Sunday 18 November 2018

How to declare house sale in tax return

Your questions answered

The period you lived in the house as your residence is exempt from Capital Gains Tax (CGT).
The period you lived in the house as your residence is exempt from Capital Gains Tax (CGT).

Cathal Maxwell Founder of www.paylesstax.ie

Query: My husband and I sold our first house in August 2017. We lived in the house for about nine of the years that we owned it - renting it out in the last five years of ownership. I need to declare the sale of this property in my 2017 tax return. In the CGT section of the tax return form (Form 11), it asks me to specify the 'aggregate consideration' of the asset. What exactly does aggregate consideration mean? Is there anything else I need to be careful about when filling out the CGT section of Form 11? Sandra, Dublin

Answer: The period you lived in the house as your residence is exempt from Capital Gains Tax (CGT). So the gain you made needs to be apportioned between when you lived there - and when it was let out. You can also treat the last 12 months of ownership as part of the residence period.

On the tax return form, you need to state what the sale price was - which is the aggregate consideration point you mention. You then need to state what the gain was and also the amount of the gain applicable to your private use which is exempt.

Let's say for example that the sale proceeds (aggregate consideration) for that house came to €300,000 and the costs of the sale (including legal and auctioneer costs) came to €5,000. These costs would bring your net sale proceeds to €295,000. You deduct the original purchase costs of the house from these net sale proceeds. So let's say that the cost of initially buying the house - including the original sale price and acquisition costs (such as stamp duty, legal fees and so on) - was €280,000. This brings the gain made from the house sale to €15,000.

This €15,000 gain then needs to be apportioned between private use and rental use. You state that you owned the property for 15 years in total. As you lived there for nine years and had a deemed residence for the last 12 months, you should be able to claim principal private residence relief for 10 years in total. So in this case, €10,000 of the gain is exempt under the principal private residence rules. This reduces the taxable gain to €5,000.

Furthermore, the first €1,270 of taxable gains in a tax year are exempt from CGT. As your property was owned jointly, both you and your husband can claim this annual CGT exemption - bringing the total value of that exemption to €2,540. Once you deduct this €2,540 from the €5,000 taxable gain, only €2,460 of your gain is liable to tax - and as CGT is charged at a rate of 33pc, the CGT due on the sale in this case is €812.

CGT is a self-assessment tax so you need to pay the tax owed for any sales completed up to the end of November by December 15 of that year; or by the end of the following January for sales completed in December. The tax return itself (if paper-based) must be submitted to Revenue by October 31 of the year following the sale - either on a Form CG1 where not in the self-assessment system, or on Form 11 where in self-assessment. If filing your return online, the deadline for doing so is November 14.

As you sold the house in August 2017, you should have paid whatever tax was due (if any) by December 15, 2017. The actual tax return for that sale must be filed by the end of this month - or by November 14 if filing online.

Gift tax for daughter in UK

Query: My daughter lives abroad and I would like to give her a gift of €50,000 as a deposit towards a home or apartment. She works in Britain and may eventually come back to work in Ireland. Can you advise me on the tax implications of such a payment? Should she decide to take up employment in Ireland at a later date, does she have to pay a repatriation tax on funds in either Britain or Ireland? Sheila, Co Dublin

Answer: The proposed gift of €50,000 to your daughter is well below the current parent-to-child threshold for Irish gift and inheritance tax. That threshold is currently €320,000 - which means your daughter can get gifts or inheritances worth up to €320,000 tax-free from you over her lifetime. So assuming your daughter has received no previous gifts from you, no Irish tax is due on this proposed €50,000 gift.

There should be no UK tax concerns for your daughter and similarly, there is no repatriation tax on the gift if your daughter moves back to Ireland. (Even if the gift was liable to gift tax in the UK, there is no gift tax in the UK if the gift has a value of less than £325,000 - as long as that gift is given seven or more years before you die.)

Tax credit for disabled son

Query: My 18-year-old-son, who has a serious underlying medical condition, is in in receipt of disability allowance of €198 per week. Am I entitled to claim the incapacitated child tax credit of €3,300 per year for him, noting that he is in receipt of the above disability allowance? If I am allowed to claim the incapacitated child tax credit, does he have to live in the same house as me? Also, hopefully he will be going to college in September 2018 - if he lives away from home during college, can I still claim the incapacitated child tax credit? Even if he stays away during the week to attend college, my home will still be his primary residence going forward. John, Bray, Co Wicklow

Answer: The Revenue states that to claim incapacitated child tax credit, you must have a child who is under 18 years of age and permanently incapacitated (physically or mentally); is over 18 years of age and unable to support themselves (assuming the child became permanently incapacitated before turning 21 years of age); became permanently incapacitated aged 21 years or over, but while in full-time education; or became permanently incapacitated aged 21 years or over, but while undergoing full-time training for a trade or profession (assuming the training was expected to last for at least two years).

The incapacity must be such that the child is unlikely to maintain themselves even with the benefit of any treatment, device, medication or therapy.

Also, there must be a reasonable expectation that if the child were over 18, they would not be able to maintain themselves. For the purposes of this credit, maintaining means the ability to support oneself by earning a living from working.

If you qualify for the claim based on the criteria above, your son must reside with you at some stage during the tax year so his going to college should not affect matters assuming he returns home during the tax year.

Tax on children's savings

Query: Over the years, I opened a number of savings accounts and bonds on behalf of my children - and these accounts and bonds are in my children's names. My children are all under the age of 10.  I'm in the middle of preparing my tax return. Do I need to declare the savings interest which my children have earned on their various savings accounts and bonds in my tax return? Also, are children exempt from Dirt? George, Co Dublin

Answer: This can be a very complicated area. In simple terms, unfortunately any income earned on these accounts is taxable on you while your children are under 18 and unmarried. If you structure it as an irrevocable and accumulating type settlement, this may be avoided. Children are not exempt from Dirt.

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