# 7 year CGT exemption for investment properties may make the rental crisis worse in 2019



## landlord (4 May 2017)

Between the years of 2012 and 2014 (I think those dates are correct) the Irish government offered an incentive to purchase a property to rent out.  If held for seven years and sold in that seventh year no capital gains tax will be due.  If sold after that seventh year an increasing amount of capital gains tax will be due.

So I believe in the years 2019 to 2021 a significant amount of investors (including myself) will be looking to cash in on their property investments.  Does anyone have any idea how significant the impact of this will be on rental supply?  How many properties were purchased  between 2012 and 2014 for the purpose of rental?  Do you think there is a possibility that this tax relief will be extended to encourage investors to hold onto their properties?  Considering the severe shortage of rental properties an extension would make sense.  Without this extension I will certainly be selling.


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## LS400 (5 May 2017)

It would make sense to me to extend the tax relief, I bought in 2012 not because of that specific reason, but saw it as an added bonus.

If today's market is anything to go by, I will also be giving it serious consideration to selling up this property when the time in 2019, but, will also look into investing into another one, having made a capital tax gain on this one.

So, on the other hand, will it not just be a case it a circulation of rental properties, just by different owners.


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## dub_nerd (5 May 2017)

landlord said:


> How many properties were purchased  between 2012 and 2014 for the purpose of rental?



There was a large upward spike in properties registered on the Property Price Register in December 2014 that has not been equalled since, presumably caused by people trying to get in before the CGT exemption deadline. 2014 generally was well up in numbers compared to previous years. The excess certainly measures in the thousands, though it's hard to quantify beyond that.


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## landlord (5 May 2017)

Would December 2014 be after the deadline ?


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## Brendan Burgess (5 May 2017)

LS400 said:


> I will also be giving it serious consideration to selling up this property when the time in 2019, but, will also look into investing into another one, having made a capital tax gain on this one.



It makes sense to hold the property for the 7 years. 

But what is the logic of selling it after 7 years just to invest in another property? 

Say you bought in 2012 for €200k 
And sold in 2019 for €300k
The gain will be €100k and the tax will be zero.

If you then buy a property for €300k in 2019 and sell it in 2025 for €500k, the gain will be €200k and taxed at 33%.

But what happens if you keep the original property from 2012 to 2025 and sell it for €500k.  Will the gain not be from 2019? So the tax will be the same. 

Brendan


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## torblednam (5 May 2017)

No, in the scenario you describe you'll have 7/13 of your overall gain exempt, and 6/13 of your gain taxable.

The gain is 300k so about 160k of it is exempt and 140k taxable.

HOWEVER this exercise hints at the logic of selling in 2019.... if you believe the rate of appreciation in value is going to slow down or that another bust is imminent.

For example switch some of the figures on your example: buy in 2012 for 200k and in 2019 it's worth 400k and then things slow down and in 2025 it's worth 500k.

In that scenario you can sell in 2019 fully exempt on a 200k gain and (all other things equal) invest in a similar or better asset the gains on which will be taxed.

Or you can hold until 2025 and sell for 500k. The gain is 300k, and the same 160k exemption and 140k taxable as before apply. So, in a market where the price curve is flattening out, you will dilute the value of your exemption by holding beyond 7 years.

So there is a logical reason why people might sell in 2019-2021, but it requires making lots of judgements about future moves in market prices and trying to guess where else to invest. (But that's investment, isn't it!)


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## Brendan Burgess (5 May 2017)

Thanks for that. So it's the same principle as the CGT relief on the family home which becomes an investment property. 

If the property is worth less in 2019 than in 2012, then you should hold onto it. 


Obviously 2026 is an artificial date.  



It's a tough decision.


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## dub_nerd (5 May 2017)

landlord said:


> Would December 2014 be after the deadline ?


No, the exemption ran from Dec 7th 2011 to Dec 31st 2014.


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## landlord (5 May 2017)

dub_nerd said:


> No, the exemption ran from Dec 7th 2011 to Dec 31st 2014.



Ok thanks I wasn't sure of the exact dates, but I was aware it was extended. The fact it ran over 3 years instead of 2 as I thought might somewhat dilute the "everybody selling at once" impact.


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## Gordon Gekko (6 May 2017)

I'm "thinking out loud" here, but I'm not sure that it will have much of a net effect.

Yes there should be some additional liquidity in the market at that time but that should just balance out the lack of liquidity now as a result of people precluded from selling because of the tax break.

And the people I meet generally intend to hang on to their properties and simply view the 7 year holiday as having a dilutitive effect on the tax position over a longer time frame rather than a 7 year "product" to exit.

And it's also phased over 36 months in any event.


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## Brendan Burgess (6 May 2017)

Gordon Gekko said:


> Yes there should be some additional liquidity in the market at that time but that should just balance out the lack of liquidity now as a result of people precluded from selling as a result of the tax break.



I would not call that a balancing out. 

Some of the people who took advantage of this scheme will want to get out but can't do so until the 7 years is up. But they will do so as soon as they are allowed. So the lack of supply now will cause an increase in supply when the 7 years is up. 

However, many of those who sell when the 7 years is up will also be buyers. 

Brendan


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## landlord (7 May 2017)

After 7 years there is little doubt that there will be an increase in supply of properties on the market.
If all these investors after 7 years sell to other investors there will be zero impact on rental property supply.
However if just 1 of these investors sells to a first time buyer, then this will negatively impact the supply of rental properties. I think I read in the indo recently that only 5% of properties sold currently are being bought to let. If this remains true in 2019 and 95% of these buy to let's are sold to first time buyers then it may have a significant impact on rental supply.


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## landlord (7 May 2017)

Gordon Gekko said:


> And the people I meet generally intend to hang on to their properties and simply view the 7 year holiday as having a dilutitive effect on the tax position over a longer time frame rather than a 7 year "product" to exit



This is definitely not the vibe I am getting from the many friends and colleagues that I am in contact with. Selling ASAP at the 7 year mark is the goal considering all the current cons to being a landlord.


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## Gordon Gekko (7 May 2017)

I was chatting with a client on Friday and we both agreed that the pros outweigh the cons.

e.g. tracker rates, lack of supply, high rents, reversal of 75% rule, CGT shelter if you bought high, predictability of the 4%, etc.


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## landlord (7 May 2017)

Gordon Gekko said:


> e.g. tracker rates, lack of supply, high rents, reversal of 75% rule, CGT shelter if you bought high, predictability of the 4%, etc.



Tracker rates..... what about those on variable rates.  As decent trackers are no longer available,  the ratio of those on decent trackers to those on higher tracker or variable rates is continuously moving in favour of the latter.

Lack of supply resulting in higher rents..... I would imagine that more than 95% of investors are not benefiting from the headline daft rent increases, due the rent cap.

Reversal of the 75% rule......A change from 75% to 80% would hardly be considered to be a reversal.

Predictability of the 4%.......Due to the massive lack of supply  I would by far prefer to have an unpredictable 13%, 21% or 35% yearly increase rather than a predictable 4%.


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## galway_blow_in (21 May 2017)

landlord said:


> After 7 years there is little doubt that there will be an increase in supply of properties on the market.
> If all these investors after 7 years sell to other investors there will be zero impact on rental property supply.
> However if just 1 of these investors sells to a first time buyer, then this will negatively impact the supply of rental properties. I think I read in the indo recently that only 5% of properties sold currently are being bought to let. If this remains true in 2019 and 95% of these buy to let's are sold to first time buyers then it may have a significant impact on rental supply.



i wouldnt be entirely sure we will see a glut of properties on the market in 2019 , anyone who bought in 2012 or even 2013 , bought property at prices not seen since around the year 1999 or 2000 , its unlikely also they were anything but cash buyers for the most part , 2012 was a generational low , dublin properties were for nothing relative to the income they could produce even with rents in 2012 so low


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## ixus (21 May 2017)

I've posted on the 'pin about this. 

If anything, the exemption should be pulled forward, not extended. Allow 2012/2013 purchasers to sell now with the relief, 2014 purchasers next year. 

The purpose of this relief was to encourage transactions and it worked. It is now having the reverse effect. Investors are sitting on pretty large paper profits and not able to sell if desired. Supply is restricted at a critical time of reduced supply. 

2019/2020 will see the reality of Brexit and the possibility of a huge amount of land developed (if Coveney's plans & announcements are realised) and the 7yr CGT sellers.


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## landlord (21 May 2017)

ixus said:


> I've posted on the 'pin about this.
> 
> If anything, the exemption should be pulled forward, not extended. Allow 2012/2013 purchasers to sell now with the relief, 2014 purchasers next year.
> 
> ...



If brought forward I would have thought this would have a massive negative impact on an already tight supply of RENTAL properties.
You say "supply is restricted at a critical time of reduced supply" Sure supply will increase but WHO will purchase these properties.
If brought forward and 100 extra people sell their RENTAL properties tomorrow, statistics are currently showing 95 of these properties will go to homeowners and only 5 will go to investors.


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## ixus (22 May 2017)

I believe the result would be net positive. Increase of stock available should pair demand per unit and, hopefully, reduce current frenzied price action.

If the property is sold onto another BTL individual, that would be neutral to Rental supply.

If sold onto trade up/down, purchaser may add their stock to Rental supply or sell. This stock either goes to rental market or takes someone out of the rental market.

Overall, it's neutral as the stock goes back to market or takes someone out of rental market.

The purpose was to increase transactions. Reverse effect happening now and adds to current price mania.

Edit: on who will purchase. Plenty of renter's are able to purchase at certain levels but fail in the bidding process.


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## landlord (22 May 2017)

ixus said:


> I believe the result would be net positive. Increase of stock available should pair demand per unit and, hopefully, reduce current frenzied price action.
> 
> If the property is sold onto another BTL individual, that would be neutral to Rental supply.
> 
> ...



I don't see how this is neutral.  
If the exemption is pulled forward to say next year,  then 100% of properties sold using this scheme next year wil be removed from the rental market. 
And if the current statistical purchase ratio that I mentioned earlier holds up then only 5 % of properties will be returned to the rental market. (The rest would go to 1st time buyers and some to those trading up).  Of course it should be stated that those trading up will sell approximately 5% again back into the rental market. 
Unless I am missing something this doesn't seem to be neutral.


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## Sarenco (22 May 2017)

landlord said:


> If the exemption is pulled forward to say next year,  then 100% of properties sold using this scheme next year wil be removed from the rental market.



Does that not assume that:- (a) 100% of these properties will be sold; and (b) 100% of these properties will be sold to owner occupiers?

Neither assumption seems very realistic to me.

TBH, I really don't see how the expiry of the 7-year minimum holding period could have any significant impact on the rental or sales market.  In any event, I think there is zero chance of the 7-year period being extended.


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## ixus (22 May 2017)

Take 2014, per this thread:

http://www.thepropertypin.com/viewtopic.php?f=4&t=26451&p=912717&hilit=Ixus#p912717

There were approx 36.2k transactions on the PPR. Mortgages by volume were 16.4k, indicating 20k cash only transactions. Approx 55% cash to 45% mortgage. This year has swung to circa 40% cash to 60 mortgage. 

If 20-40% of the cash only were getting out at the end of the CGT relief period, we would see 4-8k units come online. Not insignificant. Pretty sure figures are similar for 2012/13.


@ landlord - Removal of rental property also removes a potential tenant. If the house is let, it is off the market anyway.


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## galway_blow_in (22 May 2017)

i wouldnt pay any heed to anything id read on the property pin

its a site reserved for permabear cranks , even in 2012 , most were predicting the average house in dublin would drop to around 120 k for a three bed semi


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## Gordon Gekko (23 May 2017)

I've yet to meet a client who is frantically waiting for the expiry of the 7 year period to offload his/her property.


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## ixus (23 May 2017)

galway_blow_in said:


> i wouldnt pay any heed to anything id read on the property pin
> 
> its a site reserved for permabear cranks , even in 2012 , most were predicting the average house in dublin would drop to around 120 k for a three bed semi



They're statistics from official sources. It simply shows the property market has flipped from cash driven to mortgage driven over the years. Factors likely include ECB monetary policy, bank lending policy, economic activity, jobs & the CGT relief

On the other side, forums evolve. Very few permabears. Though I might be one of them. There's even a thread where someone called the bottom for supply reasons.


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## ixus (23 May 2017)

Gordon Gekko said:


> I've yet to meet a client who is frantically waiting for the expiry of the 7 year period to offload his/her property.



That's interesting, though I wouldn't expect it to be frantic with the expiry being anything from 18 months to 3.5 years. Would the logical approach not be to look at the market 6 months beforehand, assess the figures and make decisions then? It's not an area I operate in (client management), so no idea.


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