Renting Main Residence, at a loss

A

AlanVarley

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My uncle is interested in renting his main residence long term and going abroad.
But concerned about a case on local radio, where a couple's house had gone up in value by 300k over 15 years but had to pay 60k capital gains tax as they only lived there for 7 years.
So the tax wiped out the profit of 8 years of rental
Is this possible ? doesn't sound write to me ?
 
AlanVarley said:
My uncle is interested in renting his main residence long term and going abroad.
But concerned about a case on local radio, where a couple's house had gone up in value by 300k over 15 years but had to pay 60k capital gains tax as they only lived there for 7 years.
So the tax wiped out the profit of 8 years of rental
Is this possible ? doesn't sound write to me ?
Click to expand...

Yes, that can happen alright.

Principal Private Residence Relief can be incredibly valuable. It can exempt a big gain.

If one moves abroad like that, the gain starts to be time apportioned. It makes sense really.

After tax income might be only 2% of the value of a property per annum but gains could be far greater.
 
Gordon Gekko said:
Yes, that can happen alright.

Principal Private Residence Relief can be incredibly valuable. It can exempt a big gain.

If one moves abroad like that, the gain starts to be time apportioned. It makes sense really.

After tax income might be only 2% of the value of a property per annum but gains could be far greater.
Click to expand...

With a desperate need for houses , don't see an incentive to rent your main residence, as in the above case Rent a room scheme look a better option, if you not away for to long.
 
AlanVarley said:
in the above case Rent a room scheme look a better option, if you not away for to long.
Click to expand...
You can't be living away for Rent A Room, you have to live there with the person. Otherwise you aren't renting a room.
 
Jim Stafford said:
if your uncle is satisfied that he will be able to retain the house until his death, then no CGT would arise upon his death.

Jim Stafford
[/QUOTE
Think it's important that he knows that ,as he could rent long term ,and could pass on the property without a tax liability, if he wanted to do that, you learn something new all the time.
thank Alan


Hi Jim
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Boyd said:
You can't be living away for Rent A Room, you have to live there with the person. Otherwise you aren't renting a room.
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Could be wrong here but it only has to be your principle or main residence, nothing about living there all the time
You could in theory spend the winter in Spain and the summers here, just as long as you spend at least six months in the house out of the year
 
NoRegretsCoyote said:
I did a post on this here.

It really, really depends on when your uncle bought the house.
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Just seen your post ,thanks for that,
He bought the house for 39 thousand punts in 1985 ,rented it for 6 years from 1995 to 2001, he is also considering selling it for 400k, what would influenced your decision if you were in his shoes ?
 
£ 39k = € 50k x 1.7 indexation = € 85k so Capital Gain is € 400k - € 85k = € 315k

Period of ownership 1985-2020 = 35 years
Period of PPR 1885-1995 and 2001-2020 = 29 years
Relief = 29/35 x 315k = 261k so taxable gain = 54k @ 30% =18k or thereabouts
 
Cervelo said:
Could be wrong here but it only has to be your principle or main residence, nothing about living there all the time
You could in theory spend the winter in Spain and the summers here, just as long as you spend at least six months in the house out of the year
Click to expand...
Yeah it's kinda vague, here is the revenue PDF:
4. Qualifying residence 4.1
Sole or main residence
The room or rooms must be in a residential premises situated in the State that is occupied by an individual as his or her sole or main residence during the particular tax year. An individual may live in more than one residence but can only avail of rent-a-room relief in respect of his or her sole or main residence. In general, an individual’s sole or main residence is that individual’s home for the greater part of the time and where friends and correspondents would expect to find him or her. The individual does not have to own the residence and it could, for example, be occupied as rented accommodation.

Open to interpretation as always from Revenue. I was thinking in the context of the OP example of being 7 years abroad.
 
It’s usually pretty clear-cut where someone lives. I could be commuting to the UK and there 5 nights out of 7 but still be ‘living in Ireland’ in the ordinary meaning of the phrase. It’s got nothing to do with tax residence.
 
jpd said:
£ 39k = € 50k x 1.7 indexation = € 85k so Capital Gain is € 400k - € 85k = € 315k

Period of ownership 1985-2020 = 35 years
Period of PPR 1885-1995 and 2001-2020 = 29 years
Relief = 29/35 x 315k = 261k so taxable gain = 54k @ 30% =18k or thereabouts
Click to expand...

Thanks for the calculation it's important to know what the liability would be, and neither of us knew how to work it out, much appreciated
Alan
 
jpd said:
£ 39k = € 50k x 1.7 indexation = € 85k so Capital Gain is € 400k - € 85k = € 315k

Period of ownership 1985-2020 = 35 years
Period of PPR 1885-1995 and 2001-2020 = 29 years
Relief = 29/35 x 315k = 261k so taxable gain = 54k @ 30% =18k or thereabouts
Click to expand...
AlanVarley said:
Thanks for the calculation it's important to know what the liability would be, and neither of us knew how to work it out, much appreciated
Alan
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Back again, can you explain how to calculate 29/35 x 315k, thanks
 
What do you mean? Just put the 3 numbers into a calculator.

Selling price is 400k. Adjusted purchase price is 85K. Subtract gives 315K profit. As he lived there for 29 out of 35 years, the profit that it exempt from CGT is 29/35 years, and 29 * 315k / 35 = 261k. So 315k profit minutes 261k tax exempt, leaves 54k to be taxed for CGT.
 
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Boyd said:
What do you mean? Just put the 3 numbers into a calculator.

Selling price is 400k. Adjusted purchase price is 85K. Subtract gives 315K profit. As he lived there for 29 out of 35 years, the profit that it exempt from CGT is 29/35 years, and 29 * 315k / 35 = 261k. So 315k profit minutes 261k tax exempt, leaves 54k to be taxed for CGT.
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did not realize the forward slash is a division symbol, got it now,
thanks for your help
 
jpd said:
£ 39k = € 50k x 1.7 indexation = € 85k so Capital Gain is € 400k - € 85k = € 315k

Period of ownership 1985-2020 = 35 years
Period of PPR 1885-1995 and 2001-2020 = 29 years
Relief = 29/35 x 315k = 261k so taxable gain = 54k @ 30% =18k or thereabouts
Click to expand...
Thats a massive difference compared to if the owner had lived in it for 1 year only and rented for remainder. The tax would be 1/35 x 315k =9k so taxable gain is 315-9 = 306 @30% = approx 92k! tax
 
If you've ever lived in a property for which you do not have PPR exemption for the full period of ownership (whether rented or not is irrelevant) then the final 12 months of ownership also qualify for PPR exemption so it would be 2/35 years. Small difference I know!
 
Silly question, is the PPR calculation done in months, absolute/full years, or parts of a year 5.75 years etc? Or can one use whichever is to their advantage?
 
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