I’m confused about the capital gains tax liability on my second home
I bought a small semi-detached bungalow in Dublin in September 2011 for 100,000 â¬. At the time, I had another property, which was my primary private residence in Co Louth. My wife and I would be living in the Dublin house midweek and returning to Louth on the weekend. We have renovated the Dublin house over the years and its approximate value is now â¬ 350,000.
The Capital city wins the tax exemption (CGT) is From December 7, 2011 to December 31, 2014. The folio and the registration of deeds are dated February 2012, because it is on this date that I was registered as owner. Can I benefit from the exemption if I sell next year and pay three tenths of CGT; or will I be required to pay in full CGT because the purchase was before the exemption in September?
Ian Brennan replies: The CGT exemption to which you refer was introduced for the first time in the 2012 finance law [section 604a Tax Consolidation Act 1997] and a new amendment by the 2017 finance law.
This gave real estate investors the opportunity to buy property in Ireland and even in any member state of the European Economic Area (including the UK) during the period from December 7, 2011 to December 31, 2014, and once held for a minimum period of seven years (which was amended to four years by the 2017 finance law), any gain made during the sale would be subject to a reduction from the CGT depending on the length of the holding of the good.
In summary, the main conditions that apply for this exemption to take effect are:
1. The property must have been acquired during the period from December 7, 2011 to December 31, 2014 (âthe relevant periodâ).
2. The property must be owned for at least four years.
3. For property disposed of on or after January 1, 2018, acquired during the relevant period, the gains are not taxable gains where such property has been held for at least four years and up to seven years from the time where they were acquired.
4. Any rental or other income received from the property must have been properly returned to the tax commissioners for tax assessment.
5. In addition, the individual who acquired the property must have paid consideration amounting to at least 75 per cent of the market value of the property at the time of its acquisition. This excludes donations and inheritances during the period considered. If land was acquired during the reporting period and buildings constructed on it since the acquisition, the land and buildings will fall within the scope of relief.
The relief provided for in article 604a provides for total exemption from CGT on any gain if the property was sold after four years and after January 1, 2018, but no later than seven years from the date of acquisition.
A partial exemption from the capital gain is provided for if the property is sold after seven years by applying the following formula to determine the part of the capital gain which is exempt from CGT:
Attributable gain * 7 / n (where n is equal to the total holding period in years)
The non-exempt part is payable by the CGT at the current rate of 33% (excluding annual exemption of â¬ 1,270 per year).
Your query specifically raises the issue of when you legally acquired the property. The rules of acquisition and disposal are governed by section 542 of the Tax Consolidation Act 1997, which states that:
1. An acquisition under a contract is made on the date of the conclusion of the contract.
2. If a contract is conditional, the vesting date is the date on which the condition is met.
3. An acquisition made other than under contract is the time when compensation for the acquisition is agreed or otherwise determined.
In order to determine the exact date of purchase, you will need to contact your lawyer and verify when the contract to purchase the property was actually signed, and if it was conditional. If it turns out that the contract was not signed before or after December 7, 2011, or, where applicable, when the conditions of the contract exist, the conditions were not fulfilled before or after December 7, 2011, then you will be entitled to TCA Relief under Section 604A (assuming all other conditions mentioned above are met).
If not, no relief will apply and CGT at a rate of 33 percent will apply to the difference between the sale price and the original cost, including incidental costs of acquisition.
Further details and concrete examples can be found online at revenue.ie, in Revenues Tax and Duty Manual Part 19-07-03A.
Ian Brennan is the manager director at Finlay-Mulligan & Co financial consultants, fmco.ie