Sell or Rent my property

[s&k]

Hello,

I have a house in Dub South currently worth around 440K with no mortgage. have had the house 12 years, cost 60K to buy so an increase of say 380K.

3 years ago I bought a house down the country worth 190K so I have a mortgage on that. 1400euro per mth inc insurance.

I live and work in Dub South during the week and head to country home for weekend. My partner lives in the country home with our child. it was our intention to move down the country fully if we liked it. (and we do)

I will be changing job so I can move down the country to live permanently with family.

I am not keen on selling my Dublin home. ( extended family live in the area ) So I was thinking of renting it. (should get 1400 / mth for say 10 mths a year )


If I do rent it out, will I be hit for the CGT on the 380K if I sell it after a year or so? (thats a wopping 76K , (thats more than I bought the house for!! )) or is it CGT on the current value vs increase in value from now on.

OR
Can I remortgage it and pay off second house, then claim interest as an expenditure to reduce tax liability?

thanks for advice in advance.

 

[ClubMan]

I am not keen on selling my Dublin home. ( extended family live in the area ) So I was thinking of renting it. (should get 1400 / mth for say 10 mths a year )

Have you read this:

Sell home or keep as an investment?

and the many other existing threads on the same issue?

If I do rent it out, will I be hit for the CGT on the 380K if I sell it after a year or so? (thats a wopping 76K , (thats more than I bought the house for!! )) or is it CGT on the current value vs increase in value from now on.

Not on the full amount - just a portion related to how long it was rented out versus your PPR. For example you own it for 12 years now. If you held onto it and rented it out for 3 years before selling it then you would be assessable for CGT on (15 - 12 -1)/15 = 2/15 = c. 13% of any resale gain over and above the original purchase price. The normal CGT calculations apply (e.g. purchase price indexed for inflation to c. 2003, annual allowance of €1,270 and allowable costs deductable etc.). This example uses round years for simplicity and is just illustrative so get professional advice to be sure of the exact situation.

Can I remortgage it and pay off second house, then claim interest as an expenditure to reduce tax liability?

No - only interest on the outstanding mortgage at the time the PPR converts to a rental property (or on any subsequent amounts borrowed to renovate the rental property) can be set against rental income.

 

[s&k]

Thanks ClubMan

just a portion related to how long it was rented out versus your PPR. For example you own it for 12 years now. If you held onto it and rented it out for 3 years before selling it then you would be assessable for CGT on (15 - 12 -1)/15 = 2/15 = c. 13% .

what does the -1 figure mean, does that allow you to rent it out for a year then sell it with out paying CGT at all?, (think I seen that somewhere before)

c. 13%

so am I right is saying I would pay CGT on 13% of 380K. which is 49,400 @ 20 % = 9,880.

(the above assumes I rent it for 3 years and there is no capital gain or loss on the property)

If thats the case it sounds like an option.

Thanks again

 

[ClubMan]

what does the -1 figure mean, does that allow you to rent it out for a year then sell it with out paying CGT at all?, (think I seen that somewhere before)

The first 12 months after vacating your PPR are exempt from CGT even if it is rented out.

so am I right is saying I would pay CGT on 13% of 380K. which is 49,400 @ 20 % = 9,880.

No - the original purchase price can be indexed for inflation to c. 2003 (after which indexation relief stopped) and you can deduct allowable costs and your annual CGT exemption of €1,270 (assuming it is not otherwise used). CGT calculations are outlined in the relevant booklet on the Revenue website. Get professional advice to determine precisely what your tax liabilities would be.

if thats the case it sounds like an option.

Don't forget that there are other issues with becoming a landlord. Check the Property Investment FAQ for an outline, crunch the numbers carefully to see that retaining/renting out is a good idea and - once again - get professional advice.

 

[s&k]

Thanks again Clubman


Its good to get some information before I go and get professional advice, so it sounds as though I know what I am talking about !!!

I Just need a little clarification on this if you dont mind..

Not on the full amount - just a portion related to how long it was rented out versus your PPR. For example you own it for 12 years now. If you held onto it and rented it out for 3 years before selling it then you would be assessable for CGT on (15 - 12 -1)/15 = 2/15 = c. 13% of any resale gain over and above the original purchase price. The normal CGT calculations apply (e.g. purchase price indexed for inflation to c. 2003, annual allowance of €1,270 and allowable costs deductable etc.).

.

ok, forgetting about the indexation and other reliefs (that will be a bonus in the end result)

"the 13% resale gain" - does the resale gain you are talking about here mean 13% of the 380K

if so for CGT does it mean that I have to pay tax on 13% of 380K which is for this purpose 49,400 @20% or do I have to pay a total CGT of 49,400 to the tax man.

Sorry my knowledge is low on this, and I need a bit of preperation.

Thanks very much for your help.

 

[ClubMan]

"the 13% resale gain" - does the resale gain you are talking about here mean 13% of the 380K

No - I mean that 13% of the overall resale gain is assessable for CGT. You will pay 20% on this 13% portion of the gain which is attributed to the rental period. The remaining 87% of the gain is attributed to your PPR occupation of the property so is exempt.

 

[s&k]

Just to follow up.

I did all my calculations and If I did decide to rent the property, I would be Giving the tax man over €10,000 per year ( 4,000 CGT per year 6000 income Tax )and I would get around 7000 in my hand plus I would have all the hassle of the tennants. and the redecorating costs etc.....

So I have decided to Sell.....

its amazing how may different ways you can lose money, and most of it to the Tax man.

Thanks for all your help.

 

[ClubMan]

Did you get a professional to review your figures to make sure that they were correct?

 

[s&k]

An accountant had a look, and he said unless I was in it for the long haul, I would be better off selling now, this was mainly due to CGT.

I would be better putting the money in a deposit account.

for me it was too close between making a profit or breaking even.

thanks again.