Your questions: What tax do we face on sale of our Spanish apartment?
Q. My wife and I are selling an apartment in Spain which we bought in 2001. After allowing for tax-deductible expenses, we are likely to make a capital gain of approximately €100,000 when we sell the apartment. Do we pay the tax on this capital gain in Ireland, given we reside here? We previously made an investment in an apartment abroad and invested €80,000, after topping up our mortgage in Ireland to purchase the apartment in Portugal. This was a bad investment and we lost all of our money in this apartment. Can we offset the loss on one apartment against the gain on another? John, Co Meath
A. Capital gains tax (CGT) charge arises in respect of gains on disposals made by individuals who are either resident or ordinarily resident in Ireland - irrespective of whether the gains arise in Ireland or abroad. As such, the gain made on the Spanish property will be liable to CGT, on the basis that you are resident in Ireland.
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It is not clear from the information provided whether the property in Portugal has been disposed of. If it has not been, the notional loss on that property cannot be offset against the gain. If the property in question has been disposed of, you should contact the tax office dealing with your tax affairs using MyEnquiries (Revenue's secure online facility which allows customers to send and receive correspondence to and from Revenue), to determine whether the loss can be offset against the gain.
For disposals made between January 1 and November 30, CGT is due and payable by December 15 in the same year. For disposals made between December 1 and December 31, CGT is due and payable by January 31 of the next year. The date for filing your CGT return is October 31 in the year after the date of disposal.
Tax and renovations
Q. My husband and I bought a house in 2018 which was vacant for about 10 years. We spent €30,000 renovating it. This year, we have started to rent out the home through Airbnb for holiday lettings. When I declare my rental income, can - and how do - I claim any of the €30,000 spent on renovations as a tax-deductible expense? Joan, Co Kerry
Income from providing short-term accommodation on a one-off or occasional basis is treated as miscellaneous income (Case IV). Most people providing short-term accommodation through online service providers will fall into this category.
Therefore, only certain deductions are allowed against the income (for the purposes of calculating the tax liability on the income) and these must be directly related to the provision of the accommodation. The type of deductions allowed may include commission fees paid to online accommodation booking sites; cleaning fees; the cost of breakfast provided to the guests; and a reasonable apportionment of electricity, gas, heating and so on utilised by guests.
Capital allowances such as renovation costs are not available against the profits or gains that are chargeable to tax under Case IV. Furthermore, there is no provision for allowing deductions in respect of expenditure incurred in advance of a property or room being made available for guest accommodation.
Q. Can a beneficiary in a will renounce part of a cash inheritance and, if so, can he or she nominate a lower amount of cash to inherit? If so, what happens to the renounced amount? Is inheritance tax due on the renounced amount?
Tom, Co Galway
Capital acquisitions tax (CAT) legislation allows for the redistribution of the assets, as set out in a will or under the rules of intestacy, without an inheritance tax liability for the beneficiary - where that beneficiary disclaims the inherited asset. A benefit must be disclaimed before the beneficiary has taken any benefit from it. A distinct benefit cannot be partially disclaimed - a benefit can only be fully disclaimed.
If a beneficiary were to receive two distinct benefits under a will, however, then that beneficiary could disclaim one and accept the other - provided they weren't conditional on each other.
A disclaiming beneficiary cannot specify who will then get the asset - instead, it becomes part of the residue of the estate and is distributed accordingly.
A disclaimed asset is not treated as a benefit for the purposes of inheritance tax for the original beneficiary.
Those receiving the redistributed assets, however, are treated as having received an inheritance from the deceased and are subject to inheritance tax in the usual way.
Tax due on cheap loan
Q. My wife and I recently gave a loan of €150,000 to my son and his wife, so they could buy an apartment. They have been paying the loan back regularly. Does my son have to declare this to the Revenue Commissioners? Does he have to pay tax on the loan? Also, will the small gift exemption offset any tax bill faced by my son and his wife?
Declan, Co Cork
Where an individual makes an interest-free loan to another, the person receiving the loan is considered to be in receipt of an annual gift from the person giving the loan, throughout the term of the loan.
Its value is taken to be the sum which would be earned if the amount of the loan was invested at the best bank deposit rate obtainable in the open market on such a sum. If the annual value of the free use of the money (that is, the interest which would have been obtained had the money been placed on deposit) does not exceed €3,000 per annum, the gift each year is exempt from capital acquisitions tax (CAT), under the small gift exemption (unless there are other gifts in the year from the same individual providing the interest-free loan which brings the total over €3,000).
The small gift exemption is applicable on the first €3,000 of any gift given by any one person to another in a calendar year.
If the value of a gift, when taken together with previous gifts and inheritances received over a lifetime, exceeds a certain limit (known as a CAT group threshold), you are liable to 33pc CAT on any remaining value above that threshold. The threshold you use depends on your relationship to the person who gave you the gift or inheritance.
If interest is charged in line with commercial terms, however, there are no gift tax implications, as the recipient is paying interest for the use of that money. The recipient of the loan interest will be assessable to income tax on the interest received. The interest element of the repayment is assessed under the Schedule D Taxes Consolidation Act, 1997. Under the self-assessment system, the recipient of the interest is required to make an annual return to Revenue.
Padraigh Donnelly is manager in the Revenue Commissioners' planning division (www.revenue.ie)
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