Capital gains on resale of inherited house

D

dubdoc

Guest
Can anyone advise, I inherited a property 2 years ago from somebody that was not a relative, so I paid inheritance tax, to do this I had to secure a mortgage, the property was in dire condition having not been lived in for 18 years, so I got all the work done and my sister moved in while the work was ongoing9her boyfriend did quite a lot of it) I then had to go an top up the mortgage as i miscalculated the amount needed, anyhow now I am planning on selling this property as it has been nothing but hassle, do I have to now pay capital gains tax?
 
Re: Capital gains

Where were you living when you owned this property? If it was not your Principal Private Residence then it will be treated as an investment property any resale gain will be assessable for CGT. You might want to get professional advice as the nominal acquisition price (market value at the time of inheritance?) and allowable expenses need to be factored into any CGT calculations.
 
Re: Capital gains

i was living in Ireland, having not long bought my house I live in today with my partner. So the deal is having paid the inheritance tax I now have to go and pay another tax!! there is no end to this!!
 
Re: Capital gains

yep that's the deal. in fairness you only paid inheritance tax of (at most) 1/5th of the value you inherited, and you'll only pay cgt of 1/5th of the difference between that value and the sales proceeds. in calculating your gain you can also take a deduction for the cost of the home improvements (assuming it was capital expenditure).

note that you cannot take a deduction for your mortgage interest against CGT

just to scare you, if the facts are that you did the property up to sell it immediately, revenue could try to assess income tax rather than cgt! very unlikely though, especially given that you inherited it. just trying to make you feel better about paying cgt - it could always be worse!
 
Re: Capital gains

I did'nt do it up to sell on, I am selling up because of unforseen financial hardship, and the property had been more hassle and trouble, I also had to really because it was falling down and was a danger to surrounding neighbours, If I had sold the property when I paid the inheritance tax in the condition it was in, would I have not have had to pay this Capital gains tax?
 
And if you received any rental income in the meantime the that (less allowable expenses) was/is assesable for income tax.
 
Re: Capital gains

dubdoc said:
If I had sold the property when I paid the inheritance tax in the condition it was in, would I have not have had to pay this Capital gains tax?
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If you had sold it on immediately then chances there would be no gain significant enough on which CGT would be assessed. Can you post specific figures here perhaps - e.g.
  • market value at the time of inheritance
  • inheritance tax paid
  • market value now
  • any renovation expenses incurred
  • any rental income received
  • etc.
 
when you inherited it a value would have been placed on it for Capital Acquisitions Tax purposes. You paid CAT based on that figure.

That figure then becomes your "deemed cost" for Capital Gains Tax purposes.

So if you sold it immediately for an amount equal to your "deemed cost" then you would not have had any CGT liability.
 
dubdoc said:
Sorry what does capital expenditure mean??
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Any money spent on doing up the property. Not sure where the line is drawn in terms of property and fixtures and fittings though. The former is allowable against CGT while the latter is allowable against rental income on a depreciation basis as far as I know. (Not a tax expert).
 
Market value was 213,000. 20% of that figure went to the taxman. spent 130.000 in total on building work, materials etc. my sister stayed with her boyfriend who worked/project managed the site and they covered the mortgage repayments, so I recieved no rental income, it is lying empty now since April this year, and the valuation today was approx. 555,000 from one estate agent, but the neighbour reckons this is to high.
 
generally expenditure which adds to the value of the asset and which is reflected in the state or nature of the asset at the time of disposal will be deductible for CGT purposes.

any expenditure which WOULD be deductible for income tax purposes is precluded - eg, repainting, repairs which do not constitute refurbishment etc. The case law on the line between repairs and refurbishment would take much more than this post to go into!

strictly expenditure on fixtures and fittings is expenditure on "assets" which are separate to the property asset. but you could simply apportion part of the property sales proceeds to the fixtures and fittings (assuming they are being included in the sale). By doing that you are reducing the sales proceeds referable to the property, while you will probably be at break-even on the fixtures and fittings
 
my sister stayed with her boyfriend who worked/project managed the site and they covered the mortgage repayments, so I recieved no rental income
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Er - that is rental income. Or at least the money that they paid less mortgage interest and any other allowable expenses is rental income assessable for income tax! You could have an outstanding income tax liability there. You probably should get professional advice on all of the tax aspects of this asset holding.
dubdoc said:
Market value was 213,000. 20% of that figure went to the taxman. spent 130.000 in total on building work, materials etc.
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So €43K in inheritance tax + €130K spent on renovations = €173K.
it is lying empty now since April this year, and the valuation today was approx. 555,000 from one estate agent, but the neighbour reckons this is to high.
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If it sold for €555K then your CGT bill should be something like 20% of (€555K - €213K - €130K*) = €42K.

So you would have paid €85K in tax and spent €130 on renovations but received €555K so you are c. €340K to the good (ignoring any outstanding mortgage amount to be repaid etc.)? Hardly something to complain about?

* assuming all of the expenditure above is allowable against CGT which is not certain. Please bear in mind that my calculations are rough and ready and may be incorrect.
 
you did receive rental income. the amount paid by your sister and her boyfriend is rental income which you then used to pay the mortgage.

if you want to get this sorted properly you probably need to get some tax advice. if the sales proceeds are over 500k you'll need to get a CGT clearance cert from Revenue. that could prompt them to look into your situation
 
One "tax solution" would be to move into the renovated house and sell your own house. Selling your main residence will have no tax liability.

You could then stay in the renovated house foe a few years and maybe then sell it with a lesser CGT liability.

This makes sense from a tax point of view but may not be relevant to your circumstances.
 
Oh NO,,, cannot believe I owe them more money for rent!! I am going to telephone them in the morning and get this sorted,and I am going to make an appointment to speak to a tax advisor of some sort. Thanks for all the help even if I do get a headache even thinking about this sort of thing. The suggestion of moving would'nt work, I have just had triplets and find it hard to move from the kitchen to the bedroom, but thanks anyhow for that!!
 
dubdoc said:
The suggestion of moving would'nt work, I have just had triplets and find it hard to move from the kitchen to the bedroom, but thanks anyhow for that!!
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Wow, no wonder things are hard financially! Congratulations on your new family.

Try not to worry too much. As Clubman showed, you will still make money on the venture if you sell the property of anything near the 550k. If you sell the house (sign contracts that is) before the end of this month, the CGT will be payable by 31 October (so, if make sure you have the money by then). If you sell it between 1 October and 31 December, the tax is due at the end of January and if it is sold anytime between 1 January and 30 September 2008, the tax will be payable on 31 October 2008.

In relation to the tax on the rental income, it is likely to be very low as the mortgage interest will have made up the vast bulk of the mortgage payments.

Try not to worry, go see your accountant.
 
Nige said:
In relation to the tax on the rental income, it is likely to be very low as the mortgage interest will have made up the vast bulk of the mortgage payments.
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Is there sufficient information in this thread to assume that this is likely?
 
OP said the rent received only equalled the mortgage repayments and as she had the house less than 2 years in all likelyhood it was mostly interest payments rather than capital which are deductable from the the rent received. Plus I assume sister didn't stay there for 2 years. Mortgage was 20% plus renovations = 213K X 20% = 42600 plus 130000 about a mortgage of 170000. Still paying mortgage - sister has moved out and the interest is still deductable (and other costs)as she is in between tenants at this time.

Well done on the triplets. No wonder you're stressed. No need to be stressed about the house though. A good tax advisor will be well worth the money and should be able to bring down any CGT or rental income tax for you. Plus you are about to make a great profit - 164K in 2 years (less taxes) 550 - (213 +130 +43). In addition you have the original 213 clear of taxes. I'd be very happy if I was you.
 
Dubdoc,

You inherited a valuable property

Taking into a/c all the hassle and tax paid and cost of renovations you are still making a really nice profit

You have triplets.

Have you any idea how many people would like to have your problems???

You only pay inheritance tax if you receive an inheritance, you only pay capital gains tax if you make a capital gain

Your glass is not half empty its 3/4 s full! I am not having a go at you but you need to appreciate how lucky you are and smell the roses, get a good tax adviser and stop worrying about the tax and putting needless pressure on yourself and when house is sold spend some of it on pampering yourself your partner and the triplets..ENJOY
 
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