Moving back to property that has been rented, tax implications

[Paul O Mahoney]

Hope this is the correct place for this.

A while back I was having a discussion with someone on the state of housing, rentals and taxes on these activities.

During the conversation he mentioned that he was thinking of moving back to his property down the country as he can work remotely and would only be required to be in Dublin a few times every month. Like us he has considerable equity in his present PPR, the other property has been rented out for 11 years and he is tax compliant on his rental income etc.

His "idea" was that selling his property here , moving back into the other property clearing the mortgages on both , and renovating the old property and making it his PPR, should say his children have flown the nest so its just him and his wife.

I asked "what about Capital Gains tax?" but as we teased out the transaction we couldnt agree on if there was a CGT liability as he was selling his PPR , the other property is owned by himself and his wife and the only costs involved would be legal and moving costs.

Eventhough at first view I cant see any reason why there would be a tax liability , but I also recognise that it doesnt seem to be a legitimate tax free transaction.

I would be curious if anyone else has come across a transcation like this and what do people think on the issue of tax , I feel there has to be some tax implications.

 

[Brendan Burgess]

There are two separate transactions here.

1) He sells his PPR - there is no CGT implications for this.

2) He moves into a rental property. There are no tax implications on making a rental property is PPR.

• He won't have rental income and so he has to stop claiming any interest relief - but that should be obvious.
• When he comes to sell this, the Capital Gain will be apportioned over the time it was an investment and when it was a PPR. Roughly if he owned it for 20 years, half of which was PPR, half of the gain would be subject to CGT.

 

[NoRegretsCoyote]

2) He moves into a rental property. There are no tax implications on making a rental property is PPR.

If he sells the house in future he will be liable for CGT on the share of the period for which it was not his PPR.

Rough worked example: Bought in 2000 for €200k, rental 2011-22, sold 2033 for €300k. Increase of €100k so CGT liable on a third (11/33) of this. At current rate of 33% that's a €33k*33%=€10k CGT bill.

If they both own the property when they die then any CGT liability will disappear.

 

[Paul O Mahoney]

If he sells the house in future he will be liable for CGT on the share of the period for which it was not his PPR.

Rough worked example: Bought in 2000 for €200k, rental 2011-22, sold 2033 for €300k. Increase of €100k so CGT liable on a third (11/33) of this. At current rate of 33% that's a €33k*33%=€10k CGT bill.

If they both own the property when they die then any CGT liability will disappear.

That's probably the way I would have thought it would work.

Furthering on from this if he were to spend say 50k on renovations, he thinks it might be more , these would also be deductible from a CGT liability?

Now that we are talking, if he were to die would the that liability for CGT need to be settled when his will was executed?

I must say even with the apportionment of years not being his PPR it does sound like a very generous /favourable tax treatment.

 

[Paul O Mahoney]

If they both own the property when they die then any CGT liability will disappear.

Our posts crossed yes everything is in joint names.

He did say that it would be the last move, would add an extension, convert the attic " just in case any grandchildren arrived ".

 

[T McGibney]

Furthering on from this if he were to spend say 50k on renovations, he thinks it might be more , these would also be deductible from a CGT liability?

Not deductible from a CGT liability but deductible against a CGT-taxable gain.

Now that we are talking, if he were to die would the that liability for CGT need to be settled when his will was executed?

There is no CGT on death.

I must say even with the apportionment of years not being his PPR it does sound like a very generous /favourable tax treatment.

How? It's no different really to someone selling their PPR and trading down by buying elsewhere.