Renting out family home.

We are of an age where our home is too big for us. Five bedrooms. We have thought of purchasing a smaller house or apartment close to where we presently live and rent out our existing home.
If we do this, then sell our original home after renting it for five years or so , is it classed as a commercial sale for tax purposes or can we get credit for the 25 years we lived in it as a family home?
We would expect rental income of about €5k per month, possibly more.

Let's say you sell the property and make a capital gain of €100k.

The gain will be reduced as follows:
(years of occupancy as the family home + 1)/total years of ownership
so:
(25 +1)/30
So 26/30ths of the gain or €87k will be exempt from CGT.
which means that €13k will be subject to CGT.

Brendan

Thanks Brendan. We would expect to make about €1.5 million profit from the sale. So about €66k in CGT. (Just over a years rental income).
I would be interested in hearing from anyone who might have done this. I hope that my further general question is O.K. for this tax forum?

WaterWater said:

So about €66k in CGT. (Just over a years rental income).

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Well, the rental income is subject to tax so it's more like two years' net rental income assuming you have pensions and other income which use up your 20% tax band.

Of course, any gains in the new property you buy will be exempt from CGT.

And there is no CGT on death. So if you die while owning the first property, the liability to CGT would disappear.


There is one big downside to holding onto the house. You have €1.5m in profit in the house today and there is no CGT.
If you sell it after 5 years, and house prices have not changed, you will be liable for €66k CGT.

So it might be worth selling it now.

If you are buying another house, you should probably diversify by buying shares. If you need cash, you can sell some of the shares. It is very likely that you would still have most of these shares when you die, so the CGT would disappear. If you hold onto your house and need cash, you have to sell the whole house triggering the CGT liability.

However - as you have considerable wealth, you should probably sit down with a Chartered Financial Planner and work out how best to plan for the future.

Brendan

Thanks Brendan. Lots to think over. We have been looking around for a site to build a two bed modern house in the Blackrock, Booterstown, Mount Merrion/Foster Avenue area, where we grew up. Someone's back or side garden with access. Like looking for hen's teeth though. This is why we thought about renting our own house out and purchasing a second home to live in. Your help and suggestions have been a great help.

I have about €200k in shares at the moment. Thankfully producing some profit and good dividends at last. Nursing some losses on earlier silly purchases. I would be reluctant to put any more funds in the stock market at the moment.

WaterWater said:

I would be reluctant to put any more funds in the stock market at the moment.

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While that is understandable, you seem comfortable putting more funds in property? I don't know which will do better over the long term, so that is why it's wise to diversify.

Brendan

By any chance is there the possibility of a small site on where your house stands at the moment? It's amazing what people don't spot sometimes.