Home economics: Sinead Ryan answers your property questions
We are considering selling our Dublin home to move to Galway where we have holidayed for years. We are not yet entirely sure of the decision so are planning to rent a house in Galway for a year to see. My question is whether there is a Capital Gains Tax implication if we decide to sell up and/or if we rent out our home?
A. It's a great idea to take a small step toward a big decision, and renting in Galway is a good way of finding out over a period of time if you would like to move. Summer holidays are different from the depths of winter!
You can rent out your home while you do this to help alleviate costs. When you sell a house, Capital Gains Tax (CGT) is normally paid on the proceeds, based on the difference between the purchase and selling price (with an inflation mark-up).
However, CGT can be relieved if you are selling your Principal Private Residence (PPR) and garden of up to one acre.
Revenue's line on the relief is this.
"If you have not lived in the house as your only or main home for all the time that you have owned it, PPR Relief may be restricted. However, you will be regarded as having lived in the house for the last 12 months that you have owned it for the purpose of PPR Relief.
"This is to allow for the situation where you have moved into a new home, but are still trying to sell your previous home."
While strictly speaking this is not your reason, S.604.4 of the Taxes Consolidation Act 1997 adds "inclusive of the last 12 months of the period of ownership in any event". You still need to provide a tax return to Revenue in relation to the sale, even where CGT is not due, and of course, pay income tax on the rent received. You also need to comply with tenancy rules under the Residential Tenancies Act (see rtb.ie for these).
Q. We rented a cottage to an elderly lady since the late 1990s. We charged her well below market rent (€650 pm) because we liked her and it was all she could afford.
However, she has sadly died and we want to re-let. There is a lot of work to be done on it first, but we expect in the region of €1,100 pm in rent which would cover the cost over a couple of years. However, the property is in a rent pressure zone (RPZ) as it's in a commuter town. Is this going to be a problem or can we go ahead?
A. The legislation concerning RPZs is extremely complex. I asked Stephen Faughnan, chairman of the Irish Property Owners' Association to explain it.
"Property in an RPZ is restricted and any new rent is based on the previous rent, so landlords like you who kept their rent low have been penalised. There is a formula to work out the allowable rent, which is R x (1 + 0.04 x t/m), where:
R = the current rent amount,
T = the number of months between the date the current rent came in to effect and the date the new rent amount will come in to effect,
M = the number of months since your last rent review - you must enter 24 OR 12.
The Residential Tenancies Board (rtb.ie) has a calculator you can use on its website also.
However, there is an exemption in the Residential Tenancies Act, that following a substantial alteration to the accommodation, market rent can be charged "where the rent under the tenancy, were it to be set immediately after that change, would, by virtue of that change, be different to what was the market rent for the tenancy at the time the rent was last set under a tenancy for the dwelling".
You are obliged to tell the new tenant in writing the amount of rent that was last set under a tenancy, the date it was last set, and state that the formula does not apply as there has been a "substantial change in the nature of the accommodation affecting the level of market rent last set for the tenancy".
The Ryan review
Minister for Public Expenditure and Reform Paschal Donohoe is putting a great deal of his eggs in one basket by predicating almost the entire Budget on projected income from stamp duty on to commercial property transactions.
It has been tripled from 2pc to 6pc. While bringing us more into line with other EU countries, and virtually back to where it was before the market collapsed, it does cut the sums a bit fine.
The only other increased income for the State will be coming from 50c on cigarettes.
I imagine quite a few property owners will be having a long smoke before deciding whether to shift their assets in 2018.
It only took 24 hours for farmers to run the U-turn of being initially reassured the stamp duty wouldn't apply to them by local TDs, before the Department boffins decided it would.
There's something inherently uncomfortable about being back in the place where stamp duty is the crux of budgetary measures.
In any event, Minister Paschal Donohue probably only has to wait until Easter to see if his gamble will pay off.
For the sake of the fiver a week we're all the richer for, let's hope it does.