CGT on flipping property

[ubiquitous]

If I puy a house as an investment for (let's say) €300K in Jan 2008 and sell it in May 2008 for (let's say) €320K, I would have thought that I would liable for CGT on the €20K.

I note from The Irish Times last Friday that I would not be liable for any CGT, I'm surprised...did anybody else notice this?

A temporary "investment" such as the one described above might well be exempt from CGT if it falls within the definition of a trading transaction. However on that basis, income tax of up to 41% and PRSI would both apply.

 

[Christy]

Copy of actual query in the IT last Friday

In a recent Q&A, under the heading "residence query", you state that "the rules on investment properties hold that the last year of ownership is always considered to be owner occupation".

Could you elaborate on the implications of this statement for an investor? Does rental income or capital gains tax have any connection with the statement?

Mr J.D., Kildare

The situation is exactly the same for all property owners but, clearly, is of particular relevance to investors.

Normally, when selling a house you are liable to capital gains for any period when the house was let out. For an investor, this can be the whole period of ownership.

However, the rules state that, when assessing liability to capital gains, the final 12 months of ownership is deemed to be as owner occupier, regardless of whether the owner actually does occupy the property.

Indeed, it doesn't matter if you ever occupied the premises in question.

Thus, if, as an investor, you owned a house for 10 years, you would be liable to capital gains on only nine-tenths of the gain.

This clause relates only to capital gains.

 

[Lobby]

Isn't there a special developers rate of income tax of only 20% - same as CGT? (on residential development income only)

 

[z108]

A temporary "investment" such as the one described above might well be exempt from CGT if it falls within the definition of a trading transaction. However on that basis, income tax of up to 41% and PRSI would both apply.

In which case would it be better to do something like this within a company structure ? or are there windfall/special taxes imposed on companies which do this ?

 

[ubiquitous]

Copy of actual query in the IT last Friday


Normally, when selling a house you are liable to capital gains for any period when the house was let out. For an investor, this can be the whole period of ownership.

However, the rules state that, when assessing liability to capital gains, the final 12 months of ownership is deemed to be as owner occupier, regardless of whether the owner actually does occupy the property.

This is badly incorrect. The "final 12 months of ownership" concession only applies IF the owner previously occupied the property as their PPR. This is a very bad mistake for a paper like the Irish Times to make.

 

[ubiquitous]

Isn't there a special developers rate of income tax of only 20% - same as CGT? (on residential development income only)

This rate refers only to what is termed as "residential development land dealing". It does not cover the purchase and sale of houses or apartments.

 

[ubiquitous]

In which case would it be better to do something like this within a company structure ?

no

 

[ClubMan]

This is badly incorrect. The "final 12 months of ownership" concession only applies IF the owner previously occupied the property as their PPR. This is a very bad mistake for a paper like the Irish Times to make.

Not the first time that they have made very fundamental mistakes on such matters. Don't use newspapers as a source for accurate/authoritative tax and personal finance advice. Ditto for sites such as this although disucssion forums at least have the advantage that erroneous information will usually be corrected fairly quickly.

 

[South]

CHRISTY - thanks very much for finding the article.

I did not have time to dig it up but that was exactly the piece that I was referring to - seems totally inaccurate to me.

Thanks again.