Property capital gains tax exemption to end in December
Many Irish investors have been stung in the past due to the property collapse both here and abroad.
However, we currently have a very attractive tax exemption for gains on property which should encourage people to look again at property as a viable investment.
Furthermore there are currently a lot of international investors buying up Irish property. Clearly they perceive value in the property market here.
The 2012 Budget announced a new relief from capital gains tax for properties purchased after 7 December 2011. The relief was originally only for property acquired before the end of 2013 but this was extended to the end of 2014.
The Minister for Finance Michael Noonan said recently the relief is going to be removed from the end of this year so it will only apply for properties that are acquired before 31 December next.
How the relief works:
Basically the relief applies where land or buildings are acquired and held for a period of 7 years. Any gain on disposal referable to that 7 year period is tax free (no income tax or capital gains tax). To qualify for the exemption the property must be located in one of the following countries:
- All EU member states
If you hold the property for longer than 7 years then the relief will operate on a time apportioned basis.
For example, Mary acquires a property this month (May 2014) and sells in in 10 years’ time at a profit of €100,000. The gain is tax free but only up to 7/10 of the gain, therefore €70,000 of the gain is tax free and the remaining €30,000 only is taxable.
It is possible to structure family property investments in such a way so as to ensure this relief is maximised. For example you can transfer property to family members (subject to at least 75% of the value being paid) and provided the recipient (for example a child) holds it for 7 years a portion of the gain shall be tax free. This could result in a significant tax saving and also assist in estate planning.
Jim Kelly is a tax specialist at Grant Thornton.