Capital Gains Tax on a Second Home?

Ruby_Woo

Just wondering, if someone was living in their principal residence, say up until the boom of about 2006/2007 and then left to live in a second home which would now be their main residence, if they were sell now (Say first home was worth 400k when they vacated - now worth 200k) how is Capital Gains calculated?

Someone recently said to be that Capital gains is only due on the profit - however seeing if a house was vacated and no longer a principal residence as of say, 2006, if it was worth 400k, and was to be sold this year, at say 200k - that no Capitals Gains would be due, as it's only on the profit, which in this case, there would be none as the house would be sold at a loss.

Is this true? It didn't sound right to me, but the person who told me was adamant?

Victor

I get the impression that Revenue only consider purchase price and sales price, not what it might have been worth in between.

Where you move between properties you already own, they take it on a full year basis, with some allowance for the changeover.

You may need to talk to a solicitor or accountant.

Ruby_Woo

Thanks for that Victor.

I would have assumed also, that the Capital Gains would have been calculated on the difference between purchase and sale price regardless of when the house was vacated and no longer used as a principal residence.

Strangely enough, if was a well known and reputable estate agent who offered the advice I was querying. Surely they would have known better one would think.

bath handle

It is on profit. The profit is the difference between purchase price and selling price less expenses. The profit is reduced pro rata for the time the house was a principal residence. E.g if live in for 5 years and leased for 5 years the profit is halved.

antoinolachtnai

Just to clarify the language, capital gains tax is not a tax on profit. It's a tax on capital gain.

As far as I know the estate agent is right. The tax is on the capital gain whilst the house was not a PPR.

The tougher question is whether the vendor can carry forward a capital loss which they could offset against a future CGT bill. That would certainly be worth getting advice about.

It has never been mentioned, but surely the CGT exemption for PPR's will be abolished?

bath handle

The intermediate values between buying and selling are not taken into account. A house is bought for 100k. Rises value over 5 years to 400k as a main residence. Owner moves out and sells 5 years later for 200k. This is not a loss of 200k. It is a gain of 50k! Specialist tax advice should be sought as CGT is a self assessment tax and under declarations give rise to penalties and interest charges.

dearg lady

CGT is actually not too difficult to work out, but the advice from the estate agent is incorrect. The gain is calculated as sales proceeds minus purchase price. If the house was purchased prior to 2003 the purchase price can be indexed (the rates should be on the Revenue website) The gain is then reduced by PPR relief. eg the house was purchased Jan 2000, and you moved out July 2006, and sold in dec 2009. The total time owned is 9 years or 108 months. The total time occupied is 6.5 years or 78 months. the time deemed occupied is the last 12 months, so PPR relief applies to (78+12)=90 of the 108 months.
If you look at a worked example on the revenue site, it should be easy enough to plug in your numbers and work it out.

Victor

dearg lady wrote: »

The gain is calculated as sales proceeds minus purchase price.

yes, you can probably set off estate agent and solictors fees and simialr costs. All calculations before stamp duty of course.

If the house was purchased prior to 2003 the purchase price can be indexed

Another good point.

antoinolachtnai wrote: »

It has never been mentioned, but surely the CGT exemption for PPR's will be abolished?

It should have been a long time ago and I think it is increasingly likely.