buying a second home advice please

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LauraG

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Can anyone help me see the wood from the trees on this one. I have just bought my second home which I wish to use as my primary residence. I have the first house 5 years which I bought for the equivalent of 160k euros. It’s now worth 300k-320k. I don't have to sell it. I would like to keep it as an investment property as it is much better quality and bigger with a better location, that the same type they are building locally now. Houses generally are rising @11% per annum and I can borrow the money, interest only, for 3-5 years at 3.5%. The problem is capital gains tax (CGT). If I sell it now or in the next 6-12 months it will be viewed as a change of primary residence and therefore exempt from any CGT. However, if I hold onto it for 3-5 years I would be liable for CGT. My question is, on what would the CGT be calculated? Say if I sold the house for 400K would the 20% CGT be on the difference between 160K and 400K? Or would it be from the value of the house at the time it became the investment property?

Also, someone was telling me that the 160K is index linked and would be recalculated to today’s monetary value? Finally would I just be better off selling the house and buying an investment property elsewhere, possibly abroad, seeing that I’m liable to so much CGT,

Thanks,
LauraG
 
The CGT is apportioned according to the time periods. For example if you own a house for 6 years, 5 years of that as PPR then 5/6ths of the gain is taxable. There is some indexation but it was abolised a couple of years ago so you get to index up to when it was abolished (sorry don't know the year off hand - on revenue web site). So if the rate of increase in property prices rises you loose slightly if it falls you gain.
 
Buying abroad isn't going to remove the CGT liability if there is a double tax treaty in place, will merely postpone it. You would pay the local CGT on your new property when you come to sell that and pay any difference here....there's no getting away from it (although there is if you set up a company abroad and take the proceeds as dividends but do you wnat to go down that route ?). "Give onto Caesar what is Caesar's".
 
Enda Storey said:
Buying abroad isn't going to remove the CGT liability if there is a double tax treaty in place, will merely postpone it. You would pay the local CGT on your new property when you come to sell that and pay any difference here....there's no getting away from it (although there is if you set up a company abroad and take the proceeds as dividends but do you wnat to go down that route ?). "Give onto Caesar what is Caesar's".
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>There is no mention of buying abroad in the OP's question. I think both of these properties are in Ireland.

Sorry I missed the last line of her post, now I see what you mean, please ignore.
 
ramble said:
The CGT is apportioned according to the time periods. For example if you own a house for 6 years, 5 years of that as PPR then 5/6ths of the gain is taxable. There is some indexation but it was abolised a couple of years ago so you get to index up to when it was abolished (sorry don't know the year off hand - on revenue web site). So if the rate of increase in property prices rises you loose slightly if it falls you gain.
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Should that not be if the house is PPR for 5 out of 6 years, then 5/6 of the gain is not taxable i.e. CGT is only due on the 1 year out of 6 in which it was an investment property?
 
That’s great thanks. If your right then and I sell house number 1 in 3 years time making an overall capital gain of 200K, I would only pay CGT on 5/8’s of that gain, seeing that I lived in it for 5 of the 8 years. I thought if I held onto it I would be liable for CGT on the complete capital gain since bought. Great news, thanks everyone. Is there anything I should do when I move into the new house to highlight the fact that house number 1 will be an investment property once I can get someone to rent it? Do they give me a time window like the way they give someone who moves into a new house they built themselves up to a year to sell the old residence during which time it could gain in value?

Cheers,

Laura G
 
Sorry Laura G, but you've misunderstood ramble's explanation. The last 12 months of ownership of a property, irrespective of where you actually live is deemed a period of occupation. However to qualify as a period of deemed occupation you must use it as your PPR before and after the period of absence. Also you cannot have any other residence during the period of absence which would qualify as your PPR
 
conor_mc said:
Should that not be if the house is PPR for 5 out of 6 years, then 5/6 of the gain is not taxable i.e. CGT is only due on the 1 year out of 6 in which it was an investment property?
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surely this is the case I'd imagine it wouldnt make sense to charge 5/6th if you lived in it for 5 of the 6 years??
 
Lorraine B said:
Sorry Laura G, but you've misunderstood ramble's explanation. The last 12 months of ownership of a property, irrespective of where you actually live is deemed a period of occupation. However to qualify as a period of deemed occupation you must use it as your PPR before and after the period of absence. Also you cannot have any other residence during the period of absence which would qualify as your PPR
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What you're talking about Lorraine is in the case of someone, for example moving abroad for work for a year and then moving back to their PPR they lived in before they 'emigrated', this PPR (they're only PPR) is rented out (assuming it is) and not regarded as an investment property unless you're abroad for over a year, am I right? I'm not doubting you I am just not sure if I am interpreting you correctly
 
LauraG said:
Can anyone help me see the wood from the trees on this one. I have just bought my second home which I wish to use as my primary residence. I have the first house 5 years which I bought for the equivalent of 160k euros. It’s now worth 300k-320k. I don't have to sell it. I would like to keep it as an investment property
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You should read this thread.
The problem is capital gains tax (CGT). If I sell it now or in the next 6-12 months it will be viewed as a change of primary residence and therefore exempt from any CGT. However, if I hold onto it for 3-5 years I would be liable for CGT. My question is, on what would the CGT be calculated?
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If you own it for x years, it was a PPR for y years and rented for z years (x = y + z) then ((z - 1) / x) of any resale gain is assessable for CGT.
Also, someone was telling me that the 160K is index linked and would be recalculated to today’s monetary value
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See the Revenue CGT guides for information on indexation relief of acquisitions costs. If you don't understand the tax implications then you should get independent, professional advice.
 
I think the phrase is "a mine of inforamtion" actually. As it happens, I am just repeating what others have said in this thread and many others.
 
ClubMan said:
I think the phrase is "a mine of inforamtion" actually. As it happens, I am just repeating what others have said in this thread and many others.
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I always thought it was mind, oh well we all mistakes :) .
 
I've recently bought a two bed apt in Sunset Resort Pomoire with 3 yrs guaranteed rental and now want to buy a 2nd apt with the same 3 yr rental guarantee, then when the 3 yrs are up I'll sell one and use the profit (if any) against the loan on the 1st apt. What do ye think?
 
DeniseBK said:
I've recently bought a two bed apt in Sunset Resort Pomoire with 3 yrs guaranteed rental and now want to buy a 2nd apt with the same 3 yr rental guarantee, then when the 3 yrs are up I'll sell one and use the profit (if any) against the loan on the 1st apt. What do ye think?
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Recently i've seen foreign holiday homes on sale on the wall of my local ebs(a big display),i go into the kebab shop the other night and the same thing.Before i bought another apt i make sure there was a market for seconded hand properties not just developer to paddy buyer !.Are you going to give a 3yr rental guarantee when you sell yours ?
 
I'd wait awhile and see how that guaranteed rental deal is holding up. And if I wanted to sell one in 3 years I'd be looking at the demand for secondhand properties in this area, if any.
 
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