will be will not be known until the cases conclude later this year. But it’s safe to say that the RZLT has got off to a controversial start and looks destined to be a less-than-popular tax, to say the least.
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