Capital Gains Tax Question

larrymo

Hi everyone

Just a question, maybe someone could help...

I'm in the process of getting planning permission to build a detached house on our corner garden site. I'm not sure of the tax implications here if I decide to sell the house when complete. Would I be liable for 20% capital gains tax of full amount of value of house at time? It will cost me approx Euro 100K to build the house but it would sell for approximately Euro 380K when complete(according to a realtor I spoke to).

Not being up on tax law, I was also wondering if I could claim some of the VAT back on building materials also.

I know when the time comes, I will be looking to a financial expert but if anyone has ideas on above, it would be much appreciated. Thanks!

Larrymo

Selik

If the site is part of your principle private residence (which I presume it is) then you will not be liable to any capital gains tax on the sale of the house. Btw as a matter of interest how is the house that you're planning on building only going to cost you €100k to build? Asssuming that the house size is a modest 1000 square feet and building cost is €140 per square foot this would cost €140k... Do you have connections with the building trade or something? Sorry if I sound nosey I'm just curious!

Banjo013

Giles wrote:

If the site is part of your principle private residence (which I presume it is) then you will not be liable to any capital gains tax on the sale of the house.

You sure about that ? I know the PPR exemption you're talking about. However here I get the impression that Larrymo currently lives in a house on the site and wants to build another one on the same site for the sole purposes of selling it on. In which case he/she wouldn't be able to claim the exemption.

Based on the figures given, the gain amounts to €280k, the full amount of which you will be assessed on. You may be able to reduce the liability with various threshold amounts, but they're quiet specific and I wouldn't hold my breath.

As for your VAT query, you need to have a VAT registration number to do this and you must be buying the materials for the purposes of resale. In general only people in the trade has a VAT number, however anyone can apply for one.

Selik

Banjo013 wrote:

You sure about that ? I know the PPR exemption you're talking about. However here I get the impression that Larrymo currently lives in a house on the site and wants to build another one on the same site for the sole purposes of selling it on. In which case he/she wouldn't be able to claim the exemption.

My Dad sold a corner site on his PPR with PP for a dormer bungalow a couple of years ago and as this site was part of his PPR he was professionally advised that he would have no CGT liability due to this factor.

larrymo

Thanks for all input, guys.

The quote I'm getting from my own architect is approximately Euro 100 a square foot to complete the house. The house will be approximately 850 square feet when done, however I've asked that the architect incorporate into the design an attic conversion, which myself and brother-in-law will be completing ourselves. With the attic conversion, I expect the house to be approximately 1,000 square feet to 1,100 square feet.

I plan on building a timber frame house also so would hope to be able to keep costs and time to build at a miminum (also from reading through literature, advantages of timber frame seem to outweigh block build).

I am currently living in my principle residence and will build the new house on my corner site (right next to my own house). In essence, I'm building on my own site....does that mean I'm not liable for CGT?

I spoke with a realtor yesterday who indicated that because this house was brand new, I would have no trouble selling it due to the fact that it wouldn't be liable for stamp duty (as it's under 1,350 square feet). However, she wasn't sure about the CGT situation on the house.

Keep the answers coming, folks! Thanks!

Larrymo

antoinolachtnai

If I were you I would pick up the phone to the CGT section of the Revenue and ask them straight out.

My view is that you would be liable, because once built, it is a separate house and you can have only one house as your PPR. If you were to sell the land unbuilt (as was the case in the example of the corner site above) my view is that there would be no CGT payable.

If this were the case, you might be better getting the PP and then selling the property together with the plans. If a developer buys the property, builds the house and sells it on, he probably won't be liable for CGT (because he is buying and selling it as stock in trade). You might be able to arrange a profit share depending on the price obtained (although this would be subject to income tax).

Victor

Your best bet here is to build the new house, move in and if you want, move out in say 2-3 years time. No CGT involved, but you have to charge VAT.

The VAT is possibly going to be more complicated than you like as you will have to register, process invoices, pay VAT every two months, blah, blah, blah, headache. Many of your materials will be 21% as opposed to 13.5% for construction.

You will also need management, insurances, HomeBond, etc. You can try to skimp, but the risk is it will come back to bite you.

€100/ft2 is too low and you are codding yourself.