I am confused about the capital gains tax liability on my second home

I purchased a small, terraced bungalow in Dublin in September 2011 for €100,000. At the time I had another property, which was my principal private residence in Co Louth. My spouse and I would live in the Dublin house midweek and return to Louth at weekends. We renovated the Dublin house over the years and its approximate value now is €350,000.

The capital gains tax (CGT) exemption is from December 7th, 2011, to December 31st, 2014. The folio and registration of deeds is dated February 2012, as this is when I was registered as the owner. Can I avail of the exemption if I sell next year and pay three-tenths of CGT; or will I be liable to pay full CGT because the purchase was before the exemption in September?

Ian Brennan replies: The CGT exemption to which you refer was first introduced in the Finance Act 2012 [section 604a Tax Consolidation Act 1997] and further amendment by Finance Act 2017.

This provided property investors with the opportunity to purchase property in Ireland and indeed in any member state of the European Economic Area (including the United Kingdom) during the period December 7th, 2011-December 31st, 2014, and once held for a minimum period of seven years (which was amended to four years by the Finance Act 2017), any gain made when disposed of would be subject to CGT relief depending on how long the property was owned for.

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In summary, the main conditions that apply for this exemption to take effect are:

1. Property must have been acquired during the period December 7th, 2011-December 31st, 2014 (“the relevant period”).

2. Property must be held for a minimum of four years.

3. For property disposed of on or after January 1st, 2018, acquired in the relevant period, gains are not chargeable gains where that property was held for at least four years and up to seven years from the time it was acquired.

4. Any rental or other income received from the property must have been correctly returned to the Revenue Commissioners for tax assessment.

5. In addition, the individual who acquired the property must have paid consideration amounting to at least 75 per cent of the market value of the property at the time it was acquired. This rules out gifts and inheritance during the relevant period. If land was acquired during the relevant period and buildings built on it since acquisition, the land and buildings will come within the remit of the relief.

The relief under the section 604a provides for full exemption from CGT on any gain if the property was sold after four years and after January 1st, 2018, but on or before seven years from the date of acquisition.

Exemption formula

Partial exemption on the gain is provided if the property is sold after seven years by applying the following formula to determine the part of the gain which is exempt from CGT:

Chargeable gain *7/n (where n equals total period of ownership in years)

The non-exempt part is chargeable to CGT at the current rate of 33 per cent (ignoring the annual exemption of €1,270 per annum).

Your query specifically raises the issue of when you legally acquired the property. Acquisition and disposal rules are dealt with under section 542 of the Tax Consolidation Act 1997, which states that:

1. An acquisition under a contract is made on the date the contract is made.

2. If a contract is conditional, the date of acquisition is the date the condition is satisfied.

3. An acquisition made otherwise than under a contract shall be the time at which the compensation for the acquisition is agreed or otherwise determined.

In order to determine the exact date of purchase you will need to contact your solicitor and ascertain when the contract to purchase the property was actually signed, and whether this was conditional. If it is found that the contract was not signed until on or after December 7th, 2011, or if applicable, where conditions in the contract exist, the conditions were not met until on or after December 7th, 2011, then you will be entitled to Section 604A TCA relief (assuming all of the other conditions mentioned above are met).

Where this is not the case, no relief will apply and instead CGT at a rate of 33 per cent will apply to the difference between the sales price and original cost including any incidental cost of acquisition.

Further details and worked examples can be found online at revenue.ie, in Revenues Tax and Duty Manual Part 19-07-03A.

Ian Brennan is the managing director at Finlay-Mulligan & Co financial consultants, fmco.ie