Would I be better leaving my property empty?

LolaJJ

Would-be first time landlord here.

I've a really nice, well located apartment with parking near Dublin City Centre. I purchased it a couple of years ago and it is now worth about €150k more than what I paid for it. I've kind of moved out and am spending most of my time staying with my partner so we decided we would officially cohabit, rent my place out and sell it in a year or so along with his apartment and maybe buy a house.

I was very happy to do this but I've been advised that if I turn it in to a rental property and go on to sell it as planned a year later, then I will have to pay capital gains tax on the €150k appreciation of 33%. That's almost 50k!!!

So, as far as I can understand, my best bet is to leave it as is, stay there when we are out in town and continue to "reside" there in some sense of the term.

This seems mad in the middle of the housing crisis! Can anyone advise if there is an alternate solution?

pc7

Do you have a second bedroom? Might be worth just renting out a room so you still have use of it, can rent it for up to 14k (open to correction, please get proper tax advise) tax free.

Askthe EA

The CGT advice is correct, if its not your home it is liable for CGT. That being said, my understanding is that CGT is calculated on the number of years it has been your home versus the number of years it has been an investment so you are unlikely to pay the full 33%. I would talk to a tax advisor to get the full likely tax liability.

If you do decide to let it out, you need to factor in the risk that a tenant may overhold and you may struggle to get the apartment back. Its unlikely but not unheard of either.

Is it a 2 bed apartment? If so, and if you continue to reside there you could rent out the second room and earn up to €14k tax free. Your housemate does not gain tenancy rights as they are a licensee and you can ask them to vacate when you are ready to sell.

I think if you are only planning to let it for a year, take into account the CGT and the income tax you will pay on the rental income, it may not be worth the risk.

Just my 2 cents.

abcabc123123

LolaJJ wrote: »

Would-be first time landlord here.

I've a really nice, well located apartment with parking near Dublin City Centre. I purchased it a couple of years ago and it is now worth about €150k more than what I paid for it. I've kind of moved out and am spending most of my time staying with my partner so we decided we would officially cohabit, rent my place out and sell it in a year or so along with his apartment and maybe buy a house.

I was very happy to do this but I've been advised that if I turn it in to a rental property and go on to sell it as planned a year later, then I will have to pay capital gains tax on the €150k appreciation of 33%. That's almost 50k!!!

So, as far as I can understand, my best bet is to leave it as is, stay there when we are out in town and continue to "reside" there in some sense of the term.

This seems mad in the middle of the housing crisis! Can anyone advise if there is an alternate solution?

According to Dominic Coyle (Irish Times), the CGT would be charged on the increase in property value that occurred while it is a rental. So if you get a valuation beforehand to show the increase in value, you should be OK to rent it out (but will then pay CGT on any further gains you make after that).

Alternatively, rent a room?

FitzElla

Why would you not just sell it now and bank the €150k appreciation? A year seems a very short time to rent out a place with all that goes with it. Selling now would save you all the effort of renting it out, dealing with tenants and paying tax on the rental income. You also run more risk in both the property prices dropping (unlikely but still possible) or getting a bad tenant who over holds or damages the place (again unlikely but still a risk).

robp

LolaJJ wrote: »

Would-be first time landlord here.

I've a really nice, well located apartment with parking near Dublin City Centre. I purchased it a couple of years ago and it is now worth about €150k more than what I paid for it. I've kind of moved out and am spending most of my time staying with my partner so we decided we would officially cohabit, rent my place out and sell it in a year or so along with his apartment and maybe buy a house.

I was very happy to do this but I've been advised that if I turn it in to a rental property and go on to sell it as planned a year later, then I will have to pay capital gains tax on the €150k appreciation of 33%. That's almost 50k!!!

So, as far as I can understand, my best bet is to leave it as is, stay there when we are out in town and continue to "reside" there in some sense of the term.

This seems mad in the middle of the housing crisis! Can anyone advise if there is an alternate solution?

Have you lost any money on shares or other investments over the years, as this could offset it?
There was also a cap gain exemption for certain houses.

It is mad that short term letting is being restricted even for people in your situation where it makes sense.

tvjunki

LolaJJ wrote: »

Would-be first time landlord here.

I've a really nice, well located apartment with parking near Dublin City Centre. I purchased it a couple of years ago and it is now worth about €150k more than what I paid for it. I've kind of moved out and am spending most of my time staying with my partner so we decided we would officially cohabit, rent my place out and sell it in a year or so along with his apartment and maybe buy a house.

I was very happy to do this but I've been advised that if I turn it in to a rental property and go on to sell it as planned a year later, then I will have to pay capital gains tax on the €150k appreciation of 33%. That's almost 50k!!!

So, as far as I can understand, my best bet is to leave it as is, stay there when we are out in town and continue to "reside" there in some sense of the term.

This seems mad in the middle of the housing crisis! Can anyone advise if there is an alternate solution?

Not worth renting it out for a year or so. You have to pay Prsi on profit (difference between your rent and at the moment 80% of the interest element of your mortgage.) USC on total rental and if you are on the higher rate you will definitely pay at least 52% overall in tax. Then you also have to pay 90% of the tax due in the year of tax submission in preliminary tax.

Is the sitting room separate to the kitchen that you can move the sofa into the kitchen area? Rent out the sitting room and second bedroom and you keep the small one?
If you have a tracker don't sell now and when you think of selling ask to transfer part of the tracker to the new house or ask for a discount on the repayment amount. Don't cash in your tracker. Trackers are worth their weight in gold. You may find in a few years it is hard to get a mortgage if you sell now.
You are not married you can leave your address as is.

EdgeCase

I'd just sell it.

You've all the hassle of renting out and then you've the tax implication and while I wouldn't call a drop in house prices there's a huge amount of external economic risk due to Brexit and Trump and we are at the top of an affordability curve.

Browney7

Isn't it that if you get PPR relief for the period of time it was your PPR? So if you bought it in 2014 it's been your residence for 4 years. If you rent it for a year you will get PPR relief on 80% of the capital gain and pay 33% tax (with a small 1270 exemption).

You could do a Sunday to Thursday rental and stay there a night a week on the weekend and keep all bills in your own name and maintain it as your residence and sell a year down the line.

LolaJJ

Thanks all.

It's a 1-Bed so I can't rent out a room.

Maybe worth getting a valuation is CGT is based on the appreciation during the rental period.

I don't want to sell it just yet, my relationship is great but I'd prefer if we lived together full-time for at least a year before I dispose of my only real asset.

Thanks for all the advice, it seems leaving it empty is my best option but I'll see if I can find an accountant to give me some guidance.

PhoenixParker

It's more sellable now than post rental.
As it hasn't been rented anyone buying it isn't locked in by your rental price.

Move, give yourself 3 months to be sure then just sell up. It'll take another 3-6 months for the sale to fully go through.

WoollyRedHat

Pay me to stay in it.

Wabbit Ears

is the likes of rental via Airsorted not an option or is an airbnb type thing not workable in this scenario?

3DataModem

Regarding CGT, you get a years “grace” too... so if you rented for 3 years you only have to pay CGT on the second and third years capital apprecation.

Seve OB

Incorrect

You will have to pay CGT on the sale, but it will not be on €150k.

in simple terms
Lets say you bought it for 150k
today it is worth 300k
you rent it tomorrow
you sell it in a year or whenever for 400k

you will be liable to pay CGT on the difference between what it is worth today and what it gets sold for. so that would be €100k taxed at CGT rate, less your allowance.... so on top of rent for the year(ok you pay tax at your marginal rate on that) but you can realise a capital gain..... mind you it could be a loss.....

so you can bank up to 300k whenever you well it with no CGT charge
if you sell it for less than 300k, that will be a loss which you can offset against any other capital gain

Seve OB

LolaJJ wrote: »

Maybe worth getting a valuation is CGT is based on the appreciation during the rental period.

essentially... yes

LolaJJ wrote: »

Thanks for all the advice, it seems leaving it empty is my best option but I'll see if I can find an accountant to give me some guidance.

if it were me, i'd rent it out. it is only going to put more money in your pocket at the end of the day no matter what way you look at it..... unless we crash again! :eek:

Samuel T. Cogley

Seve OB wrote: »

if it were me, i'd rent it out. it is only going to put more money in your pocket at the end of the day no matter what way you look at it..... unless we crash again! :eek:

Unless he gets someone who doesn't pay rent and trashes the place, at which point he'll be looking at a long period of time trying to get them out. Even if he has a good tenant, they may decide that in a year they're going to overhold as they can't find anything else. The chances are small enough that either of these things will happen but they should be considered.

+1 on Airsorted until June anyway when the new rules come in. Be prepared for wear and tear though.

4ensic15

abcabc123123 wrote: »

According to Dominic Coyle (Irish Times), the CGT would be charged on the increase in property value that occurred while it is a rental. So if you get a valuation beforehand to show the increase in value, you should be OK to rent it out (but will then pay CGT on any further gains you make after that).

Alternatively, rent a room?

That is not correct. What happens is when the property is sold, the CGT is based on the proportion of the time it has been a PPR v an investment with the last year considered as PPR. If the property is owned for 10 years and let for 5 the CGT would be on half the gain from purchase to sale. Market prices in between are not relevant. The o/p could let for a year and not pay CGT but it would hardly be worth it. Rent a room would be the sensible thing to do if it is a multi bedroom property.

pwurple

Rent a room won't work, because it's a one-bedroom.

It can take 3-6 months to sell a place, so you could think about putting it on the market next summer maybe. If you sell it, your assets will remain in some form. You will have a lump sum ~ 150K , you will have your income I assume, you will have cleared a mortgage down, which is good in terms of lending / credit score, and you will be putting that mortgage repayment in a savings fund I imagine.

For the sake of 6 -12 months, all that is involved in becoming a landlord for the first time is hardly worth it in your case. PRTB registration, setting up the tax, getting an accountant, interviewing tenants, setting up a lease agreement. Plus, finding someone who wants to be there for 1 year only... not that easy.


If you had a relative / friend who could house-sit it for you, for a few months, just so the heating stays on, and it doesn't get burgled. Just ask them to cover the bills maybe.

tvjunki

LolaJJ wrote: »

Thanks all.

It's a 1-Bed so I can't rent out a room.

Maybe worth getting a valuation is CGT is based on the appreciation during the rental period.

I don't want to sell it just yet, my relationship is great but I'd prefer if we lived together full-time for at least a year before I dispose of my only real asset.

Thanks for all the advice, it seems leaving it empty is my best option but I'll see if I can find an accountant to give me some guidance.

Is it a large one bed that you can put up a small partition to put a single bed in? Or do you have a separate kitchen to the sitting room? You could move the kitchen into sitting room and that would be a bedroom. Many people do this to get maximum returns.
You only need a room that will fit a single bed for yourself. This partition can be taken down at a letter stage. Would not cost a lot.
Your paying the bills in it now so if you can continue. It is nice to have a back up plan and have somewhere to go.
The property is appreciating just sitting there anyway.

Claw Hammer

I it is a 1 bed, get rid of it. There are buyers around for them now. that may not be the case as the market softens in the months ahead. 1 beds are very volatile. sometimes the banks won't give loans on them.

ELM327

1 bed - get rid
if it were a 2+ bed I would have gone with living* there and renting out a room.

*= you know what that entails..

JimmyMW

Seve OB wrote: »

Incorrect

You will have to pay CGT on the sale, but it will not be on €150k.

in simple terms
Lets say you bought it for 150k
today it is worth 300k
you rent it tomorrow
you sell it in a year or whenever for 400k

you will be liable to pay CGT on the difference between what it is worth today and what it gets sold for. so that would be €100k taxed at CGT rate, less your allowance.... so on top of rent for the year(ok you pay tax at your marginal rate on that) but you can realise a capital gain..... mind you it could be a loss.....

so you can bank up to 300k whenever you well it with no CGT charge
if you sell it for less than 300k, that will be a loss which you can offset against any other capital gain

I think thats incorrect, lets use your example above and lets say the op owns the property for 10 years when selling, 1 year of which it is rented out. The op would have to pay CGT 33% on 10% of the gain ie the selling price minus the original purchase price, less your allowance. Basically it would be 33% of €25k (given the figures in your example), so €8250 minus your allowance. Open to correction here but I think that how it works?

ouxbbkqtswdfaw

If you can afford not to, don't rent it out. Renting is for desperates like myself. Too many variables working against you to consider.

Toots

I own a 1 bed and TBH if it was out of negative equity I'd take the hand off someone willing to buy it. They can be a hard sell because even for 1st time buyers the banks will only do 80% finance and less if it's a buy to let. It could take 6 months to sell, so you could move in with your OH and if it's going well in 6 months time stick it on the market.

Seve OB

JimmyMW wrote: »

I think thats incorrect, lets use your example above and lets say the op owns the property for 10 years when selling, 1 year of which it is rented out. The op would have to pay CGT 33% on 10% of the gain ie the selling price minus the original purchase price, less your allowance. Basically it would be 33% of €25k (given the figures in your example), so €8250 minus your allowance. Open to correction here but I think that how it works?

CGT has nothing to do whether the house is rented out or not

killanena

I would just advertise it as a shelf catering apartment for tourist online. Make a bit of extra cash throughout the year, more so next summer and then its as simple as removing the ads and sell. (Not necessarily Airbnb).

But like most things in this country, there probably is a catch. You may need a licence or insurance to legally do this. I've no idea really I would still look into doing something like this if I was in you're shoes.

JimmyMW

Seve OB wrote: »

CGT has nothing to do whether the house is rented out or not

Yes it does if it is your PPR it would be exempt from CGT

Claw Hammer

Seve OB wrote: »

CGT has nothing to do whether the house is rented out or not

It certainly has. There is an exemption if it is a principal primary residence. If it is rented it is certainly not a principal primary residence.

Seve OB

we are not talking about PPR here

JimmyMW

Seve OB wrote: »

we are not talking about PPR here

Id advise re-reading the tread