Capital gains formula

charleville

Hi there,
I know that revenue have a formula to work out for capital gains, can someone enlighten me on this ?

Our situation :
Own our home house since December 2011,
Thinking of buying a new house and renting out this one, but if we decide to sell at anytime in the future how would we work out the tax due as it was our family home etc

Tks

Peregrinus

Let's say you live in the house for seven years, 2011-2018. Then you let it out for five years, 2018-2023. Then you sell it, realising a gain of (say) EUR 240,000.

The gain is apportioned between the time the house was your PPR, 7 years, and the time it was not, 5 years. So 7/12ths of the gain (EUR 140,000) is exempt. The remaining 5/12ths (EUR 100,000) is subject to CGT.

charleville

Peregrinus wrote: »

Let's say you live in the house for seven years, 2011-2018. Then you let it out for five years, 2018-2023. Then you sell it, realising a gain of (say) EUR 240,000.

The gain is apportioned between the time the house was your PPR, 7 years, and the time it was not, 5 years. So 7/12ths of the gain (EUR 140,000) is exempt. The remaining 5/12ths (EUR 100,000) is subject to CGT.

So what is the gain exactly, is it what it’s worth at that time or how much rent/income you have earned on it, or both ?

Let’s say, we bought in 2011 for €225k, move to a new home and rented this one out in 2018, the house at this stage is worth €500k.

After 3 or 4 years we decide to sell, and the house is worth €550k and we’ve got a rent of approx €21k a year, how would that be worked out as an example please ?

That will give me a better idea.

Thanks for your response.

Peregrinus

charleville wrote: »

So what is the gain exactly, is it what it’s worth at that time or how much rent/income you have earned on it, or both ?

Let’s say, we bought in 2011 for €225k, move to a new home and rented this one out in 2018, the house at this stage is worth €500k.

After 3 or 4 years we decide to sell, and the house is worth €550k and we’ve got a rent of approx €21k a year, how would that be worked out as an example please ?

That will give me a better idea.

Thanks for your response.

Value of the house at the time you switch from residence to renting it out is irrelevant.

Gain is the difference between what you paid to acquire the house (225k) and what you get when you dispose of it (550k). On those figures the gain will be 225k. Apportion that between the period the house was your PPR and the period you let it out, as already indicated, and that gives you a figure for the part of the gain which is chargeable to cGT.

The rent you get doesn’t enter into this calculation at all, but it will of course attract income tax year-by-year.

charleville

Peregrinus wrote: »

Value of the house at the time you switch from residence to renting it out is irrelevant.

Gain is the difference between what you paid to acquire the house (225k) and what you get when you dispose of it (550k). On those figures the gain will be 225k. Apportion that between the period the house was your PPR and the period you let it out, as already indicated, and that gives you a figure for the part of the gain which is chargeable to cGT.

The rent you get doesn’t enter into this calculation at all, but it will of course attract income tax year-by-year.

Great.. I get it now, thank you.

Just one thing, if we say for example that the gains works out (with formula above) at €100k, then I have to pay 33% of €100k is that correct ?

So purchase 2011 - €225k
Rent out in 2018 -
Sell in 2021 - €550k

Gains works out at 3/10 of €325k (the difference between purchase and sale)

Cgt liability - €97,500

33% of €97,500 - €32,175 is amount owed to revenue.

Please correct me if I am wrong here.

Thanks

Peregrinus

That's correct.

Just to add that your acquisition cost is not just what you paid for the house, but also the expenses of the transaction - legal fees, stamp duty, etc. So if 225 was the purchase price, the acquisition cost might be slightly higher than 225. Similarly the proceeds on disposal are calculated net of your costs of the transaction - legal fees, estate agents fees and so on. All of that will tend to shave the gain ever so slightly.