CGT, SD Clawback and PPR

[RichieRich]

Two questions:
1. I know that you can count Stamp Duty as a cost of acquisition in calculating CGT but can you count the interest and penalties which may have been paid in a Stamp Duty Clawback??
2. Can someone clear up for me how one might calculate CGT when the property became an investment property sometime after the acquisition. Do you calculate it based on:
a. Value of property when first rent received?
b. Take proportion of time for which property was an investment and divide by total time property is owned? If so how is this calculation made? To the year? month? day? I hear that 12 months of investment time can be discounted??

 

[ClubMan]

1. I know that you can count Stamp Duty as a cost of acquisition in calculating CGT but can you count the interest and penalties which may have been paid in a Stamp Duty Clawback??

I very much doubt it.

2. Can someone clear up for me how one might calculate CGT when the property became an investment property sometime after the acquisition.

If you mean a property originally bought as an owner occupied PPR which is rented out within 5 years of purchase (other than under the owner occupier rent a room scheme) then it's whatever SD an investor would have paid on the original purchase less any SD that you actually paid (possible none). And it's an all or nothing clawback and not calculated pro rate based on how far into the 5 years you rent the property out.

 

[Aidan 2232]

You need to apportion the gain on a time basis - % as ppr is exempt, % balance is taxable. You can count the last 12 months as exempt if the property was your ppr at any time.

 

[ClubMan]

Sorry - my answer above deals with SD and the original question was about CGT! Apologies!

 

[RichieRich]

You need to apportion the gain on a time basis - % as ppr is exempt, % balance is taxable. You can count the last 12 months as exempt if the property was your ppr at any time.

That's great thanks guys.

Just wondering how I calculate the "time basis" %. Is it to the day (as Clawback penalty is) or to the month? i.e. do I take the number of days as an investment property and the number of days in ownership and calculate the % on this basis or do I calculate based on number of months? Either way the difference is small but significant.

 

[ClubMan]

Just wondering how I calculate the "time basis" %. Is it to the day (as Clawback penalty is)

This is wrong. The SD clawback is not calculated pro rata. As I explained above it is an all or nothing issue. If the property is rented out within the 5 years it applies in full. If it is rented out after that then no clawback applies. If you rent out after 3 years then the clawback applies in full and not just 2/5ths of it or anything like that.

 

[RichieRich]

This is wrong. The SD clawback is not calculated pro rata. As I explained above it is an all or nothing issue. If the property is rented out within the 5 years it applies in full. If it is rented out after that then no clawback applies. If you rent out after 3 years then the clawback applies in full and not just 2/5ths of it or anything like that.

Hi Clubman,
We are both right. The SD Clawback is all or nothing but the interest penalty if you fail to pay it within a month (I think) of first receiving rent payment is calculated to the day.

Any ideas on my question of how exactly pro rata CGT is calculated. To the day or month??

 

[BigM]

Any ideas on my question of how exactly pro rata CGT is calculated. To the day or month??

You cannot use any SD interest/penalties to effectively increase your purchase price (the Revenue will not allow you to gain a tax break from breaking the law!)
For the liable gain the easiest way to calculate is per day (use XLS):
Total Ownership = X days
PPR = Y days
12mth Deemed occupancy = Z days
PPR Relief = (Y+Z)/X = A%

 

[BigM]

On a related note - perhaps Ubiquitous or one of the A/Cs can clarify for me:
Total Ownership = 1854days
PPR = 1048days
12mths deemed = 365days
=> 76% of Gain is exempt from CGT.
When calculating the Liable Gain, do I take:
a) Total Gain less 1,270 annual exemption X 24%(1-.76) X 20% or
b) Total Gain X 24%, then subtract the A.E. 1,270, X 20%

In a) I 'd only be getting 24% of my A.E. so I presume b) is correct??

 

[ClubMan]

(a) is the approach outlined on [broken link removed] anyway.

Don't forget about indexation relief up to 2003 (?) if applicable.

 

[BigM]

(a) is the approach outlined on [broken link removed] anyway.

Don't forget about indexation relief up to 2003 (?) if applicable.

Thanks ClubMan - I had forgotten. Bought in 2002 so 1.049... hooray!

And the CGT form does look like (a) is the way to do it but it's quite confusing and I still argue that you're only getting a % of your A.E. that way...

 

[Satanta]

... and I still argue that you're only getting a % of your A.E. that way...

It's the same boat for things like rent relief, you get an amount X as the relief, but your gain in hand is a % of X so I can't say this seems anything different.

 

[ClubMan]

I still argue that you're only getting a % of your A.E. that way...

The annual exemption means that you avoid paying 20% CGT on €1,270. This is why it's deducted from the gain before the tax is calculated. You can't work out your liability and then subtract €1,270 from it.

For example:

Gain: €2,000
Less exemption: €1,270
Taxable gain: €730
CGT @ 20%: €146

If you did it the other way:

Gain: €2,000
CGT @ 20%: €400
Less exemption: €1,270
Actual liability: €0 (with €870 of your exemption left over!)

Which is obviously wrong!

 

[BigM]

For example:

Gain: €2,000
Less exemption: €1,270
Taxable gain: €730
CGT @ 20%: €146

If you did it the other way:

Gain: €2,000
CGT @ 20%: €400
Less exemption: €1,270
Actual liability: €0 (with €870 of your exemption left over!)

Which is obviously wrong!

but obviously better!!
But what I'm really querying is the calc of the chargeable gain - and since on the Form this comes above the A.E. I presume it's GainXPPR Relief% which in your example gives:
Gain 2000
PPR Relief 76%
Chargeable Gain 480
Less A.E. 1270
Liability 0 (cannot use exemptions to create a loss)