IPT paymet request from Developer

[amberdog]

Hi Nigel

We have been informed by our developer that the Title Deeds are now available.. Great News!

However, he is asking that there is over € 5,000 due from us to pay IPT he has paid for the previous 8 years, do you think we need to pay this before we get our title deed completed. We have not had any requests form our developer to pay incremental IPT over the years as some others have. We don't think that the company has paid anywhere near this amount, you advise would be greatly welcome.

I also note in other posts you talk about 'certificate of completion'. We have lived in the house for 8 years and not had one of these?

Regards

Amberdog

[Nigel Howarth]

Hi amberdog and welcome to the forum.

You'll need to check your contract of sale - nearly all of the contracts I've seen make purchasers liable for IPT from the date they took delivery of a property.

Some developers are trying to charge buyers based on a percentage of the purchase price. If this is the case with yourself, I suggest you read the article 'Immovable property tax & fraudulent practices'.

and also Immovable Property Tax law. And take particular note of this letter from the Interior Ministry.

If your Title Deeds are available, there must be a Certificate of Approval.

Regards,

[amberdog]

Thank you for your reply Nigel, It seems a minefield.

I have checked with the local municipality to see what taxes the developer has paid and they have said that it is very little. it says in our contract -

'the purchaser will be responsible for the payment of any taxes and/or rates due to the improvement board of the village from the date of delivery of the possession of the property as well as for the immovable property tax according to the law 24/80-2000'

It seems he has not paid much to the local council, who would he have paid the IPT to in the first place the Land Registry?

So from the information on the letter from the Ministry of the interior the vendor should show proof of how much IPT has been paid. This is then the figure we are liable for to reimburse the Developer. We have asked on another occasion and he said he couldn't do so. He did reduce the amount we paid - reluctantly.

Thanks for your help

Regards

Amberdog

[Nigel Howarth]

The developer is trying to rip you off and using the threat of withholding title deeds to elicit payment - I'd call it extortion!!

According to the law 24/80-2000 it is the registered owner of the property who is responsible for paying IPT and your contract obliges you to repay the developer the amount he has paid on your behalf since you took delivery of the property (this is quite normal).

Immovable Property Tax is payable to the Inland Revenue Department.

Until this year (2013) the Inland Revenue did not send out tax demands but relied on the honesty of property owners to submit declarations from which the Inland Revenue would calculate their Immovable Property Tax liability and issue a tax demand.

How did this work? Let us suppose that a developer purchased a plot of land with a 1980 value of €150,000:

In the first year he would submit a IPT declaration showing just the 1980 value of the land (€150,000) and the Inland Revenue would issue him with a tax demand based on €150,000.

In the second year he starts building - let’s say he spends €100,000. He then submits a IPT declaration showing the 1980 value of the land (€150,000) plus the value of the ‘improvements’ he has made (€100,000). The Inland Revenue will calculate the 1980 value of the improvements (let’s say their 1980 value is €20,000) adds that figure to the 1980 value of the land and issues the developer with a tax demand based on €170,000.

In the third year he continues building and spends a further €300,000. He then submits a IPT declaration showing the 1980 value of the land plus previous improvements (€170,000) plus the value of the ‘improvements’ he has made this year (€300,000). The Inland Revenue calculates the 1980 value of these improvements (let’s say their 1980 value is €60,000) adds that figure to the 1980 value of the land plus previous years improvements and issues the developer with a tax demand based on €230,000.

(I believe the Consumer Price Index or the Inflation Index is used to assess the 1980 value of ‘improvements’).

And so it goes on until the development is complete.

What the 'good' developers do is submit IPT declarations to the Inland Revenue each year (as above) and provide their buyers with records of the amount paid as Immovable Property Tax (IPT) and a certificate showing the rate of IPT applicable to the property. It is important to note that the buyer may be able to claim back part or the entire amount paid once they have paid the Property Transfer Fees and become the property's owner. (see the letter from the Interior Ministry).

The 'bad' developers do not submit IPT returns each year as they should and wait until the Title Deeds have been issued before paying the tax they owe. Because of the delay in making their payment, the Inland Revenue will impose a fine on the developer, who will then try pass this fine on to those who have bought property (often using the threat of withholding Title Deeds to elicit payment)!

Regards,

[elusien]

Hi,

Nigel's response is correct only if the developer has that single development on which to pay IPT. If he has a lot of developments then the Inland Revenue lumps them all together and he pays the IPT on the sum, as if it were a single title deed.

If your developer is one of the big ones, e.g. Pafilia, their total will be huge, in the tens of millions, hence they will effectively pay at the highest tax band, which this year is 1.9%, in previous years it was 0.4%.

My developer has estimated my 1980 villa price at 37,000 euros, one-tenth of what I paid in 2005, so my bill this year was 700 euros. In previous years it would have been about 150 euros. I hope this helps you find a rough estimate of what you should be paying.

5000 euros over 8 years equates to about 600 euros a year, which would mean an estimated 1980 value for your villa to be about 150000 euros, which, by my calculation, would imply that you bought your villa for about 1.5 million euros 8 years ago! Your estimated 1980 price should be on the title deed, so ask to see it and you can work out the maximum he should have paid over the years for IPT on your property.

As Nigel says, I think your developer is trying it on. Ask for a copy of all the receipts he has for paying the IPT over the years before parting with a cent.

[Nigel Howarth]

If he has a lot of developments then the Inland Revenue lumps them all together and he pays the IPT on the sum, as if it were a single title deed.

That's right - but he can get a breakdown of the tax on each of the Title Deeds - and it would be a simple job to work out how much he should recover from those who have yet to receive their Title Deeds.

I've received numerous emails from people whose developer is charging them based on 25% of the purchase price.

Others are being charged “financing interest of 9%” (which is the penalty imposed by the Inland Revenue for delayed payment).

Regards,

[elusien]

Nigel,

As you say, there are a lot of unscrupulous developers out there. I think mine, Pafilia, are acting quite reasonably, firstly by only asking for us to pay the IPT for 2013 and secondly by using what to me appears not to be a too unreasonable figure for the 1980 price (10%).

Amberdog should be able to see exactly what her 1980 estimated price is, from her title deed that her developer says is ready to be transferred. The MAXIMUM she should have to pay for the previous 8 years should be in the region of:

8 x P1980 x 0.004 euros

Since this is the maximum the Inland Revenue could ask of the developer. Any more than this and the developer is either fraudulently inflating his bill from the inland revenue, or he is expecting Amberdog to pay any fines he got for not paying the IPT when he should have. Obviously she is within her rights not to pay these.

For this year the maximum should be:

P1980 x 0.019

The calculations though are no substitute for getting copies of receipts and IPT certificates from the developer, as that is what is required to get the refund (form IR314) from the Inland Revenue.

[amberdog]

Hi Guys

Thank you very much for your help, we have taken it all on board and have sent a request to our developer to supply the information you suggest, so we will wait and see their response.... we will let you know the outcome.

Many Thanks

Amberdog

[amberdog]

Hi Nigel

I think we are making progress, could you let me know where I can find the historical IPT levels over the last 8 years please.

I have a ball park figure now for my property value at 1980 prices I know there has been an increase in IPT since 2012 but before that I think the top rate was €4/'000

My Developer is saying that because he has paid the top rate of IPT, due to the size of his portfolio we should recompense him for that fact, if this is so is there any way we can claim back the overpayment of IPT that he has paid and asking us for.

Sorry to keep asking these questions but its like walking through treacle sometimes.

Kind regards

Amberdog

[Nigel Howarth]

Hi Amberdog

Top IPT rates as follows:

Up to and including 2011 - 0.4%
2012 - 0.8%
2013 - 1.9%

Regards,

[amberdog]

Thank you for your reply Nigel, I appreciate it very much. I do have 2 more questions though.

1 How is the 1980 value of the property worked out, we have the figure from the developer but it seems high to my mind, if there is a formula does it apply to all dwellings?

2 Is there a way to claim back the top rate IPT that has been paid by the developer to the level that as a single owner should have paid for the preceding years. I am aware of course of the financial problems on the island and the likelihood of getting anything back would take a very long time if any would be refunded at all.

Thank you in anticipation and sorry for labouring this point for so long.

Regards

Amberdog

[Nigel Howarth]

You're welcome amberdog,

There isn't a formula to work out 1980 values, when Title Deeds are issued/updated the Land Registry uses its historical records to assess the 1980 value. Typically property values have increased between 8 and 10 times since 1980 - so if you were to divide the purchase price by 8 - 10 you'd be in the right ballpark.

(You can see how the IPT system 'works' in my earlier message at http://www.cyprus-property-buyers.com/f ... 4246#p4246 ).

And yes - it is possible to reclaim and legitimate overpayments of IPT once your deeds have been issued and the property registered in your name. The relevant form is IR 314.

Regards,