Capital Gains Tax for house which was PPR for part of ownership

[geeb]

I’ve searched previous posts for information on calculating Capital Gains Tax for a property which was a PPR for part of the period of ownership. While information is available, there appears to be differing opinions regarding the calculation of tax and I’d really appreciate if someone could clarify.

Details are as follows:

The house was purchased in July 2000 for €200,619 (158,000 punts).
House value at purchase adjusted for inflation (multiplier of 1.193) = €239,338.
The house was sold in December 2007 for €440,000.
The house was owned for 102 months and was a PPR for 62 months (not PPR for 40 months). Therefore 27% (40 – 12/120) of capital gains are taxable.

I run into difficulties in determining when to deduct the expenses.
Selling expenses were approx €5,000.
Buying expenses (including stamp duty) were approx €12,000.

Calculation Option 1:
Sale – Purchase price = €440,000 - €239,338 = €200,662
Less buying & selling expenses = €200,662 - €17,000 = €183,000 Capital Gain.
Taxable Capital Gain = 27% of €183,000 = €49,410.
Less allowances for myself & husband = €49,410 - €2540 = €46,870.
Tax due @ 20% = €9,374

Calculation Option 2:
Sale – Purchase price = €440,000 - €239,338 = €200,662
Taxable Capital Gain = 27% of €200,662 = €54,179.
Less buying & selling expenses = €54,179 - €17,000 = €37,179 Capital Gain.
Less allowances for myself & husband = €37,179 - €2540 = €34,639.
Tax due @ 20% = €6,928

I also have a second query:

I understand that maintenance work on the house cannot be deducted from capital gains. If however significant work was carried out on the house immediately before the sale which directly contributed to the sale price obtained (full house re-painting, new carpets, etc) then can this be deducted?

I appreciate that we should have contacted an accountant before now and are currently trying to organise someone. In the meantime, all opinions are welcome!

Thanks in advance.

 

[ClubMan]

The house was purchased in July 2000 for €200,619 (158,000 punts).

...

House value at purchase adjusted for inflation (multiplier of 1.193) = €239,338.

Shouldn't the [broken link removed] be the 2000/2001 one (1.144) and not the 1999/2000 one (1.193)?

The house was owned for 102 months and was a PPR for 62 months (not PPR for 40 months). Therefore 27% (40 – 12/120) of capital gains are taxable.

Isn't ((40 - 12) / 120) = 23.33%?

 

[geeb]

There were two typos in the post (very quickly spotted!):

The property was actually purchased in July 1999 so the index rate applied of 1.193 should be correct. It was owned for 8 and a half years which corresponds to 102 months and not 120 months.

Apologies for the confusion.

Any thoughts on when the deductions should be subtracted?

Thanks.

 

[ClubMan]

The house was owned for 102 months and was a PPR for 62 months (not PPR for 40 months). Therefore 27% (40 – 12/120) of capital gains are taxable.

It was owned for 8 and a half years which corresponds to 102 months and not 120 months.

But then ((40 - 12) / 102) = 27.45%. I don't think that you can simply round this to 27%!

Can you not add the acquisition costs to the purchase price and index the lot? Not sure...

I'm pretty sure that the approach taken in option 1 is more accurate than in option 2 - i.e. you work out the total gain as if it was all assessable for CGT and only when you arrive at the final figure do you apply the 27.45% figure.

Presumably the house is in joint names? If not then you cannot use both individual annual CGT allowances of €1,270.

 

[geeb]

Clubman,

Fair point regarding the rounding up to 27%! I'll adjust that.

I think you're correct in that Option 1 is the correct approach (unfortunately)

Yes, the house is in both our names.

Many thanks for your help!

 

[ClubMan]

Obviously you should still also get independent, professional advice and confirmation that your figures are correct.

Do you have any previously incurred capital losses (e.g. eircom etc.) that you can (must) also offset before applying the individual annual CGT allowances?

 

[geeb]

ClubMan,

We will definitely get the figures checked out.

No, we don't have any previous capital losses to off set against the gains.

Have you any thoughts regarding deducting the costs of painting and carpets? These costs which were generated immediately before the sale and definitely did contribute to the price achieved.

Thanks.

 

[ClubMan]

Sorry - I have no idea about the second question. This issue may well be covered in existing threads on this issue or in the Property Management FAQ etc.