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Get more cash in your pocket – Capital Gains Tax Relief!

Hello from CF

The British open is over, the World cup is finished and my beloved Kilkenny (and second favourite team Waterford) are gone out of the hurling. Despite the sporting gloom we at CF are very much a glass half full positive practice. This gives us the impetus to get excited about our “You ask we answer” blogs so that we can get behind the jargon and complexities of the tax laws so that our clients can minimise their taxes and plan their finances

Query

This query came into us late last week. A client purchased 3 houses in 2012 and is looking to sell them within7 years of purchase to avail of Capital Gains Tax [CGT] relief. The objective is to pay no CGT on the gain but he needed to know more about a new 4 year rule and the implications of a sale after the 7 year period. The properties are let so there are obligations around notice to tenants etc.    

Background

When the country was on its knees back in 2011the then government introduced a CGT relief on disposals of land or buildings acquired in the period from 7 December 2011 to 31 December 2014. The main intention of the relief was to stimulate the property market. The relief applies not just to Irish property but to property purchased in the European Economic Area [EEA] which is basically all EU countries, Norway, Iceland and one of the few countries that we can beat at football, Liechtenstein.

Recent Changes

In the last budget, in order to free up the availability of land and property, a change was introduced to put in a 4 year rule for any sales of property post 1 January 2018. So now we have a 4 year and a 7 year rule!

What does this mean?

The result of this is that if you purchased a property within the dates mentioned about and sold it after 1 January 2018 and had held it for a 4 year period then there would be no CGT on the gain. Given the 4 year and 7 year rule it means that any property purchased from 7 December 2011 to the 26th July 2014 can be sold free from CGT and any property purchased after 26th July 2014 will be able to be sold free of CGT before the end of this year once it has been held for 4 years. Therefore there is no longer a requirement to hold for 7 years but the option is still there to hold for 7 years which could be advantageous in a rising property market and the property is generating an income

What if I hold for longer than 7 years?

 The CGT relief would still be available but the amount of the relief would be diluted the longer it is held for post the 7 year period.  The relief is time apportioned so if held for 9 years from date of purchase then 7/9th of the gain is free from CGT. Eg. TJ Creed purchased a rental property for €100,000 on the 15th December 2011 and sold it on the 15th December 2020 for €200,000. The gain is €100,000 and 7/9th of that €77,777 is not liable to CGT while the balance of €22,223 is liable to CGT.

Beware

The CGT relief will only apply if the income from the property was liable to Income Tax or Corporation tax. Therefore if an individual or a company purchased property and didn’t receive an income or received an income but didn’t declare it, then it is very unlikely they would benefit from the relief.  Therefore it could be very worthwhile to do a tidy-up exercise on any rents received.

As always keep your queries coming in and if you need any advice please contact your own accountant or any of the team here at Comerford Foley. 

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