Property Investors – Capital Gains Tax

CGT is charged on the profit made on the disposal of a property. Property can be disposed of in different ways for capital gains tax purposes –

•          Outright sale of freehold interest.
•          Sale of very long leasehold interest e.g. 999 year lease.
•          Granting of long lease with a lump sum premium.
•          Transfer by way of gift.
•         Part disposal of an interest in property.

The most common transaction will be the sale of a freehold or a very long leasehold interest. Special rules apply for the granting of leases with a premium. A transfer by way of gift is treated as a sale of the property at market value.

Acquisitions between December 2011 and December 2014

Where land or buildings are acquired between 7 December 2011 and 31 December 2014 and held for at least 7 years, the chargeable gain will be reduced in the same proportion that 7 years bears to the period of ownership of the relevant asset. For example, if a building which has been held for 10 years is disposed of, the chargeable gain in respect of that building will be reduced by seven-tenths. This relief applies in respect not only of land or buildings in the State but also to land or buildings situated in any EEA State.

Calculation of Gain

When a property is being sold all costs associated with the sale e.g. legal fees, auctioneers fees etc. are deducted from the sale proceeds. This gives you the net of costs sale price. The cost of the property must then be established. This will include the actual cost of the property together with the associated costs e.g. legal fees, stamp duty etc. In addition, if any capital improvements were carried out on the property these also form part of the cost price.

Capital Gains Tax was introduced with effect from 6th April 1974. For properties acquired before this date your cost price is the market value of the property at the 6th April 1974 together with the cost of any capital improvements to the property since then.

Once you have determined your cost price you may increase this figure for inflation during the period of ownership up to 31st December 2002. You then deduct this figure from your net of costs sale proceeds, which gives you the amount of your profit for Capital Gains Tax purposes. All gains in any tax year are added together. You are then entitled to deduct any losses incurred on the sale of other assets together with the relevant annual exemption from the profit. This gives you the amount of the profit liable for tax.

Our Capital Gains Tax Calculator will do all this work for you and calculate what capital gains tax is due on a sale. If you are considering selling a property you can also use the calculator to work out the tax that will be due using an estimate of the expected sale proceeds and costs of selling the property.

Clearance Certificate

Where the sale proceeds for a property exceed €500,000 the vendor must obtain a clearance certificate from the Inspector of Taxes which authorizes the purchaser to pay the proceeds without deduction of tax to the vendor. In the absence of a clearance certificate the purchaser is obliged to deduct tax at a rate of 15% from the gross sale proceeds and pay over same to the Revenue on behalf of the vendor.  It is then up to the vendor to submit their tax return with the relevant details of the sale and capital gains tax calculations to reclaim whatever tax may be owed to them.

Tax Advice and Compliance

We provide assistance to many clients selling or considering selling property such as advice on allowable cost deductions, advice on calculation of principal private residence relief, full preparation of of capital gains tax computation, making payment to Revenue and filing capital gains tax returns. Please see here for further details.