My sister has recently sold her family home and she and I have now decided to buy a new family home in joint names. We are just about to go Sale Agreed on a suitable property.
As soon as we have a satisfactory surveyor’s report on the new property we will sign sale contracts and I will put my existing family home up for sale.
Is there a grace period for CGT if my house is not sold at the same time that we complete the sale of the new property?
Ms A.D.
Housing chains are one of the big, but generally unavoidable, headaches of modern home purchase. You are moving on and you want to buy your new home but, for most of us, that means selling the current one without finding yourself homeless in the middle of the process.
It’s a tricky balance, not helped by the legal and financial bureaucracy intrinsic to property purchase. It’s obviously important: no one wants to pay that much money only to find themselves with a home that has big undisclosed defects or uncertainty over legal title.
And lenders are always going to be careful to ensure everything is watertight when lending that sort of money. It’s not that it’s big for them individually but they are all too aware that it will generally stretch the borrower financially and they not unreasonably want to make sure they are paid.
Bringing all the various vested interested into line for a closing date takes time. Unexpected hiccups will emerge and that inevitably throws things out of kilter forcing a reset for everyone.
And that’s for just one buyer and seller. More often, buyers and sellers will find themselves in a chain where their purchase requires one or more buyers to sell their existing homes and one or more sellers to buy somewhere to move to. The more people in the chain, the more complicated it becomes to co-ordinate dates.
[ Will new adoption law allow me inherit some of my mother’s land?Opens in new window ]
That’s why sellers love cash buyers. They simplify the whole thing for everyone. But notwithstanding the growth of cash buyers in recent times, it remains the case that most people will require mortgage approval and, first-time buyers apart, the sale of their existing home.
That being said, other countries have shown it is possible to streamline the system somewhat.
The last thing anyone wants to do is add to the complication but, as you note, if there is undue delay between buying a new home and selling your own, it can lead to all sorts of issues – including potentially liability to tax.
Capital gains tax (CGT) is charged on the increase in the value of an asset between the time you buy it and the time you sell it. It is levied at 33 per cent over and above a tax free threshold gain of €1,270 that you can make in any individual tax year.
The tax is self-assessed and must be paid by December 15th is it arises from a sale made in the first 11 months of the year. For capital gains arising in December, any liability must be settled by the end of January the following year.
In addition, where CGT arises, you will need to file a tax return by the end of October the following year though these days that deadline is extended into November for those making returns online as is increasingly the norm. Of course, if you already have some accumulated losses from previous sales of assets, these can be offset before assessing liability to tax.
Those are the general rules. However, for most people, capital gains tax is not an issue when it comes to their family home as there is a general exemption from capital gains tax liability for what Revenue calls your principal private residence. And, interestingly, that extends to the last year of ownership regardless of whether you are living there, it is lying empty or even if it is being rented.
The key thing here for you is how long your former home lies empty. If it is longer than one year, then yes, you will have some liability for capital gains. To work out how much you will want to work out any period over one year than it has lain empty as a proportion of the entire period of ownership.
[ Rules change on interest-free loans to family membersOpens in new window ]
So if you owned this home for 15 years to date and it were to lay empty for 18 months before being sold, you would be liable for capital gains of 33 per cent of any gain (six months as a proportion of 16 and a half years of total ownership before it is sold) – assuming it was not rented out at any other period during your ownership.
The likelihood in the current market is that your home is likely to sell within the year. Supply in the market is very tight, we keep being told, and demand remains strong. On that basis, you will fall within what you call the “grace period” and will have no liability to capital gains tax.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
