# Irish Capital Gains Tax Relief for Land and Buildings Situated in an EU/EEA Country



## nononsense (10 Sep 2013)

As anybody seen this CGT tax relief which applies to properties purchased between 6 December 2011 and the end of 2013, whereby if you hold the property for 7 years you are exempt from CGT?

Nice, for those that are lucky to be in a position to avail of it! 

Those who have held investment property for more than 7 years and are now looking to sell, must be furious that will be hit with a 33% tax rate on their gains! 

Just wondering peoples view on this tax relief... do you think it is fair?


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## nononsense (10 Sep 2013)

On a related matter, let me know if there are any CGT reliefs that apply to investment properties (other than the one mentioned in my previous thread!).


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## Joe_90 (10 Sep 2013)

I imagine that if someone is getting more for the asset than they paid for it that they are in a better position that a lot of people.

Its another example of the hypocrisy of this government they blame the tax incentives for destablising the economy S23/Property based reliefs to be abolished then decision reversed, then they brought in another tax incentive.

I can't think of any CGT reliefs other than PPR where the house is occupied by a dependent relative, retirement relief where the property is leased to a family company and the property and the company are disposed of to the same person at the same time.


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## nononsense (11 Sep 2013)

Thanks Joe! Yes it is indeed hypocrisy - although I don't get the benefit for Ireland to give this incentive to purchase in the EU area, rather than just in Ireland.

Interesting what you mention about the PPR relief if the house is occupied by a dependent relative. I must look into this... I must admit my question was selfish as I do have a personal property that I am selling at present. We were in a very fortunate position to inherent this property, however it was gifted to us while our grandparents were still living... hence they were occupying the house for some years after we officially inherited the house... 

Thanks!


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## mandelbrot (11 Sep 2013)

nononsense said:


> As anybody seen this CGT tax relief which applies to properties purchased between 6 December 2011 and the end of 2013, whereby if you hold the property for 7 years you are exempt from CGT?
> 
> Nice, for those that are lucky to be in a position to avail of it!
> 
> ...


 
Firstly, the statement that "you are exempt from CGT" is incorrect. A proportion of any gain accruing will be exempted - this is not the same thing at all. If you buy in 2013 and sell in 2028, then 7/15 of the gain will be exempt. 

A person who has already made a property investment decision did so based on the factors that prevailed at the time.

The purpose of this CGT relief is to incentivise investors to return to the property market.

Of course, some shrewd property investors have probably taken the opportunity to change their portfolios now - sell properties bought 2005-2008 at a loss, and properties bought earlier at a gain, paying little or no CGT if they can match losses against gains, *and* reinvest the proceeds (during the window for the CGT relief) in other property assets that they see as representing value in the medium term, particularly when you factor in the 7 years tax free capital appreciation...


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## mandelbrot (11 Sep 2013)

As for why the relief applies to EU/EEA properties, I expect that is because it would be in breach of EU Law to only apply it domestically (freedom of movement of capital etc).

Anyway, if you hold a foreign property and sell it, you will have to pay foreign CGT first in priority to Irish CGT - you then owe Irish CGT too, but with credit for the amount you've paid in the foreign country. So the effect of extending the relief to EU/EEA countries would be relatively little.


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## nononsense (11 Sep 2013)

Hi Mandelbrot,

I stand corrected that a portion is exempt, but that is only if you own it for longer than 7 years. If you hold the property for 7 years and immediately sell it, the individual is exempt from the CGT payable on the gain.


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## mandelbrot (11 Sep 2013)

nononsense said:


> Hi Mandelbrot,
> 
> I stand corrected that a portion is exempt, but that is only if you own it for longer than 7 years. If you hold the property for 7 years and immediately sell it, the individual is exempt from the CGT payable on the gain.


 
Yes, but you are exempt on 7 years worth of gain - the decision as to when you sell is up to you.

Compare 2 people, 1 who buys now, and the other who bought 7/8 years ago.

The person buying now will pay 100k for a property that the other person would have had to pay nearly 200k for 7/8 years ago.

If the property appreciates by 10% (in nominal terms) year on year for the 7 years its value will reach 195k after 7 years. This is more than the most wildly optimistic of property bulls could hope for.

At that point, the 2013 buyer will have a gain on sale of 95k (exempt), the boom-time buyer will be at breakeven... A rising tide lifts all ships, and in this case the policy objective is to accelerate the tide coming back in -so the earlier buyer would also benefit from Government policy to coax some capital back into the property market and stimulate the increase in value.

I'm not saying I agree with a policy designed to start reinflating a burst bubble, but I am simply pointing out that the policy can have benefits for the incumbents in the market.


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## nononsense (12 Sep 2013)

My issue with this relief is that it is applied for a specific purpose to boost the property market (we have been here before), while not considering whether this relief is fair to the (majority) of citizens of Ireland. 

This relief applies to individuals (not sure about companies) who are in a position to make an investment between Dec 2010 and Dec 2013 - I imagine that this represents a small proportion of the population who invest in property - especially now.... 

I would not be objecting to it, if there was no restriction applied in terms of when the property/ land was purchased - hence it would be open to all property investors. 

Don't get me wrong, this relief would most likely not have been introduced if there was no specific timeframe of purchase. Hence, I do not think that it should have been introduced if it cannot be applied fairly/ while meeting the principal objective of the relief.


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## mandelbrot (12 Sep 2013)

nononsense said:


> My issue with this relief is that it is applied for a specific purpose to boost the property market (we have been here before), while not considering whether this relief is fair to the (majority) of citizens of Ireland.
> 
> This relief applies to individuals (not sure about companies) who are in a position to make an investment between Dec 2010 and Dec 2013 - I imagine that this represents a small proportion of the population who invest in property - especially now....
> 
> ...



The objective of the relief (I assume) was to make the purchase of Irish property more attractive. You don't seem to disagree with me on this point.

Retrospectively giving the relief for purchases already made, makes no sense. Tax incentives are by their nature unfair, since they involve offering a tax advantage to incentivise a particular action - not sure what part of the concept you are struggling with TBH!


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## nononsense (12 Sep 2013)

I would argue that policy makers should certainly consider whether taxes in general including tax incentives are fair before implementing them.... 

To simply dismiss that tax incentives are by their nature 'unfair' is not good enough... this is just allowing the government to apply whatever incentive they wish without any regards of the implications to the wider society in general.

At the very least, you would expect, that should the relief meet its objective, it should benefit the wider society in general. 

While we both agree on the objective of this relief... ie. to stimulate the economy, I would argue that should this relief meet its objective, that it may not necessarily benefit the wider society.... Who would benefit from a stimulated property market? developers, bankers and tradespeople... (btw I have nothing against the tradespeople)... however, would this stimulated property market be sustainable, or would it lead us to another bust in years to come... that certainly would not be good for the wider society.


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## T McGibney (12 Sep 2013)

This should be in Letting Off Steam.


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## amartin (3 Mar 2014)

Its not just Ireland or other countries but also US. Congressional Republicans have ordered a Congressional Research Service report erased, evidently because it conflicts with their ideological views on taxes. The report found that lower tax rates actually have nothing to do with financial growth.


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## T McGibney (3 Mar 2014)

amartin said:


> The report found that lower tax rates actually have nothing to do with financial growth.



If a report crossed my desk with such an absurd conclusion, I'd want it suppressed too.


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