Every individual is entitled to an annual exemption of €1,270. Only gains made in excess of this amount are liable to tax. The exemption if not used in one year cannot be carried forward to future years.
For married couples each spouse is entitled to his or her own exemption. The unused exemption of one spouse cannot be transferred to the other.
There are two separate situations here.
One is the sale of an option and the other the selling on of a contract.
The rules for dealing with options are quite complex and we deal with same by way of consultation only. An additional charge will arise.
The selling on of a contract may be relatively straightforward. Any profit made may be liable for Capital Gains Tax at 33%. Our calculator for dealing with an outright sale can be used to determine the gain if any arising. Where an individual is involved in numerous sell-ons the profits made could be charged to income tax.
Part Sale of a Property
This applies where you are disposing of part of an asset. This could be for example selling some of the land and not the property or vice-versa.
There is a special formula involved known as the A / A+B rule where A is the amount of the sale proceeds received for the part of the asset disposed off and B is the market value of the remaining part.
We can provide assistance with part disposal calculations.
Sale of a Property By the Grant or Sale of a Long Lease
Sale of a Property – By the Grant or Sale of a Short Lease
A short lease for Capital Gains Tax purposes is a lease which has less than fifty years to run.
Two different situations can arise here:
The rules dealing with both of these situations are complex and can involve both Income Tax and Capital Gains Tax complications. Because of these complexities each individual case must be examined on its own merits.
For Capital Gains Tax purposes you are treated as having sold the property at its market value which is treated as the sale proceeds and the gain calculated in the same manner as an outright sale.
Calculate your gain using our calculator and substitute the market value for the sale proceeds.
Generally this type of situation will arise within families. In addition to Capital Gains Tax you also have to consider Gift Tax and Stamp Duty which will arise on the gift.
The Capital Gains Tax payable, if any, is allowed as a credit against any Gift Tax that may also be due. In effect the greater of the two taxes is what is paid. If the asset is disposed of by the recipient within 2 years of its acquisition then both Capital Gains Tax and Gift Tax are payable.
You must make tax returns in respect of both the Capital Gains Tax and the Gift Tax (‘Capital Acquisitions Tax’).
You are allowed increase the original cost of an asset for inflation during the period of ownership up to 31 December 2002.
You cannot increase the cost price for inflation after this date. This was known as indexation relief and was based on the Consumer Price Index rate of inflation. The amount of indexation relief due will be automatically calculated by our Capital Gains Tax Calculator.
However, if the cost of the property reflects development value then you are not allowed increase this part of the cost price for inflation.
Where an asset is transferred from one spouse to another there is no Capital Gains Tax, no Stamp Duty and no Gift or Inheritance Tax. In effect the spouse who receives the asset is deemed to have acquired it at the same time and cost price, which applied to the spouse who transferred it.
The benefit of this relief is not available in certain circumstances where the recipient spouse is non-resident here for tax purposes.
This is an important relief from taxation for married couples and when combined with other tax reliefs in relation to property it can be used to one’s advantage.
An exemption from Capital Gains Tax is available for a parent who transfers a site to a child for the purpose of building their principal private residence on the site.
The value of the site must not exceed €500,000. The size of the site must not exceed 1 acre excluding the ground upon which the residence will be built.
If the child subsequently disposes of the site or after building a house on the site has not occupied it for a period of three years, then the benefit of the exemption will be withdrawn by the Revenue. The child will have to pay the capital gains tax that the parent would have had to pay on the transfer of the site to them as well as any tax due on the sale of the site by them.
Most Irish resident individuals will be liable for Irish tax on disposals of assets abroad. If tax is also payable in the country where the property was situated and Ireland has a double taxation agreement with that country then a credit may be allowed against the Irish tax liability for any tax paid in the foreign country.
An important amendment applies from 1st January 2007 onwards which provides that capital gains tax paid in respect of disposals of property in Belgium, Cyprus, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Pakistan and Zambia will now be allowed as a credit against capital gains tax payable on the disposal in Ireland. Prior to this amendment capital gains tax payable in the countries listed was not allowed as a credit against Irish tax but was allowed as a deduction in calculating the Irish tax liability. This gave rise to a certain amount of double taxation.
The gain or loss must always be calculated in Euros. You do not calculate the gain/loss in the foreign currency and then convert to it to Euros. The original cost price of the property is converted to IR£/Euros based on exchange rates at date of purchase. The sale proceeds are also converted to Euros at the time of sale.
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 –
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.
