Tax implications on property purchase.

[HKB]

Hi All. Just looking to be pointed in the right direction really as we are unsure. Currently living in Australia and are citizens. Returning home next year. We are purchasing a property at home. Said property was built in 2011 but was never finished. The person who built the property is domicile in UK and works there. We have agreed to purchase the property but both parties are unsure of the tax implications of this transaction. The person who built the house has never kept any receipts and is afraid that he will be liable for capital gains tax in Ireland even though the figure we have agreed is basically the cost of the materials( house is finished outside and is ready for plastering inside). Someone suggested getting a QS to cost the house and this would sort out the Capital gains tax issue for the vendor. However we obviously do not want to end up with a liability from revenue in regards to the transaction. Any advice or comments would be appreciated
Regards

 

[DB74]

The vendor's CGT problems are not your issue

 

[GabbyTheKing]

You need to consider all tax heads.

There will most definitely be a VAT liability here! Supply of this incomplete property will be subject to VAT at 13.5% unless Transfer of Business relief applies which it wouldn't unless you are a developer. If his a builder it is also highly likely that it was held as stock in trade and therefore not subject to the CGT provisions but the income tax provisions(Irish source income). Stamp duty also on cost.

With regard to the QS report, I understand that liquidators often get QS reports where costs are not available.

You will also need to be careful on the Legal side of things to ensure the builder hasn't any sort of charge on the property that you are unaware of. Unless you have cash and a very good solicitor don't waste any more of your time on this property. I know plenty of people who wasted thousands on very cheap houses but the mortgage didn't go through, no deeds, no title etc etc etc.

 

[Taxpert]

You need to consider all tax heads.

There will most definitely be a VAT liability here! Supply of this incomplete property will be subject to VAT at 13.5% unless Transfer of Business relief applies which it wouldn't unless you are a developer. If his a builder it is also highly likely that it was held as stock in trade and therefore not subject to the CGT provisions but the income tax provisions(Irish source income). Stamp duty also on cost.

With regard to the QS report, I understand that liquidators often get QS reports where costs are not available.

You will also need to be careful on the Legal side of things to ensure the builder hasn't any sort of charge on the property that you are unaware of. Unless you have cash and a very good solicitor don't waste any more of your time on this property. I know plenty of people who wasted thousands on very cheap houses but the mortgage didn't go through, no deeds, no title etc etc etc.

Surely no vat liability for the purchaser?

 

[RedOnion]

OP, since you are concerned about tax liability for both purchaser and seller, I'm assuming you're purchasing from a family member or friend? And the seller was not a property developer?

Firstly, sellers location doesn't matter for CGT purposes, as the asset falls under the category of land located in the state. However it might be relevant if a gift is involved for example.

It might help to put some rough numbers on this.
What was cost of site / value at transfer? This will be part of sellers base cost for CGT.
Roughly how much did they spend on developing?
What would open market value of the unfinished house be now?
How much are you buying it for?

With CGT, the price you are paying is not always relevant. If the value is higher than that, the seller needs to use value in calculating, and the difference is a gift to you. It could work to your benefits if the value is less than cost (which is not uncommon with unfinished property).

If you do a search here or Google you will find other posts on CGT calculation for self builds. It's not uncommon not to have receipts, but unless there was a lot of cash involved, seller may be able to demonstrate large transfers / cheques from their bank account that can help establish cost.

Apart from tax, make sure yourself that the house was built to plans, that planning is still valid if works are not complete, and that you understand changes in building regulations that might impact you in completing works.

 

[GabbyTheKing]

Surely no vat liability for the purchaser?

I dare say the purchaser wouldn't have a CGT liability either! The OP has asked for the tax liabilities for both parties

We have agreed to purchase the property but both parties are unsure of the tax implications of this transaction.

From working with purchase contracts day in day out and considering the question. I'm beginning to wonder if the Purchaser is considering taking on any tax liabilities/indemnifying the Seller of any tax liabilities which is a part of many subprime contracts. In such an instance VAT would be very applicable.