Capital Gains Tax payable on 2nd home

GalwayMayo

Hi All,

I purchased my current house in 2006 for €300k which I have lived in for 10 years. There is currently €200k outstanding on the mortgage.

As my family circumstances have changed I am now looking to relocate and purchase a new house and I would prefer not to sell my current house for the moment as its potential rental income will cover the mortgage.

If I was to sell my current home in approximately two years would I be exempt from paying capital gains tax? My understanding is that Capital Gains Tax is only payable on a profit (purchase price minus sale price), is this correct?

If I would be liable for Capital Gains Tax I would consider selling the house before purchasing a new home.

Thanks for your advice in advance

Gumbo

GalwayMayo wrote: »

Hi All,

I purchased my current house in 2006 for €300k which I have lived in for 10 years. There is currently €200k outstanding on the mortgage.

As my family circumstances have changed I am now looking to relocate and purchase a new house and I would prefer not to sell my current house for the moment as its potential rental income will cover the mortgage.

If I was to sell my current home in approximately two years would I be exempt from paying capital gains tax? My understanding is that Capital Gains Tax is only payable on a profit (purchase price minus sale price), is this correct?

If I would be liable for Capital Gains Tax I would consider selling the house before purchasing a new home.

Thanks for your advice in advance

There's a calculation that you do seemly. If you sell in 2 years time then you will owe 2/12 of what would normally be owed. But then if you don't make a profit, then it should be 0.

Best bet is to sit with a tax consultant. They will only charge a nominal fee for 30 minutes or an hours advice. Sure you might end up using them for the tax returns on the 2 years rent in anyway.

Baby01032012

GalwayMayo wrote: »

Hi All,

I purchased my current house in 2006 for €300k which I have lived in for 10 years. There is currently €200k outstanding on the mortgage.

As my family circumstances have changed I am now looking to relocate and purchase a new house and I would prefer not to sell my current house for the moment as its potential rental income will cover the mortgage.

If I was to sell my current home in approximately two years would I be exempt from paying capital gains tax? My understanding is that Capital Gains Tax is only payable on a profit (purchase price minus sale price), is this correct?

If I would be liable for Capital Gains Tax I would consider selling the house before purchasing a new home.

Thanks for your advice in advance

CGT is paid on any capital gain. If you bought in 2006 I wouldn't imagine in 2 years time the price will be higher? However for the purpose of this example I'll assume it will be worth 400000 in 2 years time. The sales proceeds are reduced by any legal or other expense in selling the property. The cost that you take away from the proceeds will be cost of the purchase plus any legal or other costs. So say you have a gain of €80000. As its been your PPR for 10 out of 12 years you will reduce this gain by 10/12ths. Finally reduce by an annual exemption of €1270. Net gain is taxable at 33%

You should consider other implications such as mortgage - do you have a tracker, you may loose it once it's not your main residence. Tax on rental income - while rent may cover the mortgage, only75% of mortgage interest is allowed as a deduction against your rental income. Capital portion is not allowable, LPT which you will still have to pay is not allowable.

There are so many other factors other than capital gains tax to consider if making a decision to sell or rent out your home.

awec

Even before you consider the capital gains tax potential for selling in a few years you need to work out if you've any chance of getting a second mortgage from a bank. They may refuse to take your rental income into account.

Shawn Michaels

Any gain would be reduced by 11/12 rather than 10/12. You get an extra 12 months of deemed residence.

But given the chronology (2006 purchase), I'd be amazed of you're in the black.

Michael D Not Higgins

GalwayMayo wrote: »

As my family circumstances have changed I am now looking to relocate and purchase a new house and I would prefer not to sell my current house for the moment as its potential rental income will cover the mortgage.

I'd be wary of this. Assuming you're on a tracker, and you don't tell the bank you're letting and keep the tracker, your mortgage repayment is about 1000-1100. You'll only cover this by renting at a level of upwards of 1800 per month when you take tax into account.

GalwayMayo

Thanks for all the replies and advice as a result of which I have finally decided it will be a much easier life to sell the current house - I really don't fancy becoming a landlord and dealing with all the possible hassle!