Selling a principal private residence which has development potential

Brendan Burgess

Brendan Burgess

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A friend of mine has a house worth roughly €1m if someone was buying it to live in it.

He has agreed to sell it for €1.5m to a buyer who is also buying an adjoining house and expects to do some development.

He says he may have to pay CGT on the difference between the price he gets and its market value.

Is that right?

Brendan
 
gianni said:
What if the seller never knew about the buyer's intentions?
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The buyers intentions aren't relevant. If you sell a house for 50% more than its 'worth' there's clearly a development potential priced in. In most cases it'd be marketed as having potential, or you'd have been approached by a developer for a house not on the market.

It'd be unusual for a seller not to know why they're getting an extra 500k.
 
I never knew about this.

This is the Revenue guidance:

Restriction if your property has development value​

Your property might have a higher potential value than the value it has based on how you currently use it. The higher value is known as ‘development value’.

You might sell your home and land up to one acre for its development value. PPR Relief only applies to the value of the house or land without its development value.

Before you can calculate your partial PPR Relief, you must work out your 'notional gain'.

How to calculate notional gain​

You will need to deduct part of the expenses from the current use value.

  1. Work out the part of the expense:
    • Multiply the total expenses of sale by the current use value.
    • Divide this by the sale price.
  2. Deduct this amount from the current use value.
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I'm a bit baffled as to how a seller is supposed to work this out, especially if they haven't applied for PP before sale.
 
It comes down to current use value as a residence versus additional hope value / development premium.

It tends to be clear-cut but can get messy on occasion. I’ve seen cases go to appeal.
 
Good question from Brendan, I never knew about any of this at all. What would be considered "development vale" in the countryside? Lets say I have an old property, living in it as PPR that's in need of major renovation, on a couple acres, and I think it has a value of aprox €250k, then it sells for €400k or more. What's the story as regards CGT for me?
 
RedOnion said:
PPR relief only applies to 1 acre in any case, so you've a few separate matters to deal with.
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Thanks for that RedOnion, but forget about it being on a couple of acres, let's say it was on only 1 acre and it was the same scenario pricewise?
 
@noproblem
So you personally thought it was worth 250k. But it sold for 400k.
What did the estate agent think it was worth in it's current use? Is it in a zoned area?

It's really no different to the original case. I don't see the relevance of it being in the country?
 
I have advised my friend to take professional advice on this. Is it routine enough for an accountant in general practice or should he go to a tax specialist?

Brendan
 
Brendan Burgess said:
I have advised my friend to take professional advice on this. Is it routine enough for an accountant in general practice or should he go to a tax specialist?

Brendan
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Yes, good advice. Wonder who the professionals are in this area. At what point does revenue tell you CGT is due, or do they? I'm thinking of the Celtic Tiger era when properties often went for crazy money over an asking price and no development took place at all and was never envisaged to do so either.
 
RedOnion said:
@noproblem
So you personally thought it was worth 250k. But it sold for 400k.
What did the estate agent think it was worth in it's current use? Is it in a zoned area?

It's really no different to the original case. I don't see the relevance of it being in the country?
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I'm using a hypothetical situation. It intrigues me that someone could easily find themselves in this and wondering is there an amount in money or in percentages above the estimated value that triggers CGT?
 
noproblem said:
I'm using a hypothetical situation.
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Yes, I got that when the few acres suddenly disappeared...

It depends on all the facts.

As I said earlier, it'd be unusual for a seller not to know if there is development potential reflected in the price. It's a question on the standard law society sale questionnaire that your solicitor will ask you to complete. From your example, for the price to be bid up from 250k to 400k, the estate agent is probably telling you every day when the bids have increased another 20k that they have 2 or 3 builders dueling it out with each other.
 
NoRegretsCoyote said:
What it you bought it as a PPR intending to develop but never did so? Is CGT still payable?
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There is case law on these points. It all comes down to the valuation, or more specifically to the property’s current use value as a residence. So if it was bought as a PPR intended for development and the buyer overpaid with that in mind, it’s probably into CGT territory on the excess.

But the legislation and the case law more specifically recognise situations where two bidders simply drive the price of a property up because they want the property as a residence.

The identity of the buyer is usually instructive also.
 
Does this development potential clause also apply to Property Tax?

Say I inherit a house in Dublin with one acre of land valued at €1,000,000- but in reality this valuation is based on the development potential of the site - The actual house is worth probably about half that, what rate of property tax do I pay?
 
k06351000 said:
Does this development potential clause also apply to Property Tax?

Say I inherit a house in Dublin with one acre of land valued at €1,000,000- but in reality this valuation is based on the development potential of the site - The actual house is worth probably about half that, what rate of property tax do I pay?
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I’ve no idea, sorry.
 
Brendan Burgess said:
A friend of mine has a house worth roughly €1m if someone was buying it to live in it.

He has agreed to sell it for €1.5m to a buyer who is also buying an adjoining house and expects to do some development.

He says he may have to pay CGT on the difference between the price he gets and its market value.

Is that right?

Brendan
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Houses often sell for way over the guiding price. I personally would not consider liability for CGT n this situation. The fact that the adjoining property is also been purchased is of no concern to your friend.
Thousands of houses mainly in the greater Dublin area sitting on the corner of estates have been sold at a premium only to have an additional house put in the garden. I would be very surprised if CGT was paid.
I purchased an old cottage in Wexford at auction. I paid way over the guide confident I could knock the cottage and develop. The vendors certainly did not pay CGT. There was no doubt in the auction room from the vendors or bidders that the site and cottage was been purchased to develop.
Yep maybe technically there might be CGT. But selling my PPR I certainly would not be concerned.
 
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