Tax Implications of building house on side plot

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letitroll

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Hi All

My house in Dublin has a large corner site. The neighbor opposite, with same size garden, has just recently gotten planning permission for a detached house to the side which has us thinking.

My question relates to any capital gains tax implications under the following scenario:

we bought our current house for 300k a couple of years ago and its been our PPR ever since

we could build the house to the side for 250k (it would have a market value of perhaps 450k post construction)

We would then sell the original house (probably for less than we paid c.280k - reduced garden size etc. on paper a 20k loss but anyway no tax on PPR)

we would then move to the new house to the side and live there as our PPR

Any CGT implications?

What if we moved from the new build house a couple of years later...any CGT implications then?
 
letitroll said:
Hi All

My house in Dublin has a large corner site. The neighbor opposite, with same size garden, has just recently gotten planning permission for a detached house to the side which has us thinking.

My question relates to any capital gains tax implications under the following scenario:

we bought our current house for 300k a couple of years ago and its been our PPR ever since

we could build the house to the side for 250k (it would have a market value of perhaps 450k post construction)

We would then sell the original house (probably for less than we paid c.280k - reduced garden size etc. on paper a 20k loss but anyway no tax on PPR)

we would then move to the new house to the side and live there as our PPR

Any CGT implications?

What if we moved from the new build house a couple of years later...any CGT implications then?
Click to expand...
letitroll said:
Hi All

My house in Dublin has a large corner site. The neighbor opposite, with same size garden, has just recently gotten planning permission for a detached house to the side which has us thinking.

My question relates to any capital gains tax implications under the following scenario:

we bought our current house for 300k a couple of years ago and its been our PPR ever since

we could build the house to the side for 250k (it would have a market value of perhaps 450k post construction)

We would then sell the original house (probably for less than we paid c.280k - reduced garden size etc. on paper a 20k loss but anyway no tax on PPR)

we would then move to the new house to the side and live there as our PPR

Any CGT implications?

What if we moved from the new build house a couple of years later...any CGT implications then?
Click to expand...


I did the same back in 2008. There is no tax on the sale of your PPR. You are free to build a new house on your plot with no tax implications.
If you stayed in the house you now live in and sold the newly built house you would face a tax bill.

A little advice. Forget about across the road and book a pre- planning meeting with your local council to discuss your plans.It costs nothing. The council will let you know what their happy with. It will in turn help your planning application go through smoothly. Go for it.
 
Thanks for the reply

So sounds like moving into the new house after it is constructed (i.e. moving into the house with the capital appreciation and turning it into your PPR) while selling off the old house at cost or below takes any tax implications out of the equation!

That makes it much more interesting! Thanks
 
In the scenario described, how long would one have to live in the "new" house before being able to sell it without a CGT liability?
 
Technically speaking you can't occupy a house while it's being built but Revenue will give a years grace for the construction.

PPR applies to a house that you use as you sole or main residence.

So technically if you live in it for a month than it can apply.

I had a case where a builder build a house and when it was finished he broke up with his girlfriend so sold the house. Revenue did an audit and in the circumstances granted PPR. I thought VAT and income tax should have applied but they have extra weight to the breakup and the resulting sale.

I think PPR should apply on a sliding scale kicking in in full after 5 years.
 
Thanks Joe,

Very helpful.

Can I press my luck??!!;)

Can you expand a little on the VAT (just in high level bullet points).......as in what was the actual VAT treatment in both construction and sale and what in your opinion should it have been?!
 
Vat, in my opinion, would apply to the sale of the new house whenever you sell it. Under the new rules (since 1/7/2008) vat applies to any sale of a house by the developer. The developer is the person who built it and has a wide definition. I can't see there being vat on the sale of your old house as it is not new. However whenever you sell your new house vat will apply. Under the rules at the moment it doesn't matter how long it between development and sale and whether you live in it or not.
 
Thanks Dublin67,

So are you saying that....

where an independent building contractor builds the house and charges VAT, subsequent sales will also be subject to VAT?

or

the first subsequent sale will only be liable to VAT where the person building the house is the owner (i.e. the owner did not pay VAT on the construction)?
 
Last edited by a moderator:
Dan - the key issue with the vat on the first sale of the new house is what was your intention at the time of development. If your intention was to sell then vat would apply on the sale regardless of when you sell it and what you use the house for between completion and sale (e.g. whether you live in it or rent). However if your intention was to permanently reside in it, but sell it at a later date, then you may escape the requirement to charge vat on the sale. The intent to do something can be difficult to proof, particularly for a non-company. If, for example, you have a developer type loan - interest only and one bullet payment at the end this would indicate intention to sale. If, on the other hand you had a standard 15/20 year mortgage then intention to reside (and not sell) then your residential intentions may be clearer.

I'd recommend that you seek the advice of vat specialist, or an accountant with a vat specialism, if you intend to sell the new house in the future. The potential tax saving could be 11.8% of the sale price as the house would be sold at a vat inclusive price and you'd incur the vat (vat = sale price X 13.5/113.5 and ignoring input credits.
 
Thanks Dublin67,

That all makes sense - thanks for clarifying
 
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