Capital Gains Tax Question

jokjetset

Can anyone help me on a question regarding Capital Gains Tax.

I bought my first house in Aug 1997 for £95000 ( euro equivalent €120,625) and moved in around Apr 2008 (my girlfriend, now my wife, moved in a few months later). This was our primary principal residence until Jun 2007.

We bought another house in Mar 2005 for 350k. Cut a long story short, we bought it to live in but knew it required a lot of work before this was possible as the house was in very poor condition. We were hoping to have all the work done in under 12 months but it actually took 26 months. Ever seen the film 'The Moneypit', well that was us ! Everything we did just uncovered more problems, dry rot, wet rot, damp, insect infestation, you name it we had it. We also found it very difficult to get a builder to do any work for us (how times have changed !!!) and I did a lot of the work myself. We did get a builder to do some work at a cost of about 60k.

Over this 26 months, we remained at our original house. We moved into the new house in Jun 2007. We had then planned to rent the original house but it also needed some work and to be furnished, and it was put on the rental market some months later in Feb 2008. We found it very difficult to get tenants and with the downturn in the property market we decided to get shot of it in May 2008. We sold it for approx 370K.

We reduced the mortage on our new house with the proceeds of the sale from the first. Even still, Our mortgage is still about the same level as it was in 2005 ( its actually a bit higher).

I don't think I have made a Capital Gain, a Capital Loss if anything (paying two mortgages for over two years nearly broke me !!). Neither house was ever rented so I didn't make any income from them. I know that your primary principal residence is exempt from CGT and that there is a 12 month changeover period.

My questions are:
Any ideas on my CGT situation. Gone to the Revenue website but can't find any examples of situations like mine ?
Do you have to make a Capital Gains Declaration even if you make a Capital Loss ?
Do I have make a Capital Gains Declaration on the disposal of my first house ?
Will I have to make a Capital Gains Declaration when I sell my current house ?

Any help anyone could give me would be great, even if its only to tell me to go to a good accountant !!!

Legend100

It looks like you might fall out of the CGT net given that PPR relief should be fully available. You certainly didnt make a capital loss however, your mortgage does not come into play as it has no CGT implications.

Looking at the dates you moved into the new house, you seem to be able to claim full PPR relief ( someone correct me if im wrong, i know there is something in the last year that you can count) and hence would be exempt from CGT.

You do not need to declare this to Revenue. Your second home is now effectively your new PPR so would also be exempt upon sale in the future......as long as you don't buy another property and move there prior to the sale!

This is a specialised area and you would benefit from making sure with your accountant and solicitor

Mr. Incognito

SO- bought original house for 120K sold for 370K.

You will have a CGT charge on this but it will be offset by PPR relief. You will have to file a CGT return for this. (Form CGT1)

Bought new house March 05 but did not move in for 26 months.
When you dispose of this your PPR relief will be reduced by the 14 months over the 12 month exemption. The 60K is enhansement expenditure. You have not made a capital loss on this yet as there is no disposal so no crystalisation of the expenses.

You will need to have someone file the CGT return but it's not complicated. Shouldn't cost too much.

jokjetset

Thanks for the help folks. Accept your point about not having a Capital Loss. I probably didn't explain that point very well.

What I was getting at was, had we sold the original house immediately when we moved out of it (Jun 07), it probably would have fetched 400K and the CGT question would not have arisen. By hanging on to Jun 08 its value had reduced to 370K and we had also to pay the mortgage for 12 months. So hanging on to it with the intention of renting actually cost us 42K ( loss in value + mortgage over 12 months). Still, not a Capital Loss, accepted.

If I understand the situation correctly, we are covered by PPR on the original house up until Jun 07 and are entitled to a further 12 months PPR up until Jun 08. So I should not have to make a CGT declaration as I am entitled to full PPR relief.

Mr. Incognito

You still have to declare it regardless of the fact there is no charge to tax.

Not sure if you have to file a retun though. Might be worth a quick call to revenue to find out.

jokjetset

Thanks for that Setanta. I was going to declare it as part of my tax return (I am PAYE but normally file a Tax Return every year). Its just that the CGT declaration has to be done by this Oct 31st whereas the tax return can be done any time after Dec 31st of this year.

Will definitely call them just to doublecheck. Always like to keep the revenue boys onside !!!

Mr. Incognito

Squeeze me? As a PAYE employee if you are filing a return it is a Form 12.

For 2008 this would not have to be filed until 31 October 2009.

In relation to CGT, disposals made Jan-Sept have to have the CGT liability paid on or before October 31 of that year. From Oct- Nov the charge is to be paid before Jan 31.

You don't have a liability so you don't have to file, if at all, until Oct 2009.