Selling Rental Property- CGT

Disco24

Hi, was in fortunate position to sell a house recently I've had 22 years and make a gain.

I lived in the house for the first 4 years (2001-5). Is there a calculation to reduce the chargeable gain for capital gains tax as it was my principal private residence for 4 of the 22 years? Thanks.

L1011

There is a method for this detailed on Revenue's site

https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/principal-private-residence-ppr-relief.aspx

It calculates a %, it doesn't take account of the gain in value during a specific time.

I'm not sure if this would clash with claiming an overlapping PPR period, but there is also inflation correction up until end 2002 which could save you a bit - the indexation factor for 2001 is 8.7%

https://www.revenue.ie/en/gains-gifts-and-inheritance/documents/cgtmult.pdf

Disco24

Thanks for that link. The indexation part of 8.7% I got which is great.

Trying to get my head around that info and first 4 years and what I can claim back... if gain after expenses and index was 100k can you take 4/22 off that to reflect principal private residency....

kevgaa

I was in a similar position so index relief is great and then you can offset

principal residence relief - you can claim 12 months for your final year when calculating. So if you moved out in June you can claim the additional 6 months.

look up what other allowable expenses you can claim also e.g things that add value to the property like new windows, extensions, heating systems etc other expenses you can claim before CGT are surveyor, solicitor and estate agent fees.

Xander10

Calculate the gain after expenses then reduce by 5/22th to arrive at taxable gain.

You should have the annual exemption of 1,270 to reduce further.

Legal costs and stamp duty on the purchase can be used to reach the actual consideration paid. Auctioneer fees and legal fees can be used to reduce the actual figure for sale price.

Windows and boilers etc would have been claimed during the rental period as wear and tear

DownByTheGarden

I did this recently and got an accountant to do it for me. He worked out a valuation of it from the time I moved out and started renting it and worked it out from there. It was a lot less of a tax bill than I was expecting.

k mac

https://www.boards.ie/discussion/comment/120959233#Comment_120959233

Will have similar shortly, i was hoping our solicitor might look after it, i have it calculated approximately myself. Does an accountant charge much to do it?

kevgaa

Actually just looking at form 11 and despite all the figures that went into the calculations all I can see you input onto the form 11 return is

1). residential premises and thats the sale price of the asset 

2). Then after that is it just the chargeable gain I enter 

3). the my 1270 allowance gives me the net chargeable gain figure to tax at 33%

I can see anywhere to enter PPR relief or any expenses.

anyone familiar with that?

DownByTheGarden

https://www.boards.ie/discussion/comment/120960119#Comment_120960119

I dont think it would be expensive. I got an accountant i know to do it. The main thing he did was got a good valuation of the property when i moved out of it and started renting it. I would have valued it at much less.

kevgaa

https://www.boards.ie/discussion/comment/120960233#Comment_120960233

CGT is based on the purchase price versus the selling price. What you are implying above is you based it on the Value of the price when you started renting versus the selling price. Is that correct?

Donald Trump

Don't forget though that if your accountant makes a mess in the eyes of the revenue, you will be the one held liable

DownByTheGarden

https://www.boards.ie/discussion/comment/120960927#Comment_120960927

Yes thats correct.

Peregrinus

https://www.boards.ie/discussion/comment/120960927#Comment_120960927

That may be what the accountant did in DBTG's case, but it's not the correct methodology, at least in a straightforward case where the taxpayer occupies the entire property as their principal residence for part of the period of ownership, and lets it out for the rest of the period of ownership. The proper way to do this is to apportion the gain accruing over the entire period of ownership. Say the period of ownership is 12 years and the house is your principal private residence for 5 years and is rented out for 7 years; you calculate the gain accruing over the twelve years in the usual way, and then 7/12ths of that figure is your chargeable gain. The notional value that the house had at the point where you started or stopped renting it out is not relevant; all that matters is the value when you acquired the house and the value when you disposed of the house.

How do we know that's the right way to do it? Because Taxes Consolidation Act 1997 s. 604(4) says so.

In more complex cases there is some wiggle room. Suppose you buy the house, live in it for while, then divide it into flats and live in one of the flats while renting out others. In a case like that, the PPR relief can be adjusted as agreed with the inspector (s. 604(7) is the basis for this) and there might be some scope there for agreeing a calculation of relief that takes account of the value of the house at the time the use or structure of the house was altered. So it may be that DBTG's case was non-standard, and his accountant was able to agree something of the kind under s. 604(7).

DownByTheGarden

And here folks is why you need to hire your own accountant :)

Everyone of us on the internet has a different idea of how to do things and different reasons why they are happy with it. Only a professional, paid by you, can advise you what is right for you.

kevgaa

https://www.boards.ie/discussion/comment/120975108#Comment_120975108

As you say every case is different and professional route is the way to go but your case sounded similar to mine and I got a different professional method to calculate my CGT liability.

In my case I bought a property lived in for 6 years then started renting it out for another 6 years till I sold it last year. MY CGT tax calculated by my accountant was based on the gain between the purchase price 13 years ago and selling price minus a few expenses. I got 50% Principal private residence relief from the CGT tax bill. This process was also verified by a colleague who worked in revenue.

harringtonp

Just pulling this in a slightly different direction I am wondering can you offset a new carpet and the cost of paint etc on work you did just before selling ?

I'm not talking labour, just the comparatively small material cost.

While I recognise that this is not normally allowable, the sole motivation behind this was to freshen the house before putting it on the market and increase sale value.

Peregrinus

https://www.boards.ie/discussion/comment/121115683#Comment_121115683

No. It's only capital expenditure that is deductible. Things like periodic repainting and the renewal of floor coverings are not considered capital expenditure; they are routine maintenance.