PPR and New SelfBuild

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Diehard11

Guest
I currently own my own house where I currently live, mortgage free

I am in the process of building a new house and would like to know the following

If I move into my new house and rent out my old house, would I be liable for full CGT when I eventuall sell my old house or would it be CGT payable on the value of the house when I start to rent it versus when I sell it

Would I be better selling my old house as a PPR immediately to avoid CGT

Would i be better to get a mortgage on my new property and get mortgag einterest relief or on my old property and put the interest offset against rental income

thanks for any info............
 
Diehard11 said:
If I move into my new house and rent out my old house, would I be liable for full CGT when I eventuall sell my old house or would it be CGT payable on the value of the house when I start to rent it versus when I sell it

Would I be better selling my old house as a PPR immediately to avoid CGT
Click to expand...

You would not pay CGT on the full amount it would be:

Gain X No. of years not as PPR - 1 / Total years of ownership

If you have had significant gains in the last few years (likely) and don't expect it to rise much further (gonna have to make your own judgement on that) then it might be better to sell as even if the price never increases from now every year you hold onto it as a rental property part of your gains to date become taxable.
 
Thanks for that, any ideas on which is the best option;
new mortgage on new PPR claiming mortgage interest relief OR
new mortage on former house allowing me to set interest payment off against rental income???
 
the tax treatment of a mortgage does not depend on what property the loan is secured against. Therefore whether you mortgage your old or new house is irrelevant.

The important point is the purpose of the loan. Interest is tax deductible against rental income if the purpose of the loan was to purchase that property. You already own your 1st property so you clearly cannot now borrow to purchase it. Therefore the interest cost is not deductible against rental income from that property.

In short your only option is mortgage interest relief.
 
Thanks nmh001..........heres a high ball........could I set up a company, buy the house of me(!) and operate it as a rental business ........Im estimating offsetting €14K(mortgage interest) against rental income would save me 42% of the €14K whereas mortgage interest appears to be only worth €1200
 
that's an interesting one!

the reasons its not generally a good idea to put a property into a company are
1. double hit to cgt - ie, to realise the investment firstly the company sells the property and pays 20% cgt. then the shareholder winds up the company and is distributed the after-tax proceeds. at that point another 20% cgt is payable because you are deemed to be selling your shares
2. if a property is held personally then you can "gear up" on it if it goes up in value (ie, borrow against the built-up equity). if the property is in a company then it is not possible for the individual shareholder to do this
3. the corporation tax rate on rental profit is 25%
4. if after-tax rental profit is not distributed out within 18 months then another 15% corporation tax is payable

however in your case it might be that there is no "rental profit" because the rental income would be matched by the mortgage interest. If that's the case then reasons 3. and 4. above go away.

your company would be audit exempt but you'd still have the administration costs of setting it up and then filing CRO returns every year + handling other company secretarial issues.

overall i don't think its that bad of an idea - you have to weigh the double hit to cgt (in the future) against the benefit (now) of the tax deduction for the interest. you'd need to run the figures with some assumptions and factor in ongoing costs of the company administration etc, to evaluate it properly. Eg, assume say 5% growth in value p.a. and a sale/unwinding in 10 years time, assume rental levels and mortgage interest costs over that period + admin costs of say 500e p.a. + unwinding costs of say 1000e. worth considering
 
Thanks nmh001, that's a great reply and thanks for the time and effort
 
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