Capital Gains Tax when selling rental property

M

milly123

Registered User
Messages
162
Hi,

Can anyone answer this?

I bought our home for €125K, we are have now bought a second home and are considering renting out the first one. The value of the first home is now €240K.

My question is, if we were to sell in a few years for say €300K, is the CGT calculated on the difference between the value when first we rented it out i.e. €240, which would be a gain of €60K, or when we first bought it i.e. €125 which would be a gain of €175K

I can't find the answer on teh revenue website, and the phone number for this particular dept is constantly engaged.

I would appreciate any help. Thanks in advance.

Michelle
 
My understanding is that if you bought your house 5 years ago and were to sell in 5 years time then CGT would be calculated on 1/2 the final difference in prices (less indexation) irrespective of whether the house increased more during the first 5 years than the last 5. Or indeed if the value of the property actually decreased during the second 5 years.
 
FROM http://www.revenue.ie/leaflets/cgt1.pdf page 15: May help.

Private Residence​
Full relief​
A gain on the disposal by an​
​
individual of a dwelling-house (including grounds of up to one acre) is
exempt in certain circumstances. The exemption is available if, throughout the individual’s period of ownership, the house had been occupied by the individual as his/her only or main residence or, under
certain circumstances, as the sole residence of a dependent relative. In the case of a married couple living together only one house can qualify as the only or main residence of both spouses.​

Partial Relief​
​
Full exemption may not be due if only part of the house has been used as the individual’s residence, in which case an apportionment is made to arrive at the exempt portion of the total gain. This may happen where the house is used partly for business purposes or where rooms in the house have been
let.​


The exemption is also restricted where the taxpayer has not lived in the house for long periods.
However, a period of up to twelve months immediately before the end of the period of ownership is treated as a period of occupation even though the owner may not have been actually living in it during that period.
In addition to the twelve months referred to above, the following periods of absence from the house are also regarded as periods of occupation​
​
provided that, both before and after those periods, the house was the owner’s only or main residence and that throughout those periods he/she had no
other house eligible for exemption:-​

(i)​
​
any period throughout which the individual was employed outside the State
and​

(ii)​
​
a period of up to four years during which the individual was required by the conditions of his/her
employment to reside elsewhere.​

 
Hi,

Thanks for all your replies. I finally got through to revenue and i have been on to my solicitor also. From what they told me i think this is the way it would work out.

Say we sold the house in 10 years time:

2016 - sold house for €350 K (wishful thinking)
2002 - bought house for €125 K
Gain €225 K
Less 4 yrs we lived at house (oct 02 to Jan 06)
225 x 4/10 €90000 (expemt)
Taxable @ 20% €135,000
CGT payable €27,000

Does this seem right ?
 
No. Though I guess revenue and solicitor know better.

Gain (225) divided by years house owned (14) mutiplied by years house kept as investment minus one (10 - 1 = 9) = 144,643

There is indexation that reduces this though.

Have you considered what happens if the value in 2016 is still 225K?
 
Hi Howitzer,

Thanks a million for your reply, i think i have things backwards.

Based on what you told me, i think this is the way the calculation should work

2016 - sold house for €350 K
2002 - bought house for €125 K
Gain €225 K
Less 4 yrs we lived at house (oct 02 to Jan 06)
225 / 14 x 9 = €144,642

20% of €144,642 = €28928 - this is the amt due to Revenue ?

Thanks again for your replies, i really do appreicate them.

michelle
 
It is pointless trying to project future CGT liabilities based on a future sale in 5/10/15 years time as there is a statistically high probability of changes to the CGT code in the meantime, including changes in tax rates, exemptions etc, that would be likely to make a nonsense of your calculations based on today's rules.
 
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