What to do - Anyone?

T

thebop

Registered User
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Hi guys,

Any advice greatly appreciated.

Bought an apartment in 2004 for approx 180,000. FTB so no stamp duty etc. Currently valued at approx 330.000.

Now my boyfriend and i have signed up for a new house (380,000)which will be ready in August.

From reading the boards, i'm confused what to do. Would like to keep apartment as it is in a great area and possibly rent out but don't know if it's a good time to do same. I know we would have to clawback fees of around 6000 from reading here etc.

If i keep onto the apartment, would you recommend an interest only mortgage and would this help with our new PPR and then sell the aparment in another ten years or more.

Tx,
Bop
 
What to do - Anyone?
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If you keep the apartment and rent it out within 5 years of the original purchase then you will be liable for a clawback of stamp duty. If you keep the apartment and dispose of it 12 months or more after vacating it as your PPR then some portion of any eventual resale gain will be assessable for CGT. If you sell within 12 months then your capital gain is completely tax free. Do you want to be a landlord? Are you au fait with the tax, registration and other issues that come with that? See the Property Investment FAQ for more on this.
 
thebop said:
If i keep onto the apartment, would you recommend an interest only mortgage and would this help with our new PPR and then sell the aparment in another ten years or more.
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Bear in mind that you can only offset against rental income interest on the amount of the mortgage outstanding when you rent it out. For example you can't topup the mortgage and use the fund for other purposes (e.g. buying a new PPR) and offset interest on the additional amount against rental income.

In general there are good reasons for opt for interest only for investment properties:

Interest only mortgage

Ultimately you really need to crunch the numbers to get a feel for what you expect to get out of such an investment (in terms of both net rental income and capital appreciation) and then factor in additional stuff like the administrative overhead and day to day responsibilities of being a landlord etc. If it is viable and you want to be a landlord then keep it. If not then sell it and pocket the CGT free gain.
 
Thanks for the advice. Just wondering why you recommend keeping it, niceoneted. I'd be interested in your views. It might help us to make up our minds!
 
Why not follow my advice, crunch the numbers, weigh up the situation and decide for yourself?
 
Thanks clubman. Yeah we're doing a lot of crunching and leaning towards selling up I think. But that could all change again :) When we weigh up all the factors, CGT included, I think selling may be the best option.

BTW I didn't mean to imply that I wanted anyone to make a decision for me, was just wondering what ppl thought.

Thanks again for your advice, it's all food for thought.
 
Another thing to consider is that concentrating most or all of your net worth into a single asset class, geographic region and risk/reward profile (e.g. Irish residential property in the form of your PPR and a former PPR now rental property) involves risks that would not necessarily apply to a more diversified portfolio with a wider range of asset classes, geographic regions, risk/reward profiles, short/medium/term investments etc.
 
I have been wondering about paying CGT with the sale of a 2nd property for a while. In this scenario, if Bop moves to new house with boyfriend hence the new house becomes their PPR. They decide to rent out the apartment. OK, so in 10 years time they decide to sell on the apartment. Can Bop move back in to the apartment prior to selling it, hence this once again becomes her PPR and then sell it as her PPR. If this is a valid tax evasion , what is the period of time she would have to move back in to the apartment before selling without been hit with PPR? Thanks
 
gilboy said:
Can Bop move back in to the apartment prior to selling it, hence this once again becomes her PPR and then sell it as her PPR. If this is a valid tax evasion , what is the period of time she would have to move back in to the apartment before selling without been hit with PPR? Thanks
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No, they can't.

The CGT will be calculated on the Taxable Amount * Period of non PPR ownership (possibly minus the final 12 month exemption if not PPR for final 12 months)/total ownership.
So they pay a fraction (a/b) of the total taxable amount at 20%.

CGT is covered on MANY threads here on AAM (and in full detail on the Revenue site) if further info is wanted.


As for "valid tax evasion", no such thing. It's tax avoidance if doing something to minimise tax, tax evasion is illegal.
 
gilboy said:
I have been wondering about paying CGT with the sale of a 2nd property for a while. In this scenario, if Bop moves to new house with boyfriend hence the new house becomes their PPR. They decide to rent out the apartment. OK, so in 10 years time they decide to sell on the apartment. Can Bop move back in to the apartment prior to selling it, hence this once again becomes her PPR and then sell it as her PPR. If this is a valid tax evasion , what is the period of time she would have to move back in to the apartment before selling without been hit with PPR? Thanks
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This is covered many many times already on AAM. It is not possible. The CGT will always be based on how long the property was not a PPR and possibly rented out versus how long it was a PPR. Just moving back in for a while as an owner occupier doesn't eradicate the liability for CGT. For example - you own a PPR for 5 years (x), buy a new one and move out, rent the property former PPR for 10 years (y), move back into the former PPR for 1 year (z) as an owner occupier and then sell...

(y - 1)/(x + y + z) or (10 - 1)/(5 + 10 + 1) or 9/16 = 56% of any gain arising from the sale will be assessable for CGT.

Note that it's (y - 1) because CGT does not apply for the first 12 months after vacating it as your PPR.

Post crossed with Satanta's.
 
Thanks for that.

One final question relating to this scenario. If you do not rent out the first property but held on to it for a number of years. I think this is quite realistic as even in my own estate I know of a lof of properties which people do not rent just hold on to for the hope of capital appreciation. Since the property was never rented out does this change things in terms of CGT?
 
gilboy said:
Thanks for that.

One final question relating to this scenario. If you do not rent out the first property but held on to it for a number of years. I think this is quite realistic as even in my own estate I know of a lof of properties which people do not rent just hold on to for the hope of capital appreciation. Since the property was never rented out does this change things in terms of CGT?
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I'm not 100% sure (you should get independent, professional advice) but I suspect that once the 12 months have elapsed after vacating it as your PPR then it is classed as an investment property and the CGT rules above apply.
 
Again, not 100% on this...

I believe renting has no effect on CGT (renting is important in relation to SD). CGT is dependant on the property being a PPR. If it fails to be for any reason, either another property is your PPR or if renting it all out it won't/can't be a PPR, then you are liable for CGT.
 
gilboy said:
Thanks for that.

One final question relating to this scenario. If you do not rent out the first property but held on to it for a number of years. I think this is quite realistic as even in my own estate I know of a lof of properties which people do not rent just hold on to for the hope of capital appreciation. Since the property was never rented out does this change things in terms of CGT?
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It depends on where you main residence will be.

If you do not rent out the house, but live in it as you only or main residence then PPR relief should apply for the period of time in which you were living in the house (plus the 12 months prior to any future sale). If you live in the house and rent out a room below the rent-a-room threshold then the PPR relief will still apply (assuming no changes to the rent-a-room scheme).

If you do not rent out the house and live somewhere else then the PPR relief will not apply for the period of time in which you were not living in the house (less 12 months prior to sale).
 
Actually - judging by chapter 5, item 5 of the Revenue summary guide to CGT the rental issue is a bit of a red herring and what matters (as pointed out above) is whether or not the property is your PPR:
The exemption is also restricted where the taxpayer has not lived in the house for long periods.
However, a period of up to twelve months immediately before the end of the period of ownership is
treated as a period of occupation even though the owner may not have been actually living in it during
that period.
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As such the CGT seems to be related to how long the property is not your PPR (rented or otherwise) versus how long it is your PPR (less the 12 months post PPR vacation exemption period).

Obviously this does not constitute comprehensive tax advice especially since I am not an expert so you should get independent, professional advice yourself.
 
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