Key Post: CGT on side garden with FPP

D

dublin14

Guest
Congrats on your wonderful site!
If someone can help with these queries, I might be able to return the favour on some other topic.

Ive got FPP for house in side garden of my private residence. I assume from reading the CGT guidelines from Revenue that Im liable for 20% tax on net of proceeds less costs, indexation etc, as I intend to sell. Ive a number of queries.
1) How do I work out what the garden cost as a percentage of the house purchase back in 1987?
2) My wife and I have always operated singly for tax purposes, and I intend to do the CGT return in her name only and let her keep the proceeds, as I work and pay tax abroad, even though I have an innactive tax number here from 10 years back. Is this ok, or will I be queried regarding my own tax status here as a result of her CGT return?
3)Does CGT become due with respect to the sale contract date, or the completion and receipt of payment?

many thanks.

Dublin14
 
Re: CGT on side garden with FPP

You will really need to get professional tax advice on this, as a signficant amount of money is (presumably) involved, and your query is relatively complicated from a tax point of view, involving potential interaction and/or conflict between the general exemption afforded to CGT on PPR disposals and the CGT rules on development land.

The deadline for CGT returns and payment depends on the time of year that the contract for sale closes. If the sale closes in the period Jan-Sept, the deadline is 31 Oct in the same year. Otherwise the deadline is 31 Jan in the following year.

You are assessable to CGT on Irish property regardless of whether you are resident or tax-resident here.
 
Re: CGT on side garden with FPP

As with income tax a married couple can opt for separate or joint assessment for capital gains tax.
Check with revenue but I don't think the election for income tax carries over to CGT you have to elect separately.
You can transfer the property free of CGT into your wifes name without any tax cost and then she can pay the CGT,there would be no need for a joint assessment in this case as you would have no CGT liability.

Talk to a solictor about valuations,Your base cost will probably be pretty low on the original garden.
 
Re: CGT on side garden with FPP

This issue is addressed in the FAQs on the Revenue website

If I sell part of my garden to a builder, who builds a house on it, am I liable to pay capital gains tax?
Yes Normally when an individual disposes of his/her principal private residence and a garden or grounds of up to one acre (excluding the site of the house), then any gain on such a disposal is exempt from capital gains tax. However, where a dwelling house or garden/part of a garden, is sold for greater than its current use value, then this constitutes the sale of development land and principal private residence relief will apply only to the current use value. In general terms the difference between the consideration and the current use value is liable to capital gains tax. Development Land rules do not apply to disposals where the total consideration from such disposals does not exceed €19,050.

Example:

An individual disposes of part of his garden for €40,000. The current use value of the site is €2,000. The entire property originally cost €100,000. The market value of the property after the sale of the site is €360,000.

Step 1. Calculate the gain arising using the part disposal rules and ignoring any development land implications.
Proceeds
* * * * * * * * * * * * * *
€40,000

Cost: €100,000
* * * *
x
* * * *
€40,000
------------------------------------------------------------------------
€360,000 + €40,000
* * * * *
€10,000
* * * *
Index (say) 1.5
* * * *
€15,000
* * * * *
Gain
* * * * * * * * * * * * * *
€25,000

*

Step 2. Calculate a notional gain, as if the site was sold for current use value. This is the principal residence relief.
Proceeds
* * * * * * * * * * * * * *
€2,000

Cost: €100,000
* * * *
x
* * * *
€2,000
------------------------------------------------------------------------
€360,000 + €2,000
* * * * *
€552
* * * *
Index (say) 1.5
* * * *
€828
* * * * *
Principal Private Residence Relief
* * * * * * * * * * * * * *
€1,172

*

Step 3. Deduct 2 from 1 above. This is the chargeable gain.
Gain
* * * *
€25,000

Principal Private Residence Relief
* * * *
€1,172

Chargeable Gain
* * * *
€23,828

As in the previous example, on a subsequent disposal of the remaining property, the base cost of the land disposed of, will be the original cost less the base cost allocated to this disposal.

i.e. €100,000 - €10,000 = €90,000
 
CGT on side garden with FPP

Thanks for all the constructive replies.

Its quite clear that CGT is applicable on a 'development land' basis as per revenue guidelines - its also in their CGT Guidelines booklet, down-loadable fron revenue.ie

Where the likely sale value is a multiple of the original cost of the complete sheebang, it seems that whatever computations one does, it still amounts to nearly 20% of the sale value at the end, and Ive no problem with that.

The issue of 'best time to sell' seems to be affected by the various deadlines. If I sell in sept/oct04 for example, I might have to pay the CGT before the contract has completed and not yet be paid myself! Its probably best to sell in early spring, as that leaves the maximum completion period.

Finally another question.
Is it safe to process this oneself, or should one always get professional advice - the final outcome is fairly obvious? Are there any hidden pitfalls?
 
Re: CGT on side garden with FPP

Yes you should get professional advice is the final outcome to your query is not at all obvious, unless you are in a position to grapple with the implications of abstract concepts such as "current use value" and if necessary to defend your position if queried by the Revenue.

it seems that whatever computations one does, it still amounts to nearly 20% of the sale value at the end
Click to expand...
This may well (or may not) turn out to be the case in your own scenario but don't take it for granted.
 
Re: CGT on side garden with FPP

Hold on ... the current use is as a residence.. think of this way.

If Capall built an extension that filled the full one acre ,,, and sold it, as a residence .. he would have no CGT.

If as was said, he builds or sells the land and it is part of the 'one acre' then as far as I can see .. NO CGT ;) )

Darty house €10m .....ZERO CGT ! Magic !
 
Re: CGT on side garden with FPP

as far as I can see .. NO CGT ) Darty house €10m .....ZERO CGT ! Magic !
Click to expand...

Needless to say, it isnt as simple as that. :(
 
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