Capital Gains Tax?

C

Champs

Guest
Hi,
I've recently rented out a house i bought a little over a year ago and was wondering will i have to pay Capital Gains on the profit if i sell it or does it depend on when i sell it?

Thanks
 
this will depend on whether you can prove if this house has been your principal private residence for the period of ownership, if so the gain will be tax free. however there is a formulae for working out the taxable portion of the gain if period of occupation does not equal period of ownership. total gain multiplied by period of occupation divided by period of ownership.
 
Champs said:
Hi,
I've recently rented out a house i bought a little over a year ago and was wondering will i have to pay Capital Gains on the profit if i sell it or does it depend on when i sell it?

Thanks
Click to expand...

You will have to pay CGT on profit regardless of when you sell it as it is not your PPR anymore..
If you have not paid stamp duty when you bought it, you also now have to pay Stamp Duty at investor rate on this property, and of course pay tax on the rental income.
 
It seems to me that since the 2003 budget, in the long term, Capital Gains Tax is no longer a Gains tax, it is more like the Stamp Duty on buying a house except that we will have to pay 20% to sell it. I say this because instead of increasing the rate from 20% in 2003 to pay for the Celtic Tiger's cold, the budget eliminated index linking to the initial Capital Paid.

Example 1
2004: Buy house 300K
2014: Sell house 1000K CGT = (1000-300) x 0.20= 140K
2024: Selling house 3000K CGT (3000-300) x0.20= 540K
i.e. you don't need a degree in maths to see that as time goes on, the intial purchase prices becomes irrelevant and you will end up paying a net 20%, just like Stamp Duty.

If you put money in a bank an it rises only with inflation then you haven't made a gain. But if it is property, you'll actually lose 20%.

Do investors know that if they upgrade a house in the future they will pay 20% to sell it and another 9% to buy a new one? I.e. 30% disappears in tax?

Can anyone please tell me I'm wrong here!!
 
gidxl03 said:
If you put money in a bank an it rises only with inflation then you haven't made a gain. But if it is property, you'll actually lose 20%.
Click to expand...

Regardless of whether you make a gain you will pay tax however. The only "rise" you get on money in a bank is interest and you pay DIRT on the interest you receive regardless of whether it is less, equal to or more than inflation.
 
Example 1
2004: Buy house 300K
2014: Sell house 1000K CGT = (1000-300) x 0.20= 140K
2024: Selling house 3000K CGT (3000-300) x0.20= 540K
Click to expand...

AFAIA index linking only covered general inflation not house inflation
and CGT was 40%

So using your example with indexing & CGT @ 40%
and assuming Inflation (indexing) each year 3%.
So for 10 years inflation is 30% for 20 years 60%
For the sake of simplicity I have assumed a simple rate of interest

2004 Cost of House 300
2014 Sell house (1000 - 390) *40% = CGT 244
2024 Sell house (3000 - 480) *40% = CGT 1,008

I think I would prefer to have the current scheme in place
 
It is pointless to try to project future tax liabilities over a 20+ years timescale, as tax rates/thrresholds/bands/rules etc will vary significantly as a result of tax and economic policy changes in te meantime.

Very few, if any, taxes are levied today according to the same criteria that applied 20 years ago.
 
I take the last two points on board and, after running some numbers, realise that the situation is not bad as I had thought from reading http://www.unison.ie/features/budget2003/taxproperty/stories.php?ca=275&si=887763

i.e. unless the index linking was quite close to the actual rate of inflation of houses, both formulae give roughly the same result and the results don't exponentialy deviate after all (I take back my comment about not needing the degree in maths!!)

Example 1A: Old tax scheme (index linked relief, rate @ 40%)
annual inflation = 3%,
house rise = 5%
2004 Cost of House 300
2014 Sell house 300 * (1.05^10 - 1.03^10) * 40% = 300 * 11.4% = 34.2
2024 Sell house 300 * (1.05^20 - 1.03^20) * 40% = 300 * 33.8% =101.7

Example 2A: New Tax scheme (index linking abolished, rate @ 20%)
annual inflation = 3% (N/A),
house rise = 5%
2004 Cost of House 300
2014 Sell house 300 * (1.05^10 - 1.00^10) * 20% = 300 * 12.6% = 37.7
2024 Sell house 300 * (1.05^20 - 1.00^20) * 20% = 300 * 33.1% = 99.2

Thanks for forcing me to look at this again more closely!
 
You must log in or register to reply here.
Back
Top