Advise needed: Whether to sell to clear mortgage?

[Phelo70]

Hi all. My fiancée & I have two properties. We both bought in 2001 & we both have approximately €140,000 remaining on our mortgages. I have my property let since 2004, so I would be liable for capital gains tax (CGT). I have a number of questions that perhaps someone could advise me on:

1. If I sell my property, which of the following would be used to calculate the CGT:

a. Would it take into account the fact that It was my principle private residence for 3 years, i.e. would it be based on the estimated price in 2004 when I first rented the property to 2007? The only reason I’m asking this is that I haven’t read anything to the contrary or to confirm it. Also, I was exempt from stamp duty (SD) in 2001 because of the SD ceiling at the time, so I expect not to be liable for clawback.

b. Or would it be 20% on the capital gain from the purchase price to disposal price (minus the acquisition & disposal costs and the first €1270), i.e. from 2001 to 2007?

4. Would it make sense to use the capital released to clear my partner’s mortgage and leave us with no debt and 1 property to the good ?

5. Using basic figures, I calculate that the overall saving from clearing both debts now would be in the region of €80,000 to €90,000. Taking that CGT will be calculated based on question 3 above, I’d be liable for €40,000 to the Taxman, which in the grand scheme of things can be looked upon as an indication as to how much money the property has made, but due to the current property market slowdown, will not make the same gains in the next 5 years.

6. Does anyone have any idea as how the stamp-duty will be altered in the future in investment terms ?


Any advise would be greatly appreciated, and while I know that there are a lot of very knowledgeable people on this website, if your answers could be backed up with references, I’d be even more impressed .

Cheers

 

[CCOVICH]

Also, I was exempt from stamp duty (SD) in 2001 because of the SD ceiling at the time, so I expect not to be liable for clawback.

I think you are incorrect here. Unless the consideration was less than IR£100,000, anyone other than a FTB would have been liable for stamp duty (by renting out the property within 5 years of purchase you are deemed to have been an investor from the date of purchase)

See [broken link removed] for more details.

Does anyone have any idea as how the stamp-duty will be altered in the future in investment terms ?

I doubt anyone will be able to provide a reference to back up their opinion on this question.

 

[Dreamerb]

1. If I sell my property, which of the following would be used to calculate the CGT:

a. Would it take into account the fact that It was my principle private residence for 3 years, i.e. would it be based on the estimated price in 2004 when I first rented the property to 2007?

Yes, it will take the PPR period into account. Appreciation is apportioned purely on the basis of time, and real prices - e.g. if you bought it for A and sold it for B, and it was your PPR for X years and investment for Y years, then the amount assessable for CGT purposes is [B-A] * [Y/(X+Y)].

That's the slightly simplified version. "A" can be index linked: rules and rates on revenue website. Certain other expenses may reduce your CGT liability (costs of acquisition and disposal, capital purchases, etc.).

The only reason I’m asking this is that I haven’t read anything to the contrary or to confirm it. Also, I was exempt from stamp duty (SD) in 2001 because of the SD ceiling at the time, so I expect not to be liable for clawback.

You should check that investors / second time buyers would also have been exempt at the then purchase price.

4. Would it make sense to use the capital released to clear my partner’s mortgage and leave us with no debt and 1 property to the good ?

It would, though equally other things might make sense too.

However, there may be stamp duty considerations if you're acquiring a part of your partner's property, and it's vital to have clarity on ownership. You should take independent legal advice on this aspect.

if your answers could be backed up with references, I’d be even more impressed .

Cheers

www.revenue.ie

It's all there.

 

[Phelo70]

Ccovich & Dreamerb,

Thanks a lot for your advise, it's certainly food for thought.

Cheers