Re: Capital Gains Tax query
Found this article in the Sunday Business Post archives. Hope this helps.
Principal Private Residence Exemption
A gain accruing to an individual on the disposal of a main residence dwelling is exempt from taxation, provided the individual occupied or is deemed to have occupied the residence throughout the period of ownership, with the exception of the last 12 months.
Where the individual did not occupy the residence throughout the ownership period, only part of the gain represented by the occupation part of the ownership period is exempt. In apportioning the gain, the last 12 months are taken as part of the total ownership period.
An individual who was obliged to live abroad or elsewhere for employment reasons may be treated as having lived in the residence during the period of absence if he lived in the residence before and after that period.
EXAMPLE
On January 1, 1993 X, a single person, bought an apartment in Ballsbridge in Dublin for £40,000.
She lived in the apartment until April 1, 1993 when she took up employment in the United States for one year and Canada for another year. During her time abroad, the apartment was occupied rent-free by her younger sister.
She returned to the apartment on May 5, 1995 and lived there until June 1, 1995 when she was required by her employer to move to Cork for three years.
She returned to the apartment on June 10, 1998 and lived there until May 31, 1999.
She rented the apartment from June 1, 1999 to 31 May 31, 2000.
She sold the apartment on June 1, 2000 for £200,000.
The potential gain is:
Proceeds (2000-01) £200,000
Cost £40,000 indexed at 1.186 (1992-93) £47,440
Gain £152,560
However, even though she lived in the apartment for less than 14 months, the entire gain is exempt, as she is treated as having occupied the apartment throughout the ownership period.
Notes
1. Had she not resided in the apartment before and after each period of absence, tax would arise on the entire gain.
2. If the period of absence from the apartment due to her employment conditions had exceeded four years, relief would be restricted to four years. In this example, the period in Cork (three years) is not therefore restricted.
If the residence was used partly for business purposes, only the residential part of the gain is exempt.
Up to one acre of adjoining grounds may be included as part of the residence. If part of the grounds is occupied with the residence, and part is not, the part most suitable for enjoyment with the residence is deemed to be part of the residence.
TIPS
1. Residence does not include a bungalow built some distance from the main dwelling but may include a caretaker's lodge of a large dwelling.
2. Residence does include an adjoining self-contained flat even if occupied by children or guests of the family.
3. Land or buildings physically separated from the house (for example, a separate lock-up garage) may be included if disposed of with the house.
4. Where part of the garden or grounds is disposed of, but the house is retained, exemption is available if the total area of land occupied with the house is not more than one acre.
Exemption from taxation would not be given to an individual selling half an acre from a 2.5 acre garden, but would be given to the extent of one quarter of an acre in the case of an individual selling half an acre from a 1.25 acre garden.
5. Exemption is allowed if during a period of absence abroad for employment reasons the residence was occupied rent-free by a relative of the claimant for the purpose of security or maintaining it in a habitable condition.
6. When an individual acquires land and has a house built on it, if the house is completed within a year of the date of acquisition and occupied as his only or main residence on completion, the period from the date of the acquisition of the land to the physical occupation of the house may be regarded as part of the period of occupation as main residence for exemption purposes.
7. A gain on the disposal of a residence which is trust property is exempt if throughout the ownership period the residence was occupied by a beneficiary of the trust entitled to occupy it.
8. This exemption also applies to the disposal of a residence occupied as his sole residence by a dependent relative of the individual but an individual may only claim exemption on the disposal of one dependent relative's residence at any one time.
If a husband and wife each have a dependent relative, each can get a separate exemption for his or her dependent relative. This means a husband and wife can potentially get three principal private residence exemptions.
TRAPS
1. The exemption does not apply to adjoining land which, although in the same ownership, was never incorporated in the garden.
2. If a dwelling house is sold, and part of the original garden is retained and later sold separately, the exemption only applies to the first disposal.
3. If and individual has two residences, he gets only one main residence exemption. To maximise relief, he should claim exemption for the more valuable residence. He can get exemption for the second residence, however, if he has a dependent relative residing in it.
4. This exemption does not apply, however, where the residence was acquired (mainly) with a view to resale at a profit.
5. To the extent that the gain on the disposal of a residence is due to its development potential, the gain is taxed as a disposal of development land (with no allowance for indexation except for the current use element of the gain).