Investment property becomes PPR

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andrea

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Am currently trading up but for living reasons may want to live in my current home (which will become the invesment property) for another year after purchasing the new home. Hence want to rent out the new property for the year. Whats the tax implications if the current home will have an interest only mortgage on it and I have rental income from the new home?

Just on that, hypothetically, if I stay in this house for another 5 years, renting out the new home, then move out of current one to the new one and sell my current one, should there in theory be any CGT on any profit Ive made on my current home whereas there definitely would be if I did it the other way.

Also whats there to stop me telling the taxman that I did that even if I didnt? (Asides from the fact its probably illegal tax evasion). Is it written anywhere that of 2 properties that someone owns 1 is defined as the investment property and the other as the PPR?
thanks.
 
andrea said:
Am currently trading up but for living reasons may want to live in my current home (which will become the invesment property) for another year after purchasing the new home. Hence want to rent out the new property for the year. Whats the tax implications if the current home will have an interest only mortgage on it and I have rental income from the new home?
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You will have to pay investor stamp duty on the new home if you plan to rent it out immediately or if you rent it out within five years of purchase regardless of the fact that you may eventually move into it as your PPR.

If you move into the new property as your PPR and eventually sell up you may be subject to CGT on a portion of the resale value related to the period of time that the property was rented out.

The mortgage on your existing PPR is irrelevant to the tax treatment of the new property if the latter is rented out - e.g. you can't offset mortgage interest on the "old" PPR loan against rental income on the new property or anything like that.

Just on that, hypothetically, if I stay in this house for another 5 years, renting out the new home, then move out of current one to the new one and sell my current one, should there in theory be any CGT on any profit Ive made on my current home whereas there definitely would be if I did it the other way
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If the first property remains your PPR for those five years and was never rented before then its sale will be exempt from CGT. However, as I mentioned above, the second property will be an investment property from the date of purchase, the purchase will be subject to investor rates of stamp duty and the five years of rental will be relevant to the calculation of CGT on the eventual resale of the second property.

Also whats there to stop me telling the taxman that I did that even if I didnt?
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Did what?

(Asides from the fact its probably illegal tax evasion).
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Isn't that good enough reason not to lie to Revenue? Even if you don't think that it is then nobody in their right mind would recommend tax evasion as a prudent investment strategy due to the risks and penalties involved.

Is it written anywhere that of 2 properties that someone owns 1 is defined as the investment property and the other as the PPR?
thanks.
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I'm not sure but one's PPR might be identifiable indirectly through, for example, the claiming of owner occupier mortgage interest tax relief. Claiming mortgage interest tax relief on more than one property could be identified through one's PPSN. Rental income tax declarations and payments are self assessment as far as I know so the onus is on the individual to deal with these according to the law. Failure to do so would not be very prudent and would be very risky.

From what you've posted I would strongly recommend that you get independent, professional advice on the investment and taxation aspects of your plans and that you make sure that you comply with the relevant tax legislation.
 
In relation to owning 2 properties and which one is the PPR, please see below an extract from the Irish Taxation Institute's book 'The Taxation of Capital Gains"

3.6.7 More Than One Main Residence

s604(8)
The only house which can qualify for relief, is one occupied by the owner as a residence at some time after 5 April 1974. An individual cannot have more than one 'principal private residence' qualifying for relief at any one time.

The problem of deciding which house qualifies as the 'principal private residence' during any period is to be dealt with in the following manner:

s604(8)(a)
• The taxpayer notifies the inspector of his choice (in writing within 2 years of the beginning of the period for which he is electing to treat the house as qualifying) and if the inspector agrees, the question is settled as regards that particular period.
or

s604(8)(b)
• In the absence of any such agreement the inspector decides which house qualifies, and notifies the taxpayer (who has a right of appeal against any such determination by the inspector).

In the UK case of Griffin -v- Craig-Harvey it was held that the election of the taxpayer as to which of a number of residences shall be treated as his principal private residence had to be made within two years of the beginning of the period in which he had most recently acquired a residence. That an election could be made by him at anytime, and be valid for a preceding period of two years prior to the election, was rejected. On each occasion that an additional residence was acquired a new right to make an election arose, and a new two year period during which such an election could be made commenced.

In Ireland, such an election is valid only with the agreement of the Inspector.
 
Interesting snippet - thanks for posting that. Obviously in anything other than the straightforward case (i.e. where there is only on property which is obviously the PPR even if more than one property owned) things can get complex in which situation it is good practice to seek independent, professional tax advice.
 
Its very likely my situation will be normal with us living in the PPR but theres a chance it might not be but that snippet is very informative and answered my main question.


thanks lads..
 
Just looking at this from another angle, my brother purchased a farm(no mortgage) in the 1990's as a first time buyer. On this farm, there was an old house that had been unlived in for many years. He did a major renovation on this and has been living in it since. Now he has gained planning permission to build a house on his land for his own use. The house is now built but he wishes to sell it in a years time. He has got a mortgage on the new house. He has been advised by his accountant to run up a few utility bills on this as he needs to treat this as his PPR. Is he taking a major risk here in avoiding CGT or is he within his rights as he originally bought land with an old house unsuitable for living in. Does he need to advise the tax office two years in advance that this is his PPR.
 
evelyn said:
He has been advised by his accountant to run up a few utility bills on this as he needs to treat this as his PPR. Is he taking a major risk here in avoiding CGT or is he within his rights as he originally bought land with an old house unsuitable for living in. Does he need to advise the tax office two years in advance that this is his PPR.
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Hi Evelyn - His PPR is the house where he lives. Running up a few utility bills will not change this. To me, this sounds like tax evasion (illegal), not tax avoidance (legal).
 
Another twist on this:

Supposing I have no property at all, and then buy a property intending to rent it out while continuing to rent myself elsewhere (interest only mortgage, commercial interest rates) but then just after buying it, without ever having let it, I decide to live in it myself as my PPR and not rent it. (Pay mortgage from alternative income source.)

(a) If I later sell it, will I be charged CGT, even though I never earned rent from it and I lived in it as my PPR?

(b) If the lender gave me the money as an investment mortgage and I then use the property as a PPR, how does the tax relief at source work? Do I just tell them to change it to owner occupier relief? (And maybe leave it at the commercial lending rate even though higher than the personal rate, to avoid remortgaging???)

(c) If the lender gave me a large mortgage on the basis that it was an investment property (larger than they would have given me to buy a PPR), can they look to withdraw the mortgage if I request owner occupier tax relief instead, or do they not care once I meet the repayments by some other means?
 
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