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CGT on second property

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  • 17-01-2020 11:06am
    #1
    [Deleted User]
    Posts: 0 ✭


    Hi All

    So i bought a property in July 2016, needed to give notice to current tenants to leave, so i got full access to the property in november 2016. I lived in the property from November 2016 to June 2018. I bought a new property at that stage. I still used the original property as a holiday house at the weekends. I was deciding what to do with it. In February 2019 i got the house valued as a safeguard.

    Anyway in August 2019 i decided to sell the property and got the sale closed in December 2019. On paper it is showing a 60k profit, however it is showing a 5k gain from the February valuation. I have been speaking to tax consultants on this and i am not getting good vibes. When i lived in the house, i got a lot of work completed on it, spending roughly 20k, i didnt keep receipts at the time as i didnt plan to sell it. Its evident on the before and after pics the work that was done. The tax consultant said this wouldnt matter as i dont have receipts, they also seem to be disregarding the valuation. I am worried they are going to come back with a crazy CGT charge on this.

    As far as i am aware i have 12 months to dispose of a second property to claim PPR relief, that was the very reason for me getting the valuation to avoid a huge hit. Does the calculation also consider house price inflation as opposed to the standard inflation?

    Thanks in advance for any assistance


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    #2
    BrokenArrows
    Registered Users Posts: 7,500 ✭✭✭BrokenArrows


    Deleted User wrote: »
    Hi All

    So i bought a property in July 2016, needed to give notice to current tenants to leave, so i got full access to the property in november 2016. I lived in the property from November 2016 to June 2018. I bought a new property at that stage. I still used the original property as a holiday house at the weekends. I was deciding what to do with it. In February 2019 i got the house valued as a safeguard.

    Anyway in August 2019 i decided to sell the property and got the sale closed in December 2019. On paper it is showing a 60k profit, however it is showing a 5k gain from the February valuation. I have been speaking to tax consultants on this and i am not getting good vibes. When i lived in the house, i got a lot of work completed on it, spending roughly 20k, i didnt keep receipts at the time as i didnt plan to sell it. Its evident on the before and after pics the work that was done. The tax consultant said this wouldnt matter as i dont have receipts, they also seem to be disregarding the valuation. I am worried they are going to come back with a crazy CGT charge on this.

    As far as i am aware i have 12 months to dispose of a second property to claim PPR relief, that was the very reason for me getting the valuation to avoid a huge hit. Does the calculation also consider house price inflation as opposed to the standard inflation?

    Thanks in advance for any assistance

    Why are you talking about valuations? CGT is based on actual gains, not some theoretical gain based on a valuation.

    If you bought it for 300 and sold it for 360 then its a 60k gain which is liable for CGT. Simple.


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    #3
    averagejoe123
    Registered Users Posts: 270 ✭✭averagejoe123


    BrokenArrows wrote: »
    Why are you talking about valuations? CGT is based on actual gains, not some theoretical gain based on a valuation.

    If you bought it for 300 and sold it for 360 then its a 60k gain which is liable for CGT. Simple.

    Not if it was your PPR for a period of that time. The money spent on the upgrades can be discounted against any gain. Also solicitors fees can be used to reduce your balance.

    OP I would engage with a tax professional to help with this. At first glance to my unqualified eyes your CGT will be quite small.


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    #4
    wench
    Registered Users Posts: 1,630 ✭✭✭wench


    The Feb valuation is irrelevant.
    As it was your PPR for part of the time, you get an exemption pro rata for that.

    So you owned it for approx 40 months, ppr for 18 months + 12 months = 30 months exempt, leaving you owing tax on 1/4 of the gain.


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    #5
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    wench wrote: »
    The Feb valuation is irrelevant.
    As it was your PPR for part of the time, you get an exemption pro rata for that.

    So you owned it for approx 40 months, ppr for 18 months + 12 months = 30 months exempt, leaving you owing tax on 1/4 of the gain.

    Thanks, so you get the 12 months to sell?

    Surely the rental period after i bought it should have been irrelevant as it was PPR after that for 18 months? If i had sold the house straight away i wouldnt have paid any CGT? Would this be correct.

    i am trying to get my head around this and not argue, but if say i bought a house with tenants in situ and gave them notice, moved into the house and say lived there for a few years and then decided to move in with my girlfriend, if i sold that house straight away i wouldnt be liable for CGT but if i rented it for 2 years and then sold i would be liable for the period for when i first purchased also?


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    #6
    Claw Hammer
    Registered Users Posts: 6,163 ✭✭✭Claw Hammer


    Deleted User wrote: »
    Thanks, so you get the 12 months to sell?

    Surely the rental period after i bought it should have been irrelevant as it was PPR after that for 18 months? If i had sold the house straight away i wouldnt have paid any CGT? Would this be correct.

    i am trying to get my head around this and not argue, but if say i bought a house with tenants in situ and gave them notice, moved into the house and say lived there for a few years and then decided to move in with my girlfriend, if i sold that house straight away i wouldnt be liable for CGT but if i rented it for 2 years and then sold i would be liable for the period for when i first purchased also?

    The way is works is that the total period of ownership is looked at. The portion during which it was let and not a PPR is calculated. The final year is allowed as PPR even if it was let. After that the gain from purchase to sale is calculated and the gain is distributed pro-rata between the PPP period and the letting period. The amount attributed to the letting period is taxable as CGT. Deduction made be made for capital improvements and the tax freee allowance for capital gains in any one year.
    It is one of the risks of letting a former PPR that the longer the period after it ceases to be a PPR the higher to proportion of any gain which is going to be liable to CGT. This is the case even if the value is flat after the switch from PPR to investment. You wasted your money on an intermediate valuation. Not keeping receipts was even more wasteful. You cannot ask a professional to submit a tax return using before and after photos, nor can the Revenue be expected to accept them in computing a tax liability.


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