Capital gains tax on house

My friend had her own house in Dublin with no mortgage and she married 4 years ago. They bought a house in another part of the country which they have a mortgage on but she did not move down there as she was still working in Dublin. She went down at weekends and holidays and he came uo occasionally so her house in Dublin was her principal residence until last May when she got a transfer down the country. What is the situation if she was to sell her house? Would she be liable to Captial gains tax or would there be a pieriod that she exempt from and then a sliding scale used. had a look on the revenue site and can't work it out. The reason she wants to know is to see if she should sell now and pay less tax or rent it out if she has to pay the tax regardless of when she sells it.

The standard situation is that you owe CGT for the time that the house is no your home ( PPR).
Here is a simple example.

Purchase price of house 200K
House is PPR for 8 years and rented out for 2 years.
House is sold for 250K.

The profit is 50K and the house was a non-PPR for 2/10 years so the gain for CGT purposes is 50K * 0.2 = 10K.


However, the default situation is that a married couple have the same PPR. I have no idea how easy it is to convince them that her and her husband have separate PPRs.
They may insist that only one of the houses was a PPR for the last 4 years.

huskerdu said:

However, the default situation is that a married couple have the same PPR. I have no idea how easy it is to convince them that her and her husband have separate PPRs.
They may insist that only one of the houses was a PPR for the last 4 years.

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The legislation states a "married couple living together" i.e. not separated, can only have one PPR. In the absence of an election by the couple as to which residence is their PPR, the Inspector may make a determination. So there is no facility in this case for the OP to claim two separate PPRs.

The question arises as to which property they should agree was their PPR for the last 4 years, and it may well be a situation where paying someone competent for professional advice will more than pay for itself (since they may need to make a case for any necessary election to Revenue, which may require arguing for application of a concession as there is a 2-year time limit for electing PPR).

Partnership,

If the dublin house was her declared PPR and it is less than 12 months since she left it/sells it, she won't be caught for capital gains tax. There is a 12 month grace period. After that, it is done in increments to a formula.
Just have her ring and ask. Revenue have a dedicated CGT section and are very helpful.

What is the situation with the second-homes tax? Which house are they paying it on?

They should declare the house they want to sell as their PPR and pay any oustanding taxes required. Then sell the house, and the home in the country becomes the PPR.

Don't worry the taxman with issues about her living here and him living there.

Havent paid second home tax yet. Get mortgage interest on the house and farm in country but she was genuinely living in dublin because she worked there and only got transfer down recently so not sure they can declare it as both their ppr. Of course the market being what it is it will prob be hard to sell anyway. Thanks for the info re the cgt but the house was bought a long time ago prob 20 years so not sure how much she paid but it would be less than it is worth now even with the housing collapse.

Prior to the marriage it was her PPR. After that it's not clear. But married couples can have only one PPR. If we are talking about a lot of tax then the services of a good accountant would be money well spent. Or a solicitor who is good on CGT.

+1

bronte said:

prior to the marriage it was her ppr. After that it's not clear. But married couples can have only one ppr. If we are talking about a lot of tax then the services of a good accountant would be money well spent. Or a solicitor who is good on cgt.

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partnership said:

Havent paid second home tax yet. Get mortgage interest on the house and farm in country but she was genuinely living in dublin because she worked there and only got transfer down recently so not sure they can declare it as both their ppr. Of course the market being what it is it will prob be hard to sell anyway. Thanks for the info re the cgt but the house was bought a long time ago prob 20 years so not sure how much she paid but it would be less than it is worth now even with the housing collapse.

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Well the mortgage interest relief claim on the house down the country would make a persuasive argument that it's been the PPR during the period the relief has been claimed. Any suggestion to the contrary now would result in a clawback of the relief obtained to date.

If anything, that factor makes the situation easier to evaluate. If the Dublin house has been owned for 20 years, and allowing for the last 12 months of ownership being treated as a deemed period of occupation, then she is only taxable on 3/20 of the gain realised on sale. Allowing for indexation relief and the fall in Market prices, it's hard to see how the CGT bill would much exceed the amount of interest relief clawed back (plus interest & penalty?), plus the cost and hassle of arguing the toss over PPR with Revenue.