House sale and capital gains tax

I've tried to find the answers to my questions below however it seems to be a very grey area. I understand that if you sell your home (primary residence) you will not be liable to pay CGT. However I have a few questions if anyone can help....

1/ How long do you have to live in the home for it to qualify as a primary residence?

2/ If you were to continually sell your primary residence (buy site, build and sell) within the resrtrictions in question 1 (ie. live in the newly build house for 6 months or a year) would you ever be caught for CGT?

3/ If you were to build (buy site, build and sell) a second home (not primary residence) what would you pay in capital gains tax and would this tax apply to the sale price or on the profit made from sale (cost to build - sale price).

Thanks in advance.

1/ How long do you have to live in the home for it to qualify as a primary residence?

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There is no minimum period as far as I know. As long as you are living fulltime there it is your PPR.

2/ If you were to continually sell your primary residence (buy site, build and sell) within the resrtrictions in question 1 (ie. live in the newly build house for 6 months or a year) would you ever be caught for CGT?

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In general no as long as you are living in a PPR, building a new PPR and then selling the first and moving to the second when ready. You obviously wouldn't have a very settled lifestyle though with moving so often...

3/ If you were to build (buy site, build and sell) a second home (not primary residence) what would you pay in capital gains tax and would this tax apply to the sale price or on the profit made from sale (cost to build - sale price).

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20% on any assessable gain (i.e. disposal price less construction/acquisition costs less your €1,270 annual CGT allowance less any previously incurrect capital losses if applicable).

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Re point 2, if you were to continually build and sell houses, it could be argued that you are carryong on a trade for tax purposes. This would mean that the profit of the trade (proceeds less costs) would be liable to income tax (possibly at 42%) and not capital gains tax. The PPR relief would not be applicable in these circumstances.

Re: tax

Yeah - I thought that there was some gotcha like that all right and meant to mention it... Thanks.

Tax

O & Curious thanks for the info...

"Re point 2, if you were to continually build and sell houses, it could be argued that you are carrying on a trade for tax purposes. This would mean that the profit of the trade (proceeds less costs) would be liable to income tax (possibly at 42%) and not capital gains tax. The PPR relief would not be applicable in these circumstances."

Is there a rule on this somewhere? How many times can you build and sell? The revenue info seems very vague on the whole subject. How would the tax office track this kind of activity. Surely it's common for someone to change houses 3/4 maybe 5 times in a lifetime.

BTW I'm not saying I want to do this every 6 months.

Re: Tax

It may seem arbitrary but I believe that the Revenue anti-avoidance rules, tax codes or/or underlying statutory instruments would be pretty clear on matters such as this but I'm not a tax expert myself. If you are planning to pursue the repeated buy-build-sell strategy outlined above then you might want to obtain clarification from the Revenue and/or independent, professional tax advice on the matter to ensure that it all works out as planned. Good luck with it if you do pursue it.

trade

There is no definitive rule on this point. Whether a person is carrying on a trade of selling houses is dependent on the facts of each case. One thing that would be taken into account would be the intention behind building and selling the houses - if it was to sell and upgrade/move to a new location every few years, it would be very difficult to argue that you were in the business of building and selling houses. It's impossible to be definitive without knowing all the facts (it would be hard enough with them!).

As to how Revenue might find out, I'm not sure. Maybe you could be selected for audit in a few years and they find out about it then.

I would seek professional advice on this matter as there are special provisions re dealing in property (reduced 20% rate in certain cases) that I am not overly familiar with.

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Firstly thanks all for the replies.

"if it was to sell and upgrade/move to a new location every few years, it would be very difficult to argue that you were in the business of building and selling houses."

This explains our situation perfectly. We just want to use the extra cash we make on the sale(s) to inprove the house and reduce our mortgage. We will not be running a business.

Re: Policy issue

"This explains our situation perfectly. We just want to use the extra cash we make on the sale(s) to improve the house and reduce our mortgage. We will not be running a business."

This exposes the anomaly of the current exemption of PPR's from CGT/Income Tax.

I work to "improve the house and reduce our mortgage". But I pay a marginal rate of 42% income tax plus PRSI in order to achieve this.

Somebody who buys and sells houses to do exactly the same thing can organise his/her affairs to pay no tax at all. This is simply a distortion in the tax system.

Whether or not one is running a business or not is simply a red herring - it's all about the generation of wealth. What you call the means of doing it is not relevant.

By extension, there is no ethical justification for a differential between the top rate of income tax and the CGT rate - labour and capital are both the means of generating wealth. The reason for the disparity is purely pragmatic - labourers can't relocate internationally as easily as capital owners can move their wealth.

So what's the answer?
1)Tax all economic activity equally. Have no exemptions or tax breaks.

2)Run a pan-EU tax system to catch the wealth movers. Pass legislation banning public-sector organisations dealing with companies which cannot prove they are paying tax on activity within the EU (to at least prevent the public purse enriching the tax-shy.

Any more ideas?

I am soon to move to a new house which will be my new PPR. How long can I hold onto my existing house (which is my current PPR) before I become liable for CGT on it? Presumably, if I was to live in the new house, there comes a stage when the old houses loses its PPR status and I therefore become liable on CGT?

12 months.