Capital Gains Tax on house sale

Peej255 · 13-06-2013 11:21pm #1

Me and my girlfriend are thinking of buying a property outright, that is no mortgage.

We would like an apartment in town for now, but then to sell it in a few years to buy a house.

If we bought an apartment for 200,000 and then sold it in two or three years, (say for the same price) and used that money to buy a house (or most of a house), how much of the 200,000 would we lose due to capital gains tax?

I'm just a bit unclear about how this works. Because I see that capital gains tax is 33%, and I just don't see how anyone can ever even break even flipping a property if that's the case.

Thanks,
Peej

Atlantic Dawn · 13-06-2013 11:24pm

If you are living in it there is no CGT.

http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_gains_tax.html

Capital gains exempt from Capital Gains Tax

Gains or profit on the disposal of some assets are specifically exempted from Capital Gains Tax, these include:
Gains on the disposal of property owned by you (house or apartment) which was occupied by you or by a dependent relative as a sole or main residence. Restrictions may apply where the property was not fully occupied as a main residence throughout the period of ownership or where the sale price reflects development value.

If your not living in it and you bought for €200k and then sold it for €200k there would be no tax as there would be no gain. If you sold for €300k you would be liable for €33k tax on the gain.

xper · 13-06-2013 11:27pm

The clue is in the name. You only pay the tax on the gain. So if you sold it for the same price you bought it for there is no tax liability. If you sold it for 250,000, you'd pay 33% of 50,000 (which still quite the kick to the nether regions).

Peej255 · 13-06-2013 11:29pm

Ahh, thank you.

I think I understand it now.

Is there a minimum amount of time we need to be living in the property for the capital gains to be exempt?

3DataModem · 13-06-2013 11:32pm

Peej255 wrote: »

Ahh, thank you.

I think I understand it now.

Is there a minimum amount of time we need to be living in the property for the capital gains to be exempt?

It's proportionate to the time you are living there, but you get a year's grace too.

So if you live there for 5 years and don't live there for 5 years, you pay CGR on 40% of the gain.

almostbroke · 13-06-2013 11:34pm

www.revenue.ie will give you all the information you need on Capital Gains Tax....as far as I'm aware, you dont pay any on what is perceived to be your family home when you sell it. If you rent out your property, and then sell it right after its rented, you are liable for CGT. If you move back into it after its been rented for approx. 1 year, there is either none or a small amount of CGT to be paid.

D3PO · 14-06-2013 8:18am

the CGT question has been well answered now but everybody has glossed over the other part of your post. Why would you buy an apartment now with a view to moving in a few years time ?

Apartment price falls have been far more severe than those in houses and there is every likelihood that those falls / any recovery will also keep in that vain. Whilst fair enough your going to buy for cash your still looking at potentially losing some of your initial investment, aswell as paying stamp duty on two properties, ending up with management fees to pay for the 5 odd years, ending up with EA fees etc.

I really don't understand the point in buying a house to live in for a few years. What exactly is your thought process ? Why not keep saving and buy the house you want to live in long term when your capable of doing so.

StillWaters · 14-06-2013 8:33am

Leaving capital appreciation or depreciation out of it, not having done the sums, but I imagine it is more cost effective to buy rather than rent in town over the 5 years, even taking legal, maintenance and stamp duty fees into account.

Peej255 · 14-06-2013 10:00am

We are both living and working in town, and we be for at least the next 2 years, and possibly longer.
And we've come into a chunk of money.

So we have three choices:

i) Spend all of the money now + savings and buy a house somewhere.

ii) But an apartment now to live in, and we save on rent (~14,000 pa) for the next 2 years at least and maybe longer.
And then when we want to have kids we can sell the apartment and use that money + savings to buy a house.

iii) Sit on the money a bit and then buy a place when we're ready to settle down.

D3PO · 14-06-2013 10:08am

Peej255 wrote: »

We are both living and working in town, and we be for at least the next 2 years, and possibly longer.
And we've come into a chunk of money.

So we have three choices:

i) Spend all of the money now + savings and buy a house somewhere.

if you can afford a house now that you would look to live in long term why wouldn't you ? You still save on the rent as you use as a pro in option 2.

ii) But an apartment now to live in, and we save on rent (~14,000 pa) for the next 2 years at least and maybe longer.
And then when we want to have kids we can sell the apartment and use that money + savings to buy a house.

Apartments are much harder to sell than houses, what if you cant sell it ? what if your working circumstances change and the house is now out of reach ? if in future you need a mortgage to get the house for whatever reason have you factored in that banks will lend you less if you have kids ?

iii) Sit on the money a bit and then buy a place when we're ready to settle down.

Just to add to this. If you are going to buy now be it an apartment or a house, draw up a legal document should you and your girlfriend split up in the future.

You don't want to hear it but it happens and has happened to a hell of a lot of people out there and they are stuck in housing situations that are now hell for them because they didn't have the foresight to think about the worst case scenario.

Personally I think you are right to look to cut out your rental expense of 14k ONLY IF

a) you have calculated the associated costs of owning, (maintenance, house insurance, property tax etc) and deducted this from your rental costs.

and then

b) after calculating the true expense to you of renting that you cannot yield more than that in interest on your savings.

Peej255 · 14-06-2013 10:14am

You're right I should sit down and work out some figures and see what works out best over different time periods.

We are probably getting married next year, and it is mostly her money anyway, so I'm not too worried about that side of it.

Exitleft · 14-08-2013 10:18am

Property flipping may be seen as an adventure in the nature of trade which may remove the transaction from Capital Gains Tax and place it within the scope of Income Tax. This may be of some advantage in the event of a loss which may be claimed against ofther income. But beware it is not that easy to get an advance opinion in relation to trading activities

Henry Ford III · 14-08-2013 12:07pm

Exitleft wrote: »

Property flipping may be seen as an adventure in the nature of trade which may remove the transaction from Capital Gains Tax and place it within the scope of Income Tax. This may be of some advantage in the event of a loss which may be claimed against ofther income. But beware it is not that easy to get an advance opinion in relation to trading activities

If it's a PPR you can flip as many times as you like, but it's not cheap.

If not it's a possible CGT event, or as you say if it's in the nature of trading (Revenue would look at frequency etc.) it might be assessable to Income Tax.

Losses for CGT purposes can be offset against future gains iirc.

Victor · 14-08-2013 1:14pm

xper wrote: »

The clue is in the name. You only pay the tax on the gain. So if you sold it for the same price you bought it for there is no tax liability. If you sold it for 250,000, you'd pay 33% of 50,000 (which still quite the kick to the nether regions).

Note that you won't be any worse of due to CGT. In you make a loss, no tax is due. If you make a gain, you keep most of the gain.

Mrs OBumble · 14-08-2013 1:35pm

Peej255 wrote: »

and it is mostly her money anyway, so I'm not too worried about that side of it.

She should be, though!

Peej255 · 14-08-2013 1:40pm

Mrs OBumble wrote: »

She should be, though!

We are going for Tenancy in Common, split in proportion to the amount of money we put in.

Pawwed Rig · 14-08-2013 1:41pm

This is why it is always better to hire professionals for large capital transactions. Please see link for how one could avoid CGT altogether.

http://www.pearse-trust.ie/blog/bid/86107/New-CGT-Exemption-For-Irish-Property-Purchases

CGT is a large area of the tax legislation and as with all tax law it is very individual to a persons circumstances.

Capital Gains Tax on house sale

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