CGT calculation - conflicting advice

I have had conflicting advice and after searching through the forums I have come across both methods as well so I was wondering if anyone could confirm the following for me.

How do to you calcuate the taxable CG on a property which was once a primary residence.

Dec 1999 House purchased 125,000
Dec 2005 Move main residence to another house (5 years as primary residence)
Dec 2005 Market value at time of move 350,000
If we sell this property in 3 years time Dec 2008 @ 400,000 what is the taxable capital gains (according to current rules and ignoring indexing and personal allowances to make it simple) ?.

The following are the two methods I have been told. Can anyone clarify which one is the correct one.

Taxable Capital Gain is based on 400,000 - 125,000 = 275,000.
Main residence (5 years plus one extra allowed) = 6 years
Not main residence for 2 years (3 - 1 allowed)
This amounts to 2/8s of 275,000 which is 68,750.
So the CGT is 20% of 68,750.

On the otherhand our bank advised us that it is 20% of the difference between the market value of the house @ the time of moving and the selling price. 20% of 400,000 - 350,000 = 20% of 50,000.

Can anyone advice ?.

The bank suprisingly enough are wrong
Hard to believe with their past history of tax planning advice for individuals

You have the basics correct but should include solicitor fees (in & out) etsate agent fees, stamp duty, survey costs, etc

There is also an annual allowance and indexation (prior to Dec 02)

It would be worth gettting your comp checked by an accountant

If you get it wrong there may be interest and penalties or you could pay too much tax

stuart@buyingtolet.ie

Boggled said:

On the otherhand our bank advised us that it is 20% of the difference between the market value of the house @ the time of moving and the selling price. 20% of 400,000 - 350,000 = 20% of 50,000.

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Don't depend on a bank for independent and accurate financial or tax advice.

Thanks for the clarification. I thought that maybe the rules had changed as someone else told us that a financial advisor told them the same as the bank told us. I wish it was both !!. The bank are trying to encourage us to hold the house probably as we will then have a huge mortgage !.

It looks like the longer we hold onto our house the less valuable our time as residents will be to us.

We will be living in it for about 6 months after we buy the other house. Will we be able to count this time as well as the 12 months ?.

You will, but you probably won't be able to count that 6 months when selling the new house. Also, your calculations are out by a year, 1999 to 2005 is 6 years, etc.

I have a query. I purchased a new second house as an investment property in 2002 and I now wish to sell the house. There was no stamp duty on the house as the original cost price was below €127000. I assume the only thing that I will have to pay is CGT @20% on the sale price - purchase price and deducting any costs incurred in purchasing and selling the house. I read somewhere that if the house is less than 5 years that I may be subject to income tax rather than CGT. Is this correct?

soulman said:

I have a query. I purchased a new second house as an investment property in 2002 and I now wish to sell the house. There was no stamp duty on the house as the original cost price was below €127000. I assume the only thing that I will have to pay is CGT @20% on the sale price - purchase price and deducting any costs incurred in purchasing and selling the house. I read somewhere that if the house is less than 5 years that I may be subject to income tax rather than CGT. Is this correct?

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Everything you say is correct, except it will be CGT and not IT on gain.

what expenses can be deducted for the purpose of calculating CGT liability on the sale of an investment property? Example: solicitors fee's for purchase, cost of kitting out the house, estate agents fee's, advertising fee's, solicitors fee's for sale. Are there any other expenses that can be considered?

Is [broken link removed] any use?

Thanks clubman that link did the trick. I have a question though regarding personal exemption. The first €1270 of an individuals gains is exempt of CGT. In my case my wife and I own the property. Is the exemption amount still €1270 or €2540?

Also if I were to re-invest the proceeds of the sale of the property into another property or land, would I have to pay CGT on the sale of the first property?

If you own the property jointly then both CGT allowances can be used. If this is not already the case then asset transfers can be made between spouses free of stamp duty (and gift tax and CGT as far as I know) in order to avail of the other spouse's allocance. On the other hand since it's only worth €1,270 * 20% = €254 it may not be worth worrying about if the asset is not previously jointly owned.

sorry I added this to earlier post but you had anwered before I finished editing

If we were to re-invest the total proceeds of the sale of the property into another investment property or land, would I have to pay CGT on the sale of the first property?

soulman said:

If we were to re-invest the total proceeds of the sale of the property into another investment property or land, would I have to pay CGT on the sale of the first property?

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Yes - rollover relief was abolished a few years back.