I am looking to sell a house that I have rented for over 20 years and which was previously my own residence.
We purchased the house in 1995 and it was our primary residence from 1995 until 2000 when we moved into our current home. We have since rented the property but are now considering selling it.
The price increase would be around 180K. What would our capital gains liabilities be if we sold this?
Is there any benefit in gifting the property to one of our children?
Mr. DL, e-mail
Capital gains can seem confusing to people when they have properties that they used as their own home for a while before moving for some reason and renting them out, but it’s not too confusing. However, to give you an exact figure, we would need a little more information than you provided.
As things stand, the best we can do is give you the tools to work on it yourself.
The basic rule on capital gains is that you pay tax on the difference between the purchase price and the sale price, in your case around €180,000. The tax rate in recent years has been 33%.
So at this superficial level, before taking into account that you lived there for a while or any other relief available, you would have a bill of €60,000.
One of the major landholding and tax reliefs in Ireland is a complete exemption from capital gains tax for any property used as a family home – or principal private residence to give it the title. Revenue official.
Where, like you, you have used the property as a family residence for part of the time but not for the entire duration of the ownership, the exemption applies on a pro rata basis.
You have owned the house for 26 or 27 years, depending on when you bought it in 1995, and you lived there for five years. So on this relief, you will only pay 21/26 or 22/27 of the gain in its value, or about 80% of the gain.
Before you get to that point, however, you need to work out your taxable gain – relative to that €180,000 face value increase.
I assume you have taken into account that you bought in punts in 1995 and you sell in euros. You should also take into account the impact of inflation – at least until the end of 2002, when the inflation protection ended.
You don’t tell me your purchase price, but if the house was purchased before April 5, 1995, you must multiply that figure by 1.309 to determine your new “base purchase price”. If you bought later than 1995, the multiplier is 1.277.
Essentially, this increases the purchase price by about 30% to account for inflation, which will have a noticeable impact on any CGT bill.
Then you are entitled to deduct from the net gain any expenses you incurred that were directly attributable to its purchase or sale, such as legal and auctioneer’s fees.
This gives you your net taxable gain. But, before we crunch the numbers, there’s one last thing – the last year of ownership is considered owner-occupied, whether the property was rented at that time or vacant.
So the fraction of 21/26ths to determine your tax bill becomes 20/26ths instead – or 21/27ths anyway.
Just to give a rough example. Let’s say you bought the place for £95,000 in 1995. In euros that’s €120,625.
Assuming you bought it in early 1995, the inflation multiplier is 1.309, bringing that purchase price for capital gains tax purposes to €157,898. You say the property is now worth €180,000 more than the price you bought it at, which means – for this example – it is worth €300,625.
The new base price means that your capital gain is now €142,727.
If your outlay for buying the property was €5,000 and the sale will cost you €10,000, this will reduce the gain by another €15,000 to €127,727.
But you’re only taxed on a fraction of that to account for when it was your family home. Suppose you bought in March 1995 and finally sold in March of this year. It will be 27 years, but you are only assessed for CGT on 21 of those years – allowing for five years as a family home and the final year of ownership.
By multiplying your gain by 21 and then dividing it by 27, you get your new taxable gain of €99,343. Finally, you have the right to realize a capital gain of €1,270 each year before being taxed.
This brings the gain down to €98,073…and the tax bill to €32,364, about half of what you had at the start.
Obviously you’ll have to come up with your own numbers, but this gives you an idea of the process.
Regarding your last question – if there is any interest in giving the property to your children, the answer is no. You will still be assessed for capital gains up to the point of transferring it to one or more of them. However, if you keep it until you die, it will be passed on to them without a capital gains tax bill, as the gains will be deemed to have died with you.
Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice.
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