Section 604a TCA 1997 - Bought as PPR

My wife and I bought our PPR in December 2013. If we were to buy a new PPR could we enjoy the benefit of Section 604a TCA 1997 on the old PPR? The effect would be to have two CGT exempt properties.

The mortgage LTV on the current PPR is circa 25 - 33%. We are in possession of a lump sum but not risk averse. We're deciding what best to do with the lump sum.

Also, I note special provision in Section 604a TCA 1997 for property transactions between connected persons (i.e. threshold of 75% of market value). Where does this come from and what is the intent? We bought from a connected person at what we believed was market value.

I don't see an issue with the property qualifying under S604A.

The connected person rule is to ensure that there is no abuse of the relief, by acquiring a property by way of gift for example.

Thanks Joe 90.

The property was valued by a local estate agent for the purposes of obtaining the mortgage. Would this be valid proof of the market value?

I'm also particularly curious about the 75% of market value figure.

Conscientious said:

Thanks Joe 90.

The property was valued by a local estate agent for the purposes of obtaining the mortgage. Would this be valid proof of the market value?

I'm also particularly curious about the 75% of market value figure.

Click to expand...

As Joe says, the relief will be due based on the facts as you've outlined.

The purpose of the 75% test is simply to counteract the relief being used for a purpose for which it wasn't intended. Bear in mind the purpose of the relief is to stimulate activity in the property market between bona fide buyers and sellers bargaining at arms length. For example if it did not apply:

• I own a rental property which I bought near the top of the market in 2006 - I paid €400k for it but in 2013 it's only worth €250k.
• I sell it to my son for €100k.
• In doing so I realise a CGT loss of €150k which I can use against any capital gains I make (for CGT purposes the market value applies to my disposal so my loss is €400k-€250k).
• My son receives a gift of €150k (the difference between what the property is worth and what he pays me for it) and doesn't owe any CAT (assuming no substantial prior gifts from parent to child).
• My son now has a property that qualifies for relief under s.604A and will be exempt from CGT for the next 7 years, but the transaction isn't actually real purchase/sale activity in the property market.
• All the relief has done is facilitate me gifting a valuable asset to my son in such a way that a chunk of its future capital appreciation will be outside of the scope to tax, rather than if I held it and either sold it myself on the open market or gifted it to him at a later time.
• So in the absence of the 75% rule the relief would facilitate too much avoidance of tax through relatively simple tax planning - I presume it's 75% on the basis of materiality, recognising that valuation is not an exact science i.e. the Inspector of Taxes may not necessarily agree with you as to what the market value is, but you don't need to argue over it out as long as your respective valuations are within that 25% tolerance.

I'd agree but the loss to a connected person would be restricted to gains to the same person I think.

Thanks for those detailed answers.

We're both part qualified accountants and we were talking about this overnight, we both had quite different interpretations of how the 7 years relief would be applied.

E.g. House owned for 10 years, with first 3 years as PPR.

I thought that there would be no chargeable gain in this circumstance. 3/10s is non-chargeable as PPR. 7/10 is non chargeable under S. 604a TCA 1997.

The 604A relief will only apply to the 7 years over the total period of ownership. So 7/10.