# CGT on flipping property



## South (13 Aug 2007)

If I puy a house as an investment for (let's say) €300K in Jan 2008 and sell it in May 2008 for (let's say) €320K, I would have thought that I would liable for CGT on the €20K.

I note from The Irish Times last Friday that I would not be liable for any CGT, I'm surprised...did anybody else notice this?


----------



## ClubMan (13 Aug 2007)

Moved from Mortgages and Buying and Selling Homes


----------



## ClubMan (13 Aug 2007)

South said:


> I note from The Irish Times last Friday that I would not be liable for any CGT, I'm surprised...did anybody else notice this?


Assuming the _IT _is correct which has not been the case in the past and, I suspect, is not the case here.


----------



## South (13 Aug 2007)

I would be inclined to think it is utterly incorrect.

However, I would be amazed that the Personal Finance editor of the major national newspaper could make such a basic blunder.


----------



## ClubMan (13 Aug 2007)

South said:


> However, I would be amazed that the Personal Finance editor of the major national newspaper could make such a basic blunder.


They have made extremely basic mistakes on tax and other issues in the past.


----------



## South (13 Aug 2007)

I am not doubting that, can anyone confirm/deny whether this was a blunder?


----------



## ClubMan (13 Aug 2007)

Sorry - just re-read the original post and this is not "flipping" as normally understood (i.e. selling on a new property or the contract immediately without ever living there) as the person buys in January, presumably lives there and then sells on in May so they would be an owner occupier and exempt from _CGT _(unless they do this over and over again). As long as a property is genuinely your PPR and you are not actually doing this sort of selling on habitually then there is no time limit on when owner occupier _CGT _exemption kicks in.


----------



## South (13 Aug 2007)

No it is an investment so it is buying and selling.

The IT said that the last year before sale is ALWAYS treated as owner-occupier so not liable for CGT even for an investment property...this sounds unlikely to me.


----------



## ClubMan (13 Aug 2007)

South said:


> No it is an investment so it is buying and selling.


Doh!  Sorry - I will revert to my original opinion so...


> The IT said that the last year before sale is ALWAYS treated as owner-occupier so not liable for CGT even for an investment property...this sounds unlikely to me.


Sounds totally wrong to me too.


----------



## South (13 Aug 2007)

Some people could have ten properties for sale at once, I don't see how they could have ten PPRs for that last year before sale!


----------



## Howitzer (13 Aug 2007)

I think this is another case of hearing what you want to hear.

However in your example you would also have the expense of stamp duty, solicitors fees and estate agent fees. An annualised return of 13.3% in 6 months is also completely unrealistic in the current environment. So fortunately for you you would have no CGT liability by virtue of the fact that you would have no capital gains to pay tax on.


----------



## South (13 Aug 2007)

It is a made-up example (please see dates are next year) that I created based on what I read in the paper...not based on hearing what I want to hear.


----------



## Howitzer (13 Aug 2007)

The article in the IT was based on the premise that the property was the PPR of the owner. The tax treatment of a PPR and an investment property in Ireland are completely different, so taking an example which assumes a property to be a PPR and then applying the conclusions from it to an investment property is indeed hearing what you want to hear.


----------



## South (13 Aug 2007)

The reply to a letter specifically stated that the same treatment applied to *any investment property*.

Of course the tax treatment of a PPR and investment property are different, hence why I raised the query.

I do not want to hear anything, especially not you telling me what I want to hear.


----------



## Christy (14 Aug 2007)

I saw the piece in the Times as well and was surprised at what they were saying.  In fact they were confirming what they had written previously to a reader that had exactly the same query as you South.  What was said that with any property, regardless if you ever lived in it or always held it as an investment property, for the last 12 months of ownership it will always be deemed to be your PPR.  So based on that you could have been buying and selling properties within 12 months and have no CGT liability.  I have my doubts.


----------



## South (14 Aug 2007)

I do not have a query - I created a fictitious example based around what was written in The Irish Times, it definitely does not sound correct!


----------



## ClubMan (14 Aug 2007)

Christy said:


> What was said that with any property, regardless if you ever lived in it or always held it as an investment property, for the last 12 months of ownership it will always be deemed to be your PPR.  So based on that you could have been buying and selling properties within 12 months and have no CGT liability.  I have my doubts.


This is certainly not correct in the general case. If I own a _PPR _and then buy and resell an investment property within a 12 month timeframe I cannot claim _PPR_ _CGT _exemption on the latter because I can only have one _PPR _at a time. Similarly if I live in rented accommodation and buy and resell an investment property within a 12 month time frame then _PPR CGT _exemption is irrelevant since the property simply is not my _PPR_. If the _IT _literally said this then they are wrong. Maybe somebody could post what *exactly *was published?


----------



## South (14 Aug 2007)

That is what they said, I will dig up the paper at home this evening.

I was stunned because my accountant never pointed this out when I sold an investment property within 12 months!


----------



## Nige (14 Aug 2007)

Your accountant was right.

Section 604 of the Taxes Consolidation Act, 1997 (which grants the PPR relief) applies only to "a dwelling house or part of a dwelling house which is or has been occupied by the individual as his or her only or main residence". 

Therefore, the sub-section which deems PPR status for the last 12 months of ownership does NOT apply to property which was always an investment property.


----------



## South (14 Aug 2007)

Thanks Nige.

I will copy the text from The IT as soon as I get my hands on it.


----------



## ubiquitous (14 Aug 2007)

South said:


> If I puy a house as an investment for (let's say) €300K in Jan 2008 and sell it in May 2008 for (let's say) €320K, I would have thought that I would liable for CGT on the €20K.
> 
> I note from The Irish Times last Friday that I would not be liable for any CGT, I'm surprised...did anybody else notice this?



A temporary "investment" such as the one described above might well be exempt from CGT if it falls within the definition of a trading transaction. However on that basis, income tax of up to 41% and PRSI would both apply.


----------



## Christy (15 Aug 2007)

Copy of actual query in the IT last Friday

_In a recent Q&A, under the heading "residence query", you state that "the rules on investment properties hold that the last year of ownership is always considered to be owner occupation".

Could you elaborate on the implications of this statement for an investor? Does rental income or capital gains tax have any connection with the statement?

Mr J.D., Kildare

The situation is exactly the same for all property owners but, clearly, is of particular relevance to investors.

Normally, when selling a house you are liable to capital gains for any period when the house was let out. For an investor, this can be the whole period of ownership.

However, the rules state that, when assessing liability to capital gains, the final 12 months of ownership is deemed to be as owner occupier, regardless of whether the owner actually does occupy the property.

Indeed, it doesn't matter if you ever occupied the premises in question.

Thus, if, as an investor, you owned a house for 10 years, you would be liable to capital gains on only nine-tenths of the gain.

This clause relates only to capital gains._


----------



## Lobby (15 Aug 2007)

Isn't there a special developers rate of income tax of only 20% - same as CGT? (on residential development income only)


----------



## z108 (15 Aug 2007)

ubiquitous said:


> A temporary "investment" such as the one described above might well be exempt from CGT if it falls within the definition of a trading transaction. However on that basis, income tax of up to 41% and PRSI would both apply.



In which case would it be better to do something like this within a company structure ? or are there windfall/special taxes imposed on companies which do this ?


----------



## ubiquitous (15 Aug 2007)

Christy said:


> Copy of actual query in the IT last Friday
> 
> _
> Normally, when selling a house you are liable to capital gains for any period when the house was let out. For an investor, this can be the whole period of ownership.
> ...



This is badly incorrect. The "final 12 months of ownership" concession only applies IF the owner previously occupied the property as their PPR. This is a very bad mistake for a paper like the Irish Times to make.


----------



## ubiquitous (15 Aug 2007)

Lobby said:


> Isn't there a special developers rate of income tax of only 20% - same as CGT? (on residential development income only)



This rate refers only to what is termed as "residential development land dealing". It does not cover the purchase and sale of houses or apartments.


----------



## ubiquitous (15 Aug 2007)

sign said:


> In which case would it be better to do something like this within a company structure ?



no


----------



## ClubMan (15 Aug 2007)

ubiquitous said:


> This is badly incorrect. The "final 12 months of ownership" concession only applies IF the owner previously occupied the property as their PPR. This is a very bad mistake for a paper like the Irish Times to make.


Not the first time that they have made very fundamental mistakes on such matters. Don't use newspapers as a source for accurate/authoritative tax and personal finance advice. Ditto for sites such as this although disucssion forums at least have the advantage that erroneous information will usually be corrected fairly quickly.


----------



## South (15 Aug 2007)

CHRISTY - thanks very much for finding the article.

I did not have time to dig it up but that was exactly the piece that I was referring to - seems totally inaccurate to me.

Thanks again.


----------

