Do I pay tax if I sell my family home?
You ask we answer
We are just over the Income Tax return deadline so are all able to take a collective breath and roll on to the next deadlines which are coming thick and fast. Thanks to the team in here it was a very well organised and not too stressful filing season. There was the ROS downtime to contend with but we had only 6 returns left to file on the last day. Funny the minute Revenue put up the notice to say the technical issues were fixed the worse the technical issues became. The deadline that was originally put out to Wednesday at 6 o clock was effectively extended to the end of last week. Anyway enough about the James Bond world of filing tax returns! The author of this blog had gone very quiet and was doing little or no writing in the last few months. This is probably due to the huge disappointment of Tipp beating the Cats in the All Ireland final and taking a few months to recover. I won’t be fully recovered until I’m dead so that could be a long time living with the pain. At least Mr Cody will think that he now has a team that can compete and that should keep him focused for 2020. The club championship is shaping up nicely and I ventured down to Cork in the rain last Sunday to see Ballygunner v Borrisoleigh which was a cracking contest given the conditions. The gunners looked comfortable in the first half and their scores came easier but as the game wore on and the conditions deteriorated Borrisoleigh improved all the time and their physicality was a big factor in them just getting there. A sore one for the Gunners! They are a serious team but perhaps not best suited to the slower pace and tougher conditions of winter hurling.
An interesting query came in last week which I thought was worthy of me stepping out of self-inflicted retirement. A guy had put his home on the market but it didn’t sell so he was thinking of renting it out. He wanted to know what the tax implications would be if he rented it out for a few years and then sold it down the line. He mentioned that he was a high rate tax payer
Selling it now
This is quite straightforward as if you sell your family home then there is no tax to pay on it. When you sell an asset at a gain the usual tax you pay is Capital Gains Tax [CGT]. Likewise if you sell an asset at a loss there is a Capital loss and that loss can be utilised against future gains. However, when it comes to selling your Principle Private Residence [PPR] there is a CGT exemption for the period it was your PPR. If you bought it or built it and always lived it as your PPR then there would be no CGT. The definition of a PPR should be noted that it includes the home and an area of up to 1 acre around the home. If you didn’t occupy the property as a PPR for the entire period of ownership there are rules around certain periods of non-occupation for work reasons in Ireland or abroad. However the key point is that for a period of non-occupation to qualify you have to have lived in it as your PPR both before and after the period of non-occupation. The last 12 months is also a deemed period of occupation which is great as you may have moved to another property and it could take you a good few months to sell it. One downside of the CGT exemption is that if it is your PPR and there is a loss on the sale you then cannot use that loss to be offset against other gains. So if the gain is exempt any loss in lost unfortunately.
Selling it in a few Years
Ok like our query, rather than selling now, for whatever reason, you decide to sell it in a few years’ time. Let’s assume you move to another family home and you decide to rent this property so it is no longer a PPR but an investment asset. Any rent you receive is liable to Income Tax and should be returned to Revenue on a tax return. You will be taxed on your profit rent so will be entitled to deduct legitimate expenses such as insurance, repairs etc – see link below to a blog we did on rental income
One thing to be careful on here is that you don’t overpay the tax you should on the rental profits. If the property is owned in joint names then the rents should be split between the two owners and this could be tax beneficial if one spouse/partner was on the lower tax band and USC rates.
Let’s take an example to see how the CGT works.
Cal and Marianne bought a beautiful home in the hills of Tipperary on 2nd January 2000. They lived in it until January 2015 and rented it from 2015 until it will be sold in January 2020. They paid €250,000 for the home and the agreed sales price is €400,000. In this example the period of ownership is 20 years and the period of occupation is 15 years. As the last 12 months is also deemed to be a period of occupation then that year increases the period of occupation to 16 years. Therefore Cal and Marianne will not pay any CGT on 16/20th or 4/5th of the gain. Therefore €120,000 of the gain will be exempt from CGT and 1/5th or €30,000 will be liable to CGT. Cal and Marianne will be able to deduct other costs of sale that would normally include auctioneers, legal and accounting fees to reduce the overall gain. The tax payable would be €9,062. This is the €30,000 less two annual personal allowances of €1270 multiplied by the CGT rate of 33%. As the sale will close in January 2020 the payment date for the CGT is the 15th December 2020 and the details of the sale must either go on a Capital Gains Tax return or Income Tax return for 2020 which will have to be filed by the end of October 2021.
While the above is a rather basic example it gives you the general idea. For more detailed examples I would refer you to the Revenue website which will give you more information on some of the issues mentioned above
I had a bit of over and back on the e-mail with the person who sent in the query as was recommending that he should speak to an accountant especially if he was going to rent out the property so that he had good advice before making a decision. He came back to me shortly after that and confirmed that he and his wife had decided to sell. I asked him what he was going to do with the money. He said he was going to put it on deposit as he could get a good rate of interest at 6.5%. I know what you are thinking. That is not a typo as I asked him how he could get that rate. He told me that Indian bank offered rates from 6.5% to 8%. I was immediately thinking that I would like to get this rate on the €200 I have sitting in a Cashsave account with AIB. My hopes were dashed as he confirmed that you had to be an Indian national which I decided wasn’t worth the effort for €13 in year one.
As always if you need any help with your Tax or accounting requirements please contact Deirdre or any of the team at Comerford Foley
We will treat you like a guest in our home but you must behave like one in ours!