Stamp Duty

Domer

So heres the situation...

John owns a house that he has lived in for 15 years (No outstanding mortgage), but has recently decided to rent the property out and move to a different part of the city. He has now decided to buy a second house to live in. The second house is a new build, and fulfulls the criterea for not paying stamp duty. The new house will become Johns primary residence, and the other property will be kept as an investment.

My question is can John get hit to pay any stamp duty during the above transactions.

Thanks,
Domer

bleary

No Stamp duty wouldnt be an issue on property 1 but you would be liable to some capital gains tax if you eventually sell property 1
Stamp duty on new properties is not charged to owner occupiers as long as the size of the house is under a threshold (check revenue site for details but its larger than most 3 bed semi ds anyway)

domania

20% capital gains tax on the investment property when he eventually sell the property unless he sells it within 1 year of not living in it. Or the best option is to remortgage the investment property before the year is up taking out as much of the equity as possible (so he doesn't pay Capital Gains) then the rent collected can still cover the cost of servicing the mortgage on the rental property.

Domer

What is the significance of the 1 year rule? I have not heard of that before.

Persius

If you sell your first house within a year of moving out of it, then no capital gains tax (CGT) is due on the money made from the sale.

If you keep it and rent it out, then CGT will be due eventually on a portion of the sale price. Normally CGT is 20% of the profit from the sale (sale price - purchace price - expenses & indexation). But since you lived in the house for 15 years, this will be taken into account.

So, say you move out today and rent out the house for 5 years, it will have been your PPR for 15 years (3/4 of time) and an investment property for 5 years (1/4) of time. So you would only pay CGT on 1/4 of the profit you made.

In fact it would be less than that, as the first year you move out can still be counted as PPR, and there's something called indexing which reduces the amount which is considered "profit" and taxable. Check revenue.ie for more details.

Victor

I imagine the only stamp duty due is if it is over 125m2, but you will need to check the budget and get proper legal advice. Of course, stamp duty is only payable by buyers, so nothing can be due on the existing house.

Regarding the 'year' if you move from one home to another, for CGT purposes you can treat them both as your PPR for that tax year.

Persius wrote: »

and there's something called indexing which reduces the amount which is considered "profit" and taxable.

Indexing was abolished about 2003, so it won't apply.

Persius

Victor wrote: »

Indexing was abolished about 2003, so it won't apply.

Yes, but seeing as the OP bought his house 15 years ago, he can apply it from the date of purchase up to 2003.

The_Conductor

Persius wrote:

Yes, but seeing as the OP bought his house 15 years ago, he can apply it from the date of purchase up to 2003.

He will have to hurry- the limit on how far back you can claim up to is 6 years.