We bought a house in 1989 for IR£30,000, our main residence until 2006 before renting it out at which time the valuation was €305,000. We eventually sold it for €263,000 in March 2014. I know we can do a pro rata calculation as a principal private residence but can we use the valuation we got in 2006 for the purpose of calculating the CGT liability?
Sinead replies: The short answer is no, because everybody would do that. Barry Flanagan of Taxback.com has the less abridged version: "Capital gains tax (CGT) is chargeable on the gain arising on the disposal of an asset, based on the difference between the sale proceeds arising in March 2014 of €263,000 less the price paid for the house in 1989 of €38,092 (IR£30,000), less associated incidental costs. Principal Private Residence (PPR) relief can be used to exempt the portion of the gain that relates to the period that the property was occupied as your main residence. The last 12 months of ownership is deemed to be a period of occupation for PPR relief. Based on your case, 18 out of the 25 years of ownership should qualify for an exemption from CGT. The 2006 valuation is irrelevant. The calculation is the 2014 sale proceeds (€263,000), less original cost (€38,092), applying an inflation index of 1.553 = €59,157, giving you a Net Gain of €203,843. PPR relief means your Taxable Gain is €57,076 on which CGT at 33pc applies of €18,835".
Do get professional advice before making your return to Revenue as small personal exemptions may also apply.
Split mortgage solution
I fell behind on my mortgage payments and after much deliberation the bank has offered me a split mortgage solution but they say I need to take out two mortgage protection policies instead of the one I already had. I don't know why and I'm worried it's going to cost me more money.
Answer - Sara Murphy, Caledonian Life: A 'split mortgage' divides a mortgage into two parts. The first part is held in the main mortgage account and is paid as normal and the second part is put to one side or 'warehoused' with nothing to be paid on it until the end of the mortgage term when it is usually then required to be paid in full.
Sarah Murphy of Caledonian Life adds, "When protecting split mortgages affordability is a key issue. The most logical method of protecting the mortgage debt is to also split the mortgage protection cover. This is done by taking out two policies, as your bank suggests - one 'level term' and one decreasing mortgage protection (MP). The first covers the amount of 'warehoused' debt whilst the MP would cover the debt held in the 'normal' part of the mortgage".
It seems messy but it's a belt-and-braces approach by your bank. The good news is that the cost of life cover decreased by around 25pc over the last 5 years. Get a good broker to quote you for both policies rather than have the bank arrange it for you.
The Ryan Review
Four thousand mortgage holders in arrears are to be offered a special concession interest rate by Ulster bank to help them ease their repayments. It's purported to be as little as 0.5pc for a seven year comfort blanket. As dig-outs go, even Bertie would be proud of it, and from the bank's point of view it's a laudable way of keeping payments active where distressed borrowers have a reasonable income stream.
AIB is talking about similar action and other banks will probably have no option but to sally forth in the same direction - hey, anything's better than having actual debt deals foisted on you by the fledgling insolvency service, right?
But this is a debt deal of sorts, and one wonders why it took banks, kicking and screaming through the gritted teeth of the Central Bank, to offer it.
The borrower gets to stay in situ, with no attending 'eviction' media attention; they get some profit (although with many experiencing negative interest rates on their overnight deposits it'll not be enough), and it ticks political boxes too.
This is precisely the type of creative thinking the CB has been looking for, for the last five years. But the moral hazard argument looms large, especially among the compliant borrowers still forking out 4.5pc for the same money.
How will they view their next door neighbour paying a tracker rate for a variable mortgage?