Key Post: CGT on sale of Residence

I bought a house in 1981 for IR£28k and lived there until 1994. Subsequently the house was rented and I am in the process of selling it now for c.£210k.

Can anyone please advise what my liability is in terms of CGT?

Would it be correct to calculate it as follows:
House purchased for £28k in 1981 multiplied by Revenue multiplier of 2.833 (2001 figure) on page 33 of their guide = £79.3k

So, sales price of £210k - £79 = £131@20% = £26k minus CGT allow of £1k therefore net liability = £1k?

HELP

PS> When is payment due for CGT?

CGT

Hi Help,

Not quite as simple as that. The period when you lived in the house (it was your "principal private residence" in the jargon) is non-taxable for CGT.

So your liability is for the growth in the value of the house from 1994 (when it stopped being your PPR) to date of sale. In theory, you need the value of the house in 1994, multiplied by the relevant multiplier from 1994, and then the calculation will proceed as in your example (except the tax liability is too low in your example - looks like you've repeated the CGT allowance figure instead).

I know that some attempts have been made in cases like this to apportion the growth in the house price over the enitre period - eg growth of £182k between 1981 and 2002 equates to growth of £9k per annum, therefore £118k of the gain relates to the non-taxable period and £64k to the taxable period. However, I think the Revenue have resisted such attempts, arguing that you will need a firm valuation at 1994 to establish how much of the growth was before then and how much after. This usually results in higher tax bills, because most of the growth has in fact occurred within the last few years.

Can't be definitive about this, but that's my understanding. Maybe one of the tax experts such as Tommy can confirm or correct.

Re: CGT

Hi Dogbert

This isn't correct. The original purchase price of the property (and incidental costs on purchase) are indexed from the date of acquisition to the date of disposal. The gain is worked out on this basis. A percentage of the gain, relating to the time spent as owner-occupier as a % of the time of ownership, is exempt.

There is no provision in CGT legislation for valuations to be taken at the date when the property ceased to be a PPR.

I will look again at this in more detail when I have time.

Tommy
www.mcgibney.com

Feedback.....

Thanks Dogbert for the feedback.....

Also Tommy much appreciated and I look forward with bated breadth.......HELP

CGT

Apologies to Help for the misleading info, and thanks to Tommy for the correction. Must be mixing it up with something else.

So in Help's case, the total gain would be apportioned as approx 8/20 taxable and approx 12/20 non-taxable, is that correct ? That would doubtless be much better from Help's perspective.

Re: CGT

Hi,

yes this is correct.

In answer to HELP's query, you calculate the amount of the gain, as discussed above. You work out what percentage of the period of ownership related to time during which the house was used as a PPR. This percentage of the gain is exempt. The CGT is worked out on the non-exempt part of the gain less £1000 annual exemption, and the remainder is charged at 20%.

This is payable on 31st October in the period following the date of the disposal.

If the amounts involved are any way sizeable you should obtain professional advice as the onus is on you to calculate and pay the correct liability. If errors are made, you may be liable to additional penalties and interest.

Tommy
www.mcgibney.com

Sorry - still a little confused.

So the calculation is £210k-£28k = £182k and then

£182k / 20 and * 8 less £72.8k @ 20%

which equals £14.56 less £1k allows = £13.56

Tommy / DOgbert - is this correct? If so what about the multiplier table in the revenues booklet.

Help

Re: CGT query....

No you're still wrong I'm afraid...

I'm not a tax expert and as Tommy says you should probably seek professional advice as there can be related tax issues you may not be aware of...

But, a very rough estimate of your liability would be:

£28k * 2.833 (your figure, I'm assuming it's correct)= £79,324

£210,000 - £79,324 = £130,676 (Total gain)

£130,676 / 21 (years owned) = £6,222

£6,222 * 7 = £43,554 (amount of years an investment - last 12 months are considered ppr)

£43,554 - £1,000 = £42,554

£42,554 * 20% = £8,510 - Rough estimate of CGT due - you may also offset the cost of selling but I'm not sure if in your case it would be the entire costs or the same portion as the time it was an investment property - you see this is where you need professional advice

Dev.

Phew....!

Tommy / Devil's ad. - thank you very much for your help and patience

HELP

CGT Query

Hi Help,

I recently went through a similar exercise with a tax accountant and Devils Ad's calculatiions would seem to match what he came up with.

You can offset the cost of selling the house, plus the cost of the advisor if you get one, before calculating your net gain on the house. Dont forget to include all those costs that the mortgage companies used charge back in those days too, indemnity bonds, mortgage fee, etc. when calculating the origional buying cost. Lastly, work out the periods of ownership in months rather than years as it may be benificial to you (not sure if you have to do this anyway, even if it is not), e.g. maybe ownership =21 years and 5 months, rental = 7 years 6 months implies a rental period of 30.35% rather than 33.33% for 21 years owned and 8 years rented.

1 drawback of this is that that final year of ownership, which is assumed to be part of your ppr calculation, wont necessarlly be totaly deducted from the rental period as you most likely will have a period of non-rental during the selling months (or hopefully, days).

Pierce

Re: CGT Query

D ont forget to include all those costs that the mortgage companies used charge back in those days too, indemnity bonds, mortgage fee, etc. when calculating the origional buying cost

Click to expand...

Excuse me if I'm missing something, but are you sure these costs would be allowable? Surely they are part of the cost of financing the property, not part of the cost of acquisition of the property, and as such would not be allowable?

Tommy
www.mcgibney.com

Re: CGT query....

Indeed Tommy, I think you are correct.

The following is from The Revenue site and would suggest that finance costs would not be included in the list of deductible expenditure.

"(a) the cost of acquisition of the asset and any incidental cost of acquisition such as agent's commission and costs of transfer or conveyance.

(b) expenditure incurred for the purpose of enhancing the value of the asset which is reflected in the state of the asset at the time of disposal, and

(c) the incidental costs of making the disposal, such as legal and advertising costs."

It could be argued that the cost of finance is the cost of acquisition, but that fact that it goes on to specify estate agents and solicitors would suggest that mortgage costs are not allowed...

Re: CGT query....

Hi Tommy and Devils Ad.

I will check with the advisor again, maybe he just overlooked this but in my case these were clearly itemised and he didnt query them. I havent heard yet from the tax office if they are allowing it or not.

Pierce

Sort of linked - sorry for hijacking if not.

Would CGT on sale of a PPR part used for small business purposes - say two rooms for 3 hours per day be calculated on a similar basis - i.e. deduct portion to reflect PPR-only years, multiply combined PPR/business use by 9% - 15 out of 168 hours per week business use, multiply in turn by 10% - % floor area used and pay on 20% of the result?

Would CGT only apply if you had been claiming deductions in respect of mortgage/utilities etc. or will it apply regardless once you use the premises for business?

Re: Sort of linked - sorry for hijacking if not.

There is only a restriction on business where part of the house is used 'exclusively' for business purposes. In your case, it would appear that these two rooms have other uses when not in use for business - therefore there will be no restriction on your PPR relief.

Re: Sort of linked - sorry for hijacking if not.

Thanks indeed Enrique - most useful!

Re: >>CGT on sale of Residence

In relation to CGT on sale of a rented property could someone advise why rental income received on the property comes into the CGT computation as a "gain" where a PAYE worker with several rental properties and a section 23 property has already submitted upto date Paye Income TAX returns which would have had the effect of writing off the rental income received up to the value of the Section 23 allowance?

Is it that this is regarded by Revenue as a capital gain rather than Income received which has already been written off by the Revenue ?

Can anyone confirm that CGT is assessable from date of acquisition of property in 1992 even though it was a PPR from 1992 until it was rented out in 1997 and what is the Muliplier Index for 1992 ?

Is there a rule which states that the last year prior to sale of a rented property is exempt from CGT and am I right in saying that I am entitled to €1270 CGT allowance backdated to the year of acquisition of the property?

Finally I believe the Muliplier was abolished as at 31-12-2002 -if that is the case how is CGT calculated in 2005 ?

Re: >>CGT on sale of Residence

I think the above discussion is really very useful and a great help to all

Re: >>CGT on sale of Residence

Hi
I would be greastful if someomne could advise if they have experience of dealing with the CGT issues referred to in my posting
thanks