Home economics: Sinead Ryan answers your property questions
I have an old house in relatively poor condition which has been let for the last six years. I now want to knock it and build on the site, for which planning permission was given some years back but I wasn't in a position to proceed financially. My question is this: when I sell I will be liable to Capital Gains Tax but is there any offset of this against the new build, or any way to reduce the amount payable? The house is worth around €425,000 as it's in a great location but I only paid around €180,000 for it originally.
Sinead replies: Revenue has released an updated version of its Tax and Duty manual 'Acquisition, disposal and enhancement costs (S.552)' which confirms the appropriate tax treatment, says Taxback.com's Barry Flanagan.
"When making a sale, you are allowed to deduct 'allowable expenditure' from the proceeds to arrive at a net profit figure which is subject to Capital Gains Tax. Allowable expenditure is divided into three categories: Cost of acquisition, which can include the incidental costs of acquiring the asset; Additional expenditure, which is expenditure incurred to add to the value of the asset and Incidental costs of disposal (which are clearly defined in the manual).
"Given the fact that the original house will no longer be standing if you knock and replace it the likelihood is that Revenue would advise that the cost of the house - as distinct from the value of the site - can no longer be deducted. However, the original cost of the acquisition of the site would still be allowable.
"The cost of building the replacement house will be regarded as enhancement expenditure, and is similarly allowable and finally the costs of disposal can be deducted too."
So, there is potentially quite some mitigation against CGT but keep all your paperwork in order from the start and hire an accountant to do the heavy lifting.
Q. My father left me his home when he died and it is in a state of disrepair. I have boarded it up but am coming under family pressure to do something with it. It was left to me entirely but my two siblings are anxious not to see it degrade further. To be honest, I thought my own son would want to live in it, and he would do it up, but he is now moving abroad to work. Am I better off selling it or renting it out? In its current state, it's worth no more than €215,000 but it would cost at least €40,000 to make it habitable and I would have to take out a loan. I am 62.
A. The answer depends on emotional and financial issues. The house is yours, and you appear to have no considerable sentimental attachment to it, however, perhaps your siblings do, and even though it is your right to rent or sell, it's always worth taking family views into consideration to avoid any backlash down the road. So, whatever your decision, it's helpful to run it by your siblings, even if they have no say in it.
Financially, you now need to do the sums. Find out what it's worth by asking a local estate agent or two to value it (they may charge for this if you're not immediately selling).
Also, check out the Property Price Register for similar properties around.
You will, I hope, have considered any Inheritance Tax implication when your father died, and if appropriate, paid it, although at €215,000 you are within the Category A tax-free threshold which is €310,000.
A loan at 62 would be difficult as many lenders don't like mortgages being paid by people on pensions.
That said, a good income stream to make the repayments and such a low loan-to-value ratio would be advantageous. They may offer a personal loan over say, 10 years instead, though possibly at a higher interest rate.
There would be income tax payable on the rent, which may impact your pension when it becomes payable, so bear that in mind.
Selling it would create a capital lump sum, so you would need to get good independent advice from a broker on what to do with it if this is your decision.
The Ryan Review
Foreigners are leaving in their droves. No, it's nothing to do with Brexit, but foreign banks are finding it hard to turn a buck here.
Bank of Scotland (Ireland) which shut up shop in 2010 is finally selling off its €5bn mortgage loanbook belonging to some 20,000 borrowers, currently managed by Pepper on behalf of BoSI parent Lloyds. It's a 'good' book, meaning only a fraction is impaired, but this makes them less attractive to flog-and-flip vulture funds.
Meanwhile Danske which departed in 2014 has just sold on its book to Proteus, again, much of it decent quality.
But the big question hangs over Ulster Bank, so embedded in the Republic that we consider it one of 'ours'. But of course it isn't. Its massive bailout when it came, was courtesy of the British Government. Owner RBS swiftly hived off ROI operations and has recently called Ireland a 'difficult market'. Operating profits are sharply down and there are lots of legacy and current difficulties outstanding, not least the Curious Case of the Vanishing Cash from last month, still not satisfactorily explained, along with the identification of 2,000 new tracker cases causing problems.
How long can it be before the parent gets tired of scolding the child and shuts the door on them?