Changing Primary Residence to Investment Property

[promo]

Few quick questions, but situation/background is basically that I have to relocate for a new job from Dublin to the South of the country. I want to keep my house as after two years I will take stock and the option will be to either return to Dublin or sell my PPR to buy a new PPR in the South.

So in the interim I am considering the rental option on my PPR i.e. changing it to an investment property

-Am I correct in thinking that I can move out of my PPR for 12 months and not have any CGT liability ?
-Therefore if it is still considered to be my PPR then I still could do Rent a Room for that year (even say if I have a house rented myself)?
-I presume if I go to renting the full house even in that first 12month period then it immediately switches to an Investment property (with tax on rental income plus the CGT on the increased value of the house)?

I am moving to a new company, could I exercise the 4 year 'moving for employment' clause and keep it as my PPR 4 years ? (wishful thinking probably )

Ultimately as I am looking at a two year stint CGT will affect me at some stage.
So in relation to the calculation of CGT on the increased value of my PPR since purchasing, I have seen two schools or thought. Lets say the PPR has increased 100k since purchasing & I own house as my PPR for the last four years

First is that on completion of the first CGT affected year the calculation of CGT would be 1/5 of 100k @20% = €4000
Second is that any increase in value of house while it was my PPR is locked in (for future PPR purchase) and am only liable for CGT on any increase whilst it is an investment property.

Ultimately as I have only being in my PPR for four years I am getting hit quite hard on CGT which is really canceling out the advantages of renting. So much so in fact that I may even keep the house as my PPR (ie pay all mortgage and bills myself) and just lodge in a room for work purposes (and don't claim rent relief) whilst returning to my PPR whenever I possibly can.

I would really appreciate your thoughts on my options and questions outlined here, and indeed if I have all my details correct in the first case

 

[ubiquitous]

-Therefore if it is still considered to be my PPR then I still could do Rent a Room for that year (even say if I have a house rented myself)?

But you won't be living there. As such how can it be your PPR? And you won't therefore qualify for Rent a Room.

Second is that any increase in value of house while it was my PPR is locked in (for future PPR purchase) and am only liable for CGT on any increase whilst it is an investment property.

Where did you hear this? Its totally incorrect.

 

[Fergalmc]

It's all very confusing!!

 

[SpursFan]

I am in the same situation where I'm changing my PPR to a rented property.
I have notifed the Insurance and the Mortgage company of the change.
I have registered the new tenant with the PRTB.

1. I contacted the TRS section of revenue to tell them to stop the TRS but they told me it was already stopped 2 weeks ago?? This happened around the same time as the PRTB registered the house. Are they Linked?? The TRS people told me they has no details on why it was stopped?

2. I have sent an email with my new address (rented accomodation) to the revenue. Do I have to find a specific department to tell them it is not my PPR any more? or will they figure it out from the change of address? This is harder to do than it should be..

 

[asdfg]

I presume if I go to renting the full house even in that first 12month period then it immediately switches to an Investment property (with tax on rental income plus the CGT on the increased value of the house)?

See [broken link removed] for calc of tax on rental income Note that you can claim interest on the mortgage and depreciation on furniture

In calc the CGT you take into account the time you owned the house and the time the property was let

Calc is as follows

Selling price - Purchase price less expenses * No of months let -12 / No of months owned

Selling price 310K
Purchase Price 200
Expenses ...............10K
Profit 100K

Owned property for 5 years
Property let for 15 months

100K * 3 (15-12) / 60 = 5 * 20% = 1K

 

[ClubMan]

1. I contacted the TRS section of revenue to tell them to stop the TRS but they told me it was already stopped 2 weeks ago?? This happened around the same time as the PRTB registered the house. Are they Linked?? The TRS people told me they has no details on why it was stopped?

It's definitely the case that you can't offset mortgage interest against rental income unless you are registered with the PRTB so maybe the two bodies do exchange information as a matter of course?

2. I have sent an email with my new address (rented accomodation) to the revenue. Do I have to find a specific department to tell them it is not my PPR any more? or will they figure it out from the change of address? This is harder to do than it should be..

There is no official process of "registering" a property as your PPR or non PPR as far as I know. As long as you have done all of the above including cancelling the owner occupier mortgage interest relief claim and changed your address for correspondence to your new rental address I'm not sure where the difficulties arise?

 

[ClubMan]

I would really appreciate your thoughts on my options and questions outlined here, and indeed if I have all my details correct in the first case

You should get independent, professional advice because, as mentioned above, some of your assumptions are totally incorrect.

 

[promo]

You should get independent, professional advice because, as mentioned above, some of your assumptions are totally incorrect.

In fairness this was posted with the intention of having my assumptions & ideas questioned & challenged. Chances are if I thought my notions were correct I wouldn't be posting in the first instance.

Moving on....

So in essence revenue takes two views on the first 12 months after you stop living in your PPR depending on the tax being applied

CGT : exempt from this for 12months as it is still considered to be your PPR - even if you have the full house rented.
Rent a Room : any 'Rent a Roomer' would immediately become a Tenant as it is not an occupied PPR

So even if this house was left with just me paying all bills, full mortgage etc it would become an Investment property after 12months regardless that I am only renting elsewhere.

 

[ClubMan]

CGT : exempt from this for 12months as it is still considered to be your PPR - even if you have the full house rented.

It's not considered your PPR during this time - you are simply allowed an additional 12 months after vacating it as your PPR to dispose of it before CGT becomes an issue.

Rent a Room : any 'Rent a Roomer' would immediately become a Tenant as it is not an occupied PPR

Rent a room scheme applies to owner occupied PPRs only - once you have vacated the PPR it obviously no longer applies.

So even if this house was left with just me paying all bills, full mortgage etc it would become an Investment property after 12months regardless that I am only renting elsewhere.

In effect - yes.

And, as already mentioned, you were also wrong about the capital gain "lock in" from the time you vacate the property as your PPR.

 

[Newby]

So in essence revenue takes two views on the first 12 months after you stop living in your PPR depending on the tax being applied

The 12 month period that is referred to in the "Disposal of Principal Private Residence" section is the final 12 month period of ownership. This implies that it is 12 months that finishes on the date of disposal of the property not the 12 months starting from when the property ceases to become a PPR. If the property is not disposed of it is just a period of time for which it is not your PPR.

Rather than DIY tax planning i'd be getting the professional advice recommended by the other posters.

 

[murphaph]

I will be in a similar circumstance to the OP shortly so instead of a new thread.....

I will be vacating my PPR soon and letting it out. I intend to do everything above board and so would like to know what steps I should take in this:

My cirsumstances:

The revenue; Owner occupier for last 8 years so I don't think TRS is applied to me anymore and no stamp duty clawback?

Insurance, do I just call my ins company and tell them it's now rented and pay the extra?

The bank, do I have to tell them it's now rented so they can increase my mortgage interest rate??

Anyone else I need to notify to keep it on the level, PRTB?

 

[asdfg]

The revenue; Owner occupier for last 8 years so I don't think TRS is applied to me anymore and no stamp duty clawback?

TRS is granted to everyone who has a mortgage on your PPD.
So you have to advise the TRS section of Revenue that it is no longer your PPD.

Insurance, do I just call my ins company and tell them it's now rented and pay the extra?

Yes, shop around while your at it.

The bank, do I have to tell them it's now rented so they can increase my mortgage interest rate??

Yes, again shop around. Some mortgage lenders don't do property to rent.
Anyone else I need to notify to keep it on the level
You also have to advise Revenue and make the necessary annual returns. See [broken link removed]
Tax on 2008 rental income not due until Oct 2009

 

[murphaph]

Thank you asdfg.

Some more brain picking....

Insurance: Do I need public liability cover? If so, are we talking big money (I recently renewed on a commercial property and it was 2k for the year for public liability-ae we talking this sort of money for a private dwelling???)

What about the PRTB? Do I register with them as a landlord or is it everytime I sign a new lease with a tenant that I register the tenancy?

Wrt offsetting expenditure against taxable income from the property....I want to install a porch door to add security and insulation. It will cost around €500. I also need a skip to clear out some junk. Can I wait until I have my first tenant in and then order these items and offset them against the income for tax? I know I can't claim anything at all for pre-letting expenses, which is why I ask!

 

[ClubMan]

What about the PRTB? Do I register with them as a landlord or is it everytime I sign a new lease with a tenant that I register the tenancy?

Doesn't their site answer this sort of question?

www.prtb.ie

 

[murphaph]

So it does, and a dreadful looking site it is too.

Any info on the insurance thing? It doesn't list any sort of Insurance as a Landlord Obligation at all!

 

[ClubMan]

You'll certainly need cover other than a normal owner occupier policy when renting the property out. Such a policy will not cover a rental situation and will most likely be rendered null and void by renting. Don't most or all policies (even owner occupier) include some level of public liability cover?

 

[murphaph]

You'll certainly need cover other than a normal owner occupier policy when renting the property out. Such a policy will not cover a rental situation and will most likely be rendered null and void by renting. Don't most or all policies (even owner occupier) include some level of public liability cover?

Well this is the nub of the question.

a) am I required by law/convention/good sense to have public liability cover on my rented out property?

b) is this typically included in a general house (not home) insurance?

I understand that I'll have to call my insurer and either pay extra to upgrade my cover if that's possible and if they say that it's not and a new policy will be required, I'll shop around (though 123.ie seem very hard to beat with their EagleStar HomeStar policies. They quoted me 265 on a different house (my new PPR) and when I told them my commercial insurer (Hibernian) could do it for 230 because I had a large policy with them with better cover, they immediately beat Hibernian by a tenner and matched their level of cover. I've had to make one claim on a Homestar policy and it was dealt with promptly too.

 

[chippengael]

See [broken link removed] for calc of tax on rental income Note that you can claim interest on the mortgage and depreciation on furniture

In calc the CGT you take into account the time you owned the house and the time the property was let

Calc is as follows

Selling price - Purchase price less expenses * No of months let -12 / No of months owned

Selling price 310K
Purchase Price 200
Expenses ...............10K
Profit 100K

Owned property for 5 years
Property let for 15 months

100K * 3 (15-12) / 60 = 5 * 20% = 1K

I am having difficulty finding out how the CGT is derived from the period the asset was an investment property vs PPR. Can you direct me to the place in the revenue documentation that describes this?

Thanks

 

[Kyla]

Chippengael,
Newby mentioned above on the 24/02 that the 12 months in the equation is the last 12 months of ownership before sale. Or you could go to the revenue website and put into the search bar…

Page 10 of the Guide to rental income (there’s many links to it above) says that if the profits are relatively small the tax can be collected by reduction of the person(s) tax credit and standard rate cut-off point. I wonder what figure they mean by ‘relatively small, e.g. if you only have 1 house rented and the rent just covers the mortgage maybe? But i guess id have to ring Revenue about that.
Also, that page gives an example of a rent account, but it doesn’t say what % is taxed on the taxable rental income.
I want to rent out my house soon, I will do all the changes mentioned above(bank, insurance, TRS, revenue notification) and I just found out about the clawback reduction and am very happy indeed! Im taking a career break next year and myself and the other owner(boyfriend) are going traveling. We don’t plan to be back during that year so I presume ill have to get an accountant to help me out with the tax form in October, through email. I would keep all receipts with my parents if needed. Has anyone had any experience with this? I guess im veering towards being a non-resident landlord so ill have to find out more about that, but then i wont be working abroad.
Various post above recommend getting ‘professional advice’, but can they recommend any firms? (Or is that allowed on this forum?)

 

[asdfg]

Also, that page gives an example of a rent account, but it doesn’t say what % is taxed on the taxable rental income.

All income i.e. employer & rental income is added together and you are taxed on the total.

Im taking a career break next year. We don’t plan to be back during that year so I presume ill have to get an accountant to help me out with the tax form in October, through email

You could sort it all out before you go.

I guess im veering towards being a non-resident landlord so ill have to find out more about that, but then i wont be working abroad.

See the following from the Revenue Guide
What if Rents are payable to a non-resident landlord?
How are non-resident landlords taxed?
How are foreign rents taxed?
What if Rents are payable to a non-resident landlord?
How are non-resident landlords taxed?
How are foreign rents taxed?