Tax Relief

Must you make the most of these tax breaks for captial good points from the downturn?

I find it hard to believe that we are more than a decade into the post-2008 economic downturn, when huge tax incentives were put in place to prop up property prices and increase demand for homes.

Given our current location with property prices outside the Richter scale, it seems illogical that property prices could need support.

However, during this recession, low house prices presented a risk of contagion as homeowners who realized they had negative equity could potentially stop repaying mortgages.

Spurring on Demand should then also pump liquidity into the system, allow a shift in the housing stock, which in turn would mean that developers would be paid, and they would in turn pay creditors and financial institutions.

Whether or not these benefits will materialize is a question for another day.

One of the measures the government took at the time was to introduce a capital gains tax exemption for properties purchased between December 7, 2011 and December 31, 2014.

The relief was originally conceived as an exemption based on a holding period of at least seven years, with the relief waning for each year that a property was held over a seven-year period.

The logic of the tax break worked as follows.

A person who bought a property in 2012 could therefore sell such a property in 2019 completely free of capital gains taxes.

If that person kept the property until 2020 (eight instead of seven years), seven eighths of the profit would be exempt and only one eighth of the profit would be subject to capital gains tax.

If the person kept the property until 2021, two-ninths of profits would be subject to capital gains tax.

The relief applies to real estate, ie land or buildings, which is here in Ireland or in a country of the European Economic Area (EEA).

The relief was increased along the way to reduce the holding period from seven years to four years.

Thanks to this change in the holding period, the relief now fully applies to properties sold within four to seven years of purchase.

Given the period during which the discharge was active, all properties purchased between December 7, 2011 and December 31, 2014 can now be discharged, although properties purchased earlier in that period are now partially subject to capital gains VAT.

Over the years, more and more of the underlying profits from such property will become subject to capital gains tax as the relief is diluted.

Property owners who bought within these two dates, December 7, 2011 and December 31, 2014 should consider carefully what the likely capital gains tax would be if they were to sell their property now.

How much capital gains tax would I have to pay if they postpone the sale for a year?

As part of an overall succession plan, is it worth considering transferring this property to children while the tax costs on investment income are low?

In addition to the four to seven year capital gains tax exemption, homeowners who have used their property as their primary residence for the entire duration of their ownership can claim a separate capital gains tax exemption.

As always, each person should receive tax advice that is relevant to their own circumstances.

  • Chartered Tax Adviser Kieran Coughlan, Belgooly, Co Cork.
  • (086) 8678296

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