# Are there any CGT implications, if I accept Tanager's 40% discount for early repayment of a tracker?



## David79 (8 Feb 2017)

Hi Brendan, 

Will revenue consider this a mortgage writedown or a buyout of a tracker mortgage? And what are the differences from a CGT perspective? 

My property is a buy to let, as many of these loans are, what are the tax implications for getting a discount of 40% (say 100k) when I sell in the future? 

My mortgage is fully up to date an has no arrears, a writedown means I would have to consider this for CGT purposes when selling the property in the future. 

I believe I am being bought out of my tracker rate here essentially, so is there any capital gains consideration for me? 

Thanks


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## Brendan Burgess (8 Feb 2017)

Selling the property is a completely separate transaction.  Any CGT liability will be based on the profit made on that sale over the purchase price. 

If I owe €300k to a bank and they accept €200k, are there any tax implications? I don't know, but I can't see how there are CGT implications.  Could there be a CAT liability?  I doubt it. 

If you refinance the loan with another loan, you can continue to claim tax relief on the interest paid.  

Brendan


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## Palerider (8 Feb 2017)

Are there not benefit in kind implications ?


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## torblednam (8 Feb 2017)

Palerider said:


> Are there not benefit in kind implications ?



By definition there has to be an employment relationship in order for to be a BIK.


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## torblednam (8 Feb 2017)

David79 said:


> Hi Brendan,
> 
> Will revenue consider this a mortgage writedown or a buyout of a tracker mortgage? And what are the differences from a CGT perspective?
> 
> ...



CGT arises on a disposal of a chargeable asset.

What asset are you disposing of in this scenario?

I don't see any asset.


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## David79 (8 Feb 2017)

My understanding is that if I bought the property for 300k, I received a writedown of 100k and then sell it for 300k at some point in the future I would have to deduct the writedown from my original purchase price (200k would be the revised base cost for the property).

So even though I bought and sold the property for the same amount I would have to pay CGT on 100k (as if I made a 100k profit)

"Section 40 of the Finance Bill (No 2) 2013 introduced a new provision which adjusts the CGT computation on the disposal of an asset where a debt has been released by a financial institution.
In simple terms, where all/part of a debt is released, ailment then the cost (for tax purposes)of that asset is reduced by that debt reduction."

So my question would be whether this is a writedown or is it the bank buying my valuable tracker mortgage from me.

(I appreciate that I'm not disposing of an asset at the point I receive the discount, but I need to know the future implications to determine the overall value of this offer) 

Thanks


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## Andy836 (8 Feb 2017)

Not CGT, €100k write-down should be liable for CAT in my opinion. 

However, I'm not sure revenue would go chasing and I'm certain there'd be no political support to chase people who make gains in this manner. Sure lottery winnings aren't even taxed.


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## torblednam (8 Feb 2017)

Andy836 said:


> Not CGT, €100k write-down should be liable for CAT in my opinion.
> 
> However, I'm not sure revenue would go chasing and I'm certain there'd be no political support to chase people who make gains in this manner. Sure lottery winnings aren't even taxed.



I always assumed Lottery winnings aren't taxed for the reason that it is a negative sum game - if the winner is taxed then all the losers would have to be entitled to relief for their losses, and since the amount lost exceeds the amount paid out to winners, it would not be a very attractive proposition... 

The same applies to gambling generally.


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## Sarenco (8 Feb 2017)

Tanager is offering to partially release the mortgage debt.  That has implications in terms of determining the allowable base cost of the property for CGT purposes.

The good news is there should be no CAT liability:

_"Where for bona fide commercial reasons, a financial institution enters into a debt restructuring, forgiveness or write-off arrangement with a customer, Revenue’s approach, subject to being satisfied as to the bona fides of the arrangement (which may be subject to Revenue audit or enquiry) is that the financial institution is not intent on making a gift of any sort to the mortgagor/debtor – and accordingly the mortgagor/debtor would not be subject to a CAT charge in respect of any such debt restructuring, forgiveness or write-off arrangement."_

[broken link removed]


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## Andy836 (8 Feb 2017)

torblednam said:


> I always assumed Lottery winnings aren't taxed for the reason that it is a negative sum game - if the winner is taxed then all the losers would have to be entitled to relief for their losses, and since the amount lost exceeds the amount paid out to winners, it would not be a very attractive proposition...
> 
> The same applies to gambling generally.



Yes, but the amount "lost" only carries forward as a deduction against future "gains". What is the likelihood of those spending a lot on lotto tickets to have high future gains? 

In aggregate I'd imagine it would be minuscule compared to the tax revenue from winnings.


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## Sarenco (8 Feb 2017)

David79 said:


> So even though I bought and sold the property for the same amount I would have to pay CGT on 100k (as if I made a 100k profit)



I don't think that's correct.

The Finance (No 2) Act 2013, introduced a restriction on the amount of allowable losses for CGT purposes, by taking into account the release of debts used to acquire or enhance an asset. However, my understanding (and perhaps one of our tax gurus might confirm) is that the application of the restriction cannot turn a loss (calculated if the restriction did not apply) into a chargeable gain (when the restriction is applied).


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## Kerrygrrrl (8 Feb 2017)

That's correct sarenco. It restricts the loss to the actual monetary loss but does not turn a loss into a gain or increase a gain.  If you bought and sold for same price, no gain or loss so provision does not apply.


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## corktim (8 Feb 2017)

So if the vulture fund agrees to accept 200k in final settlement, you sell it for 200k but bought it for 300k can you carry the 100k forward as a loss for CTG?


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## Kerrygrrrl (9 Feb 2017)

Corktim, it depends on what you borrowed.  In your example, if you borrowed the €300k but only had to pay €200k to bank and realised €200k on sale, then you don't have a monetary loss so you have no loss to carry forward.  However, if you borrowed €250k, used your own €50k to fund balance, you would have a loss of €50k to carry forward.  In that instance the €50k is your actual monetary loss.


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## corktim (9 Feb 2017)

Kerrygrrl, i didnt think that borrowed funds came into it at all. It thought it was just purchase and sale price as in capital appreciation / loss?


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## Kerrygrrrl (11 Feb 2017)

Borrowed funds are relevant if the debt is written off as your capital loss is now restricted to your actual monetary loss. Off the top of my head, this applies in respect of disposals made since 1 January 2014.


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