Another CGT/Tax Question - Sorry Folks,

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sullyman

Registered User
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Hi Folks.

I purchased an apartment 3 years ago which is currently my PPR.

Purchased it for €187000 and is now worth €317500

I have now purchased another house with my girlfriend which will be ready in May so I don't know whether it is worth my while to rent the aparment out or not as i have read the various posts on landlord taxes etc. and to be honest not too clued in with the tax jargon on the board. (I'm a bit dumb with this kind of stuff :) )

I know i will have to pay at least €5000 in Claw back Stamp Duty on the apartment if i rent out same as my solicitor mentioned this when signing for the new house.

What CGT and tax would i have to pay if i rented the apartment for the next 5 years and then sold or should i just sell up now.

Any advice would be great folks?

Thanks,
Sullyman
 
sullyman said:
What CGT and tax would i have to pay if i rented the apartment for the next 5 years and then sold or should i just sell up now.
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See the Property Investment FAQ for a summary of the tax and other issues. You would be liable for income tax on any rental income less allowable expenses (including mortgage interest). You would also be liable for CGT on c. (5-1)/(3+5) = 4/8 = 50% of any capital gain arising from the eventual resale. Whether or not you should keep and rent isn't easy to answer. You would need to crunch the numbers to check if the potential rental income and capital appreciation make this a viable option and better than any alternatives open to you. You also need to consider whether or not you want to be a landlord and the fact that concentrating most or all of your means in one asset class, risk/reward profile and geographic region (Irish residential property in an arguably "hot" market) involves risks not associated with a more diversified portfolio. If in doubt get independent, professional advice on the investment and tax issues involved.
 
Thanks Clubman.

Are you saying the longer i hold on to the apartment (say for 10 years), that would decrease the amount of CGT i would have to pay?

Sullyman
 
I am not too sure about this. I think you pay 20% on the difference between the purchase & sale price. The reason i am adding on a bit here is just to ask if you have considered whether the apt has made you all the money it will or do you anticipate a further increase in house prices. Given the current climate of 'Soft Landing' warnings & all that. If you end up paying CGT in a few years, will it be above & beyond the increase in value between here & there! You have made a really good profit now with only 5,000 claw back! My only advise is to really consider the option of rental hassle & all that! I moved out of my own apt in town 15 months ago & am really sorry now i didn't sell it as the revenue only allow 12 months grace period to sell it off without paying CGT! I am selling now & may end up paying 50,000 to the revenue!!!! WASTE...
 
Misty23 said:
I am not too sure about this. I think you pay 20% on the difference between the purchase & sale price.
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No - you pay CGT on a portion of any eventual gain based on how long it was rented out versus your PPR. My outline calculations above give the general gist.
You have made a really good profit now with only 5,000 claw back!
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The clawback will only apply if the property is rented out within 5 years of purchase. If the property is not rented or is sold on within 12 months of vacating it as a PPR then no SD clawback or CGT applies.
 
Thanks Misty for your comments

I don't really think it will gain anymore in value to be honest but by Clubmans formula if i sold after 5 years the CGT would be c. (5-1)/(3+5) = 4/8 = 50%

If i sold after 10 years, would the formula be the following (5-1)/(3+10) = 4/8 = 30% (Or have i this formula all wrong)
 
sullyman said:
Are you saying the longer i hold on to the apartment (say for 10 years), that would decrease the amount of CGT i would have to pay?
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The longer you hold onto it the larger the proportion of any gain arising from the resale is assessable for CGT. My example above shows that 50% is assessable for CGT. Hold onto it for another year rented out and the proportion would be (6-1)/(3+6) = 5/9 or c. 56% of any gain, yet another year and it's (7-1)/(3+7) = 6/10 = 60% and so on. Of course the precise CGT bill will depend not only on the percentage of the gain that is assessable but the size of the gain which cannot be predicted.

sullyman said:
If i sold after 10 years, would the formula be the following (5-1)/(3+10) = 4/8 = 30% (Or have i this formula all wrong)
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No - if you sold after 10 years assuming 3 years PPR and 7 years rented then the proportion of any gain assessable for CGT would be (7-1)/(3+7) = 6/10 = 60%!

The basic forumla (worked in years for simplicity but you could work it out more accurately using months or days (I think)) is:

(R - 1)/(P + R)

where
  • R is the number of years rented out
  • P is the number of years as your PPR
 
Sullyman, I assume you realise that capital gains tax is charged at 20% on profit made excluding the time the apartment was your PPR?
 
liteweight said:
Sullyman, I assume you realise that capital gains tax is charged at 20% on profit made excluding the time the apartment was your PPR?
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Liteweight means that CGT (@ 20%) is paid on the non PPR portion of your period of ownership (what CM has been showing you how to calculate, including the final 12 month exemption [where the 1 is calculating in years, months may/should also be used if more appropriate]) and that CGT is not 50% (or whatever the result you calculate from the formula above) of the sale price.

So, where CMs calc is 50%, your CGT bill is....

Taxable amount = Sale price - Purchase Price - Deductables (solicitor fees etc.)

CGT Bill = Taxable amount * Non PPR portion of ownership * 0.2 (20%)
= TA * 0.5 * 0.2
= TA * 0.1

Roughly (using the figure of it's current value as the sale price after renting it out for five years)...
CGT = [130500(the gain) (- deductables)] * 0.1
CGT = 13050

€13'050 Capital Gains Tax due to be paid.

As the price increases so will the CGT bill. As the period rented increases so does the portion of the profit liable for CGT. So as CM said, it's tough to calculate what a future CGT bill may come to until you know the sale price (or a good guess at it closer to the time of sale).
 
I think what liteweight is saying is that if you apt was not your PPR for the whole of the 3 years of ownership (excluding the final year before sale) then you will be liable to CGT on the period of ownership for which is was not your PPR.

In other words if you bought but it wasn't you PPR until a year ago then you will be liable to CGT on the first 2 years ownership.
 
Thanks guys for the clarification,

Was thinking that they would take up to 50% CGT from me.

Will have to have a good think whether to rent now or sell up
 
Just another quick question on PPR

Does PPR start when you sign contracts etc or does Revenue calculate same form when mortgate kicks in ?

As i'm currently living in my apartment for the last three years and signed the contracts a year earlier. Does that count as 4 years? Probably not, knowing my luck
 
Sorry about the confusion above - I didn't want to go into the details of how CGT is calculated but was trying to say that 50% (or whatever) of the gain would be assessable. Neither did I mean to suggest that the CGT rate was 50% (or whatever). Anyway - I think that others have cleared up some of the confusion above.
 
I think liteweight is saying exactly the same thing as Satanta!:D Just got the impression that the perception was, cgt tax was 50 or 60% and rising as time went on.
 
sullyman said:
Does PPR start when you sign contracts etc or does Revenue calculate same form when mortgate kicks in ?
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They should be the same date unless it is a self build I would have thought? Either way it's when you take ownership of the property as far as I know.
As i'm currently living in my apartment for the last three years and signed the contracts a year earlier. Does that count as 4 years? Probably not, knowing my luck
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Signing the contracts is not the same as closing the purchase. Closing the deal is the significant even as far as I know.
 
sullyman said:
Does PPR start when you sign contracts etc or does Revenue calculate same form when mortgate kicks in ?
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This is something that always confuses me. I'm of the opinion that if you have not other interest in a house, and have lived in the house as soon as was practical, then the house is your PPR from the date of purchase.

Get professional advice though!
 
Clubman is correct. Contracts, especially for new builds, are signed a long time before the full amount of money is handed over. Until you pay and receive the keys, it is not your PPR.
 
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