David Murphy Business Editor

As the Budget approaches it is becoming clear the property tax will form a large part of package of measures which will be unveiled by Michael Noonan. Politicians I have spoken to believe the new levy will be no surprise to homeowners.

But many ordinary people may be taken aback by what is planned.

Ministers plan to levy the tax as 0.2% of the value of a home. In other words – divide the price of a house or apartment by 500 to calculate what is owed.  That would mean an owner of property worth €175,000 would pay €350 annually and a house worth €275,000 would be charged €550.

As the tax will come into effect in July, home owners will only be hit with half of the charge next year and a full levy in 2014.

It is expected that PAYE workers will have the property tax deducted at tax source. This would allow for payments to be spread across a full year instead of being paid in a lump sum. Some in Government believe that if people don’t have the money in the first place they will miss it less. This would contrast with the unpopular and regressive €100 household charge which both took money from wallets and charged millionaires the same amount as teachers.

There is a possibility that the Government could increase the property tax to 0.25% of the value of a home if tax revenue for November is weaker than had been hoped.

It is likely people will self-assess the value of their property within bands of €50,000. For example, if a property is worth between €150,000 and €200,000 it would be taxed at the mid-point of €175,000.

One concern raised is that the tax could deter people from extending or refurbishing homes. For example, if a home is valued at €190,000 and the owner extends, that could push the price of their property above €200,000, thus putting their home into a different tax band and penalising the homeowner for extending.

As a solution Ministers are considering that when a homeowner assesses the value of their own property – that valuation will be locked in for a three year period. That would also mean values upon which the tax is based would remain static even if property prices rises between 2013 and 2015. What less clear is what would happen if prices fall over the same period!

It is likely the exemptions to the property tax will be quite narrow. If waivers are similar to those applied for the household charge there would be two main exemptions: those who get help from the State paying their home loans and people who live in ghost estates.

But here is the nasty bit: as things stand it looks as if home owners who are on social welfare will have to pay the property tax. And that will hurt a lot of families who are already casualties of the property crash.