Capital gains on ppr after rental

[dnr]

Hello

My partner is considering selling his house (which he has owned and lived in for 10 years as his principal private residence) some time in the next two years or so.

He would be looking at renting his house out for the next two years, then selling it.

Would this make him liable to Capital Gains Tax? I've looked at revenue.ie but can't make it out.

He bought the house for £80k in 1998, and it is now worth about E400k.
CGT would be 20% of the gains, minus acquisition and selling costs, i.e a lot!!!

At times the site seems to imply that you must live in your house for the 12 months before selling, but it is not always clear that this is the case.

Is there a maximum period he can be resident somewhere else before having to pay CGT if he decides to sell the house? (revenue talk.ie about "long periods of absence" without specifying how long).

Not sure if two years qualifies as long, and whether he would then have to come back to live in the place for another year!

Thanks for any advice!

Dnr

 

[Vanilla]

Not an expert on CGT but there seems to be two trains of thought- the first says that no matter what you can discount the first 12 months after you leave your ppr. That would mean he would be liable only for CGT for one year out of the two and it would be pro-rata to the amount of time it was his ppr. The other train of thought seems to be that the minute you rent it out you lose the 12 month exemption and become an investor so he would be liable for the two years ( still pro-rata to the rest). Depending on the amount of rent he could get ( and this is taxable) he might well be better off in the long run not renting!

 

[dnr]

Thanks, Vanilla. The issue about the 12 months is very confusing. I suppose we can try ringing the revenue (I have never got very satisfactory answers when I've rung them about other things before, though!)

 

[ButtermilkJa]

I had a chat about this with my accountant recently and from what I remember, once you go over the 12 months you are liable for CGT for the whole time it was rented.

The maximum I could see him paying is about €10k.

 

[dnr]

Thank you Buttermilkja

Directlinemortgages.ie seem to back up what you say. Here's what they say:
If your house was not your principal private residence for the entire period of ownership e.g. if you rented the house for a period, any gain arising on the sale of the house will be apportioned between the period when it was your principal private residence and the period when it was not. The gain when it was your principal private residence is exempt and the balance of the gain to Capital Gains Tax is 20%.
I'm not sure where you get the figure of 10K from, however!

 

[ClubMan]

My partner is considering selling his house (which he has owned and lived in for 10 years as his principal private residence) some time in the next two years or so.

He would be looking at renting his house out for the next two years, then selling it.

Would this make him liable to Capital Gains Tax? I've looked at revenue.ie but can't make it out.

My understanding is that if he owns it for 12 years, 10 of which were as a PPR and 2 of which were rented out then 1/12th of any total gain (from the time of acquisition to disposal) is assessable for CGT.

At times the site seems to imply that you must live in your house for the 12 months before selling, but it is not always clear that this is the case.

My understanding is that the 12 months following vacation as your PPR remains exempt from CGT even if the property remains rented out for a longer period. However you should get independent, professional advice/confirmation on this if necessary.

 

[ButtermilkJa]

Thank you Buttermilkja
...
I'm not sure where you get the figure of 10K from, however!

ClubMan may be right on the initial 12 months being exempt, and if that is the case the figure would reduce to €5k.

Basically, if the property was bought for (£80k) €101,600 and is now worth c.€400k, then the gain is c.€300k. If you divide this by 12 to get the 'gain per year', which is €25k, then CGT at 20% would be €5k per year.

So if the person is liable for 1 or 2 years you get a figure of €5k or €10k.

 

[Vanilla]

My understanding is that the 12 months following vacation as your PPR remains exempt from CGT even if the property remains rented out for a longer period.

This is the point where some experts seem to vary. Some say that if you rent out the 12 month exemption is immediately lost. ie you only keep that 12 month exemption where you have moved to a new ppr but are not letting the old one.

 

[ClubMan]

This is the point where some experts seem to vary. Some say that if you rent out the 12 month exemption is immediately lost. ie you only keep that 12 month exemption where you have moved to a new ppr but are not letting the old one.

Yes - I have seen some inconsistency on this which is why I would recommend that people get their own independent, professional advice rather than relying on basically amateur comments such as my own.

Basically, if the property was bought for (£80k) €101,600 and is now worth c.€400k, then the gain is c.€300k. If you divide this by 12 to get the 'gain per year', which is €25k, then CGT at 20% would be €5k per year.

So if the person is liable for 1 or 2 years you get a figure of €5k or €10k.

Don't forget that the acquisition price can be indexed for inflation up to c. 2003 (check the CGT summary guides and indexation multipliers on www.revenue.ie) and then allowable expenses and exemptions can be deducted before calculating the ultimate CGT liability.