| 11°C Dublin

Home Economics: Our property finance expert answers your questions



Joanna Murphy CEO of Taxback.com. Photo: Paul Sherwood Photography

Joanna Murphy CEO of Taxback.com. Photo: Paul Sherwood Photography

Joanna Murphy CEO of Taxback.com. Photo: Paul Sherwood Photography

Q In 2011 a tenant left a property I own in a bad state and I vowed never to have another. The property crash meant I couldn't sell the place so my nephew has been living there ever since, rent free. I'm now in a position to sell but am concerned about capital gains tax. Can I claim any relief because it was let to a family member - I understand there is a derogation in this case - and what would the overall tax bill be? The property is worth €140,000, bought for €98,000 in 2000 and I carried out extensive repairs to it.

A You have a few issues which need addressing. First, it seems from your correspondence that you didn't in fact 'let' the house to your nephew but let him live there rent free. You cannot normally expect a reduction in income tax liability since you have no rental income. Being a family member makes no difference. Is it possible you're confusing this with dwelling house relief, which is entirely different and does not apply if you are not living there yourself?

Joanna Murphy, CEO of Taxback.com calculates your liability. "In general, capital gains tax liability, assuming no reliefs available would be estimated as the difference between the sales proceeds and cost of acquisition, therefore, 140,000 - 98,000 = 42,000. CGT current rate is 33pc, so capital gain tax liability would be €13,860. However, there is a personal exemption of €1,270 that can be offset against the chargeable gains."

Taking into account that the property was bought in 2000, indexation relief would apply depending on exactly what date property was bought on (s556 TCA 1997). Any incidental costs such as fees, commissions or remuneration for the professional services can be deducted for the purposes of CGT computation. Expenditure which qualifies as an enhancement expenditure also can be deducted, assuming no other deductions have been taken for the same expenditure.

You won't enjoy Principal Private Residence relief (PPR) which exempts any gain on the disposal of a residence since you did not live in it as your main residence, however S. 604(11) states that where an individual makes a property available to a dependent relative rent-free and for no other consideration, the individual may be entitled to claim PPR relief in respect of the second property also. (A dependent relative is defined as any relative of the individual who is incapacitated by old age or infirmity from maintaining himself), and I don't know enough about the circumstances to comment on that, although an accountant will give you the right steer.

One consequence to the 'rent free' aspect is that the money foregone can be considered a 'gift' to your nephew and subject to Capital Acquisitions Tax (Gift Tax) also charged at 33pc. The value of the gift is the annual rent that "could be derived on the open market", adds Joanne.

"The person receiving the gift is entitled to €3,000 small gift exemption each tax year. If the 'deemed' rent is over this, the beneficiary must use part of his group threshold (if any left), for Group B, a nephew, is €32,500 over life".

Q My neighbour down the hall lets his apartment out on Airbnb. It is very annoying to have people coming and going all the time, sometimes in the middle of the night and we have complained. I understand the new rules prevent this but he says it's a holiday home as he doesn't live there himself and is exempted. Who is right?

A He may be confused about the definition of a holiday home. The new rules (introduced 1 July 2019) say that a cap of 90 days applies for renting out your own home, and it can only be done for 14 days or less at any one time.

Any apartment which is an investment property needs specific planning permission from the local authority for short term lets and if it is an area of high housing demand (e.g. Cork or Dublin or anywhere that is in a Rent Pressure Zone) it is highly unlikely such permission will be granted. If a property is actually a holiday home 'that has already been approved as dedicated tourist accommodation' it is exempt from this rule. So, I can't answer in your case as I don't know, but it sounds unlikely.

Anyone flouting the law, letting without permission, can be prosecuted under planning laws. You could start by contacting the local authority's planning division.


The Ryan Review

Banking is all about swings and roundabouts. Cut a charge here, increase one there. It's called balancing the books. The tracker scandal has cost lenders millions in redress and fines, as it should.

But it all has to be recouped eventually, so introducing small charges across the board for say, contactless payments (as three banks have done, most recently AIB), removing 'free' banking from the small cohort who could afford to leave money sitting on deposit (still looking at you, AIB), or constricting branch services (all guilty) contributes to the scales of finance. The truth is that the big mistake was ever thinking banking should be free. It isn't. It's an expensive business, but in the madcap boom banks led us to believe it could be done for nothing, as it was hoovering up all it needed in interest. Trackers were just the most extreme example.

Sinead presents 'The Home Show' on Newstalk every Saturday morning, 9am-10am

Indo Property