You tackled a query recently about capital on a home that I am selling which has been our family home for four years after a year when we struggled to get a overstaying sitting tenant to leave.
If the profit on the sale is €200,000, do I take 33 per cent of that 66,600 and then one-fifth of that is paid to Revenue. Or is it one-fifth of €200k and then take 33 per cent of that? Or is it the same no matter what way I do it?
Also, do I deduct expenses from final CGT amount? Or from the full profit? Finally, what form do I fill in for Revenue?
Ms A.W.
You clearly never expected yourself to be juggling with the niceties of the capital gains tax regime and your queries highlight once again how important it is for the tax authorities, accountants and columns like this never to assume a degree of knowledge on an issue.
You bought this house as a family home. It was never intended to be anything else. The previous owner’s tenant was refusing but you took the chance to buy it anyway for fear of losing out.
Ultimately, that meant the house was effectively an investment property for the first year of the five years you have owned it – at least as far as the Revenue Commissioners are concerned.
You raise two issues now – the details of how you actually calculate capital gains tax due and the form you need to fill out when notifying Revenue of the details.
As this is a fairly recently acquired asset, indexation is not an issue so the first thing you do is simply subtract the purchase price from the sale price. That gives you the raw capital gain.
At that point, you can deduct from the gain any expenses directly related to the purchase and sale of the property. That would include any estate agent costs, including the cost of advertising for marketing the property in advance of its sale, and legal costs. It would also include the costs of a valuation if one was required when buying the property – quite likely demanded by your bank before they would release any mortgage – and surveyors fees.
The other thing that you can deduct, if relevant, is the cost of any enhancements to the property. No, this does not include the cost of the lick of paint you apply before putting the house on the market or the deep clean you may get people in to do.
It means things like extensions, a kitchen or bathroom upgrade, new windows or increasingly relevant in our times, an energy retrofit or the installation of solar panels.
You will need receipts for any expenditure claimed.
[ How can I make sure an inheritance does not cost me my disability allowance?Opens in new window ]
Personally, I don’t think it is likely to apply here because unless those enhancements were during the time the property was rented, I’d expect Revenue to challenge. And given the circumstances, where you were trying to get this tenant to leave, I cannot imagine you were making their life any easier with enhancements to the property.
When you have deducted allowable charges from the capital gain, you then take one-fifth of that figure – to cover the portion of your five year ownership covered by the rental.
So if, in your case, the raw gain is €200,000 and you have purchase and sale costs of €10,000, the adjusted gain is €190,000 which, divided by five, is €38,000. As you can see, the allowable costs apply to the full gain, not simply the portion covered by the period of rental.
Next, you are entitled to an exemption from tax on the first €1,270 of gains in any tax year – an odd figure, I know, stemming back to our conversion to the euro. Originally £1,000 punts, it became €1,270.
This brings your taxable gain down to €36,730. At that point, you apply the 33 per cent tax rate which will leave you with a tax bill of €12,121.
So how to file? I learned something new myself here. I thought that anyone who filed a tax return – as you need to do if claiming health expenses for instance – could get away with just doing that as that form requires you to include details of capital gains but it is not that simple.
Revenue tells me that if you are a self-assessed taxpayer who files a Form 11 income tax return each year, you can use this to declare capital gains and you do not have to worry about other filings.
However, with PAYE taxpayers, it depends how you file.
If you use a paper Form 12 income tax return, you can include the capital gains details on that form and leave it at that.
But, if you file your return online, as most folk would do – or if you use the slimmed down short 12S paper return – you must also separately submit a capital gains tax return on Form CG1. The deadline for returns for gains made in 2024 passed at the end of last month but if you want to familiarise yourself with CG1, you can find the 2024 form here.
Finally, if you don’t normally file a form at all – which you should because otherwise you are almost certainly leaving money you are entitled to for mortgage, rent, education or health expenses with the tax man – then you just file that Form CG1 and have done with it.
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.
