CGT on rental property

T

tunnellight

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Hi,

Does anybody have any thoughts on this situation ?

Bought an apt with civil partner as PPR in 2007 €320,000
Moved out & rented it in 2009
In 2016 now Ex-Civil Partner signed the property to me in a Deed Of Transfer. No cash payment , as at that time apt was in negative equity .
Valuation at the time was €130,000 - this was a low ball valuation which I should have challenged, but at the time I didnt realise the later potential significance
Per PPR , transaction was reflected at a sale price of €65,000. ie 50% of €130,000

Fast Forward to 2022 , property is worth ~€240,000 & I wish to sell it , as I am out of negative equity

My concern is being hit with a massive CGT bill .

Can anyone advise on which amount the CGT will be calculated ?
Original Purchase price ?
Value at time of transfer ?
A mixture of both ? ie 50% of 319K , 50% 130,000

Thanks in advance for any advice
 
My thoughts -but with warning
Your initial investment was 50% of € 320,000 in 2007 or € 160,000
Then you had an enhancement of € 65,000 in 2016 when you purchased the other 50% you say no cash was exchanged but surely your ex got something in exchange for handing you 50% of the appt?
So your cost is € 225,000
Selling price € 240,000 in 2022
Capital gain € 15,000

Years of ownership 2007 - 2022 = 15 years
Years as PPR 2007 - 2009 = 2 years
So PPR relief = 2 + 1 (last year no matter what) = 3 years out of 15 or 20%

Taxable gain = € 15,000 less 20% = € 12,000
Less personal allowance of € 1,250 = € 10,750
Tax at 33% = € 3,550 approx

A major caveat could be the undervaluation in 2016 - this could raise issues of Gift tax as you received a gift of the difference between the actual value and paid for value
 
Hi JPD ,
Thanks for taking the time to reply . I really appreciate it .
Nothing was paid over in 2016 , as the apartment was deeply in negative equity , and I was taking on the full liability , for a lower value asset.
Ex view at the time was that he got off the hook for that liability .

I have a valuation from that time in 2016 , and although it was low balled , it was there or thereabouts in the region .

I will run the figures over with a tax accountant , but my initial fear was that the calculation would be based on €130,000 , leaving me with a tax bill in region of €30K
 
That may be a problem so - as all you paid for the appartment was half of the initial cost or € 160,000

so your gain is now € 240,000 less € 160,000 = € 80,000 - tax around € 20k

You need to see a good tax accountant
 
But you were only receiving a half share of the house on transfer in 2016, so any liability would only be on that basis I would think, not full amount.

Think of it as acquiring half a house in 2007 and the other half in 2016.

Is it possible to offset the loss on your original half against this gain? Other posters may be able to advise.
 
jpd said:
My thoughts -but with warning
Your initial investment was 50% of € 320,000 in 2007 or € 160,000
Then you had an enhancement of € 65,000 in 2016 when you purchased the other 50% you say no cash was exchanged but surely your ex got something in exchange for handing you 50% of the appt?
So your cost is € 225,000
Selling price € 240,000 in 2022
Capital gain € 15,000

Years of ownership 2007 - 2022 = 15 years
Years as PPR 2007 - 2009 = 2 years
So PPR relief = 2 + 1 (last year no matter what) = 3 years out of 15 or 20%

Taxable gain = € 15,000 less 20% = € 12,000
Less personal allowance of € 1,250 = € 10,750
Tax at 33% = € 3,550 approx

A major caveat could be the undervaluation in 2016 - this could raise issues of Gift tax as you received a gift of the difference between the actual value and paid for value
Click to expand...
I don't think this is correct. Your purchase price was €160k. Ignore the transfer in 2016 it was a gift.

If you look at this logically you paid €160k for an asset you are now selling for €240k.

I would agree the 3 yrs offset as you suggest but on the higher fig.

I don't understand why you wish to claim enhancement value. The trans in 2016 (signing off from the mortgage) did not add any value to the property. The poster indicated no cash changed hands.
 
I took over his share of the mortgage though in 2016 , so even though I didn't pay him any money , I am still paying back a loan of 320K .
100% joint mortgage in 2007.
Could the taking over of the mortgage be viewed as payment for the half share ?
 
Not for CGT, as far as I am aware - you need to get proper tax advice from a specialist.

What are the mortgage details - amount, interest rate, monthly payments, etc

Presumably the rental income was declared and any tax due was paid
 
tunnellight said:
Could the taking over of the mortgage be viewed as payment for the half share ?
Click to expand...
The mortgage is irrelevant.

The house was worth €130k at time of transfer and you received his €65k share for free. Stamp duty at 1% would have been paid on half the market value of €130k if I understand correctly.

If I am not wrong you basically have two things to work out:
Share 1: €320k/2 in 2007 worth €240k/2 today, so a loss of €40k
Share 2: €130k/2 in 2016 worth €240k/2 today, so a gain of €55k.

AFAIK you are only liable for CGT on the gain for Share 2, and other posters may be able to advise if the loss on Share 1 can be offset against this gain. There is also the fact that it was your PPR for 2 years which reduces the loss on Share 1 by 2/15.
 
Last edited:
Mortgage interest rate is ECB +2.15%.
320k over 35 years
Monthly repayment is 1150.

Yes , stamp duty was paid on 65k in 2016 , and all tax on rental income has been paid up to date .
 
You need to contact a tax accountant

I do not know if the acquisition of the 50% share can be treated as a separate asset as NoRegretsCoyote has done or
whether it would be combined into the one asset as I did

Also as no money exchanged hands in the 2016 transaction, it is not clear that the notional cost of acquisition of € 65k will be allowed as you effectively got it for € 0 - or maybe the value of the future mortgage payments for the 50% could be used . Again expert advice is needed
 
jpd said:
it is not clear that the notional cost of acquisition of € 65k will be allowed as you effectively got it for € 0 - or maybe the value of the future mortgage payments for the 50% could be used .
Click to expand...
That's a good point.

I agree specialist advice needed.
 
Thanks , good to just hear a few opinions before I speak to an expert.
On that note , if anybody can recommend a tax accountant , please PM me
 
The acquisition cost is €235k.

Market value applies to connected party transactions, but in any event, the second transaction didn’t happen at “zero”, it happened at €65k. The debt part is just noise.

There’ll be no tax payable once costs etc are factored in.
 
How did the second transaction happen at 65k if no actual money changed hands?

Where does the 235k come from?
 
jpd said:
How did the second transaction happen at 65k if no actual money changed hands?

Where does the 235k come from?
Click to expand...
Say you own a house that’s worth €65k but you’ve a €65k mortgage.

Say I offer to buy it from you and to take over the mortgage.

No money would change hands, but the deal would be done at €65k.

i.e. a €65k valuation on the property with the consideration/payment being me taking over the €65k debt.
 
There would have been about € 250k outstanding on the mortgage in 2016 so half of that is € 125
 
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