Can pensioner recover loss on forced sale of flat against taxes on pension income?
Q&A: Dominic Coyle
Capital loss occurred when selling property after agreement with bank
In January 2008 I bought an apartment to let for €260,000. It was funded by a mortgage of €221,000 provided by AIB over a 10-year term, the first five of which were interest only.
In February 2013 when the interest-only period had expired, the bank sought payment of capital and interest. In view of my age (72 ) and financial circumstances, I was unable to comply with their request.
After lengthy negotiations, AIB agreed that I would sell the apartment for €130,000, less selling expenses, and that I would contribute €20,000 to the shortfall. They wrote off the balance of almost€79,000
In the circumstances, I incurred a capital loss of €130,000, ie original purchase price of €260,000 less selling price of €130,000.
Meanwhile, in October I reached the age of 75 and gained access to an AMRF (approved minimum retirement fund) of approximately €45,000. If I draw down the fund in total, I will be liable to tax. However, surely I am entitled to offset the capital loss referred to above against this tax liability?
Mr BM, email
There are all sorts of issues raised by your letter, not least the issue of who advised someone in their late 60s with no income stream beyond expected rental and a modest pension to buy an investment property in what, even then, was acknowledged as an exceptionally frothy market.
True, there was still talk of soft landings but even a soft landing was likely to be a very risky proposition for someone in your position.
Depending on the financial advice you took at the time, you might have cause to pursue certain people – not least as your longer term financial position was covered only by an AMRF which, as the name implies, is designed to provide only a basic or subsistence level of income, not one that would allow for financial recovery from investment misjudgments.
Five years on, your interest-only period expired and, by then, the full horror of the property crash was all too evident. As you tell it, you clearly did not have the wherewithal to make repayments on the capital sum of the €221,000 loan you had borrowed to buy the property.
And as a Central Bank study published last week notes, people who had long periods left on their loans and limited means to meet those commitments generally have struggled to secure a restructuring with lenders that would allow them keep the property.
When it comes to investment properties, this is even more the case as the lenders are aware they are not actually throwing anyone out of their family home.
In those circumstances, getting AIB to agree to take a €79,000 hit on their loan to you sounds like an incredibly good outcome.
For you, the cost of the entire adventure in this buy-to-let apartment was closer to €90,000 if you include the €39,000 you put up in the first place to buy the property, the interest you would have paid on the loan over the first five years and the €20,000 you had to pay as a result of your agreement with the bank.
It’s a not inconsiderable sum, especially for someone in more restricted financial circumstances in retirement, but it could have been a lot worse.
Of course, the core of your question is the nominal €130,000 loss on the sale of the property and whether this can be offset against any tax due on withdrawals from your AMRF.
The answer, I’m afraid, is no. A capital loss can only be offset against capital gains arising in the same period or can be carried forward to offset against future capital gains.
It cannot be offset against income tax, and that is the tax that will be due on income drawn down from your private pension fund.
Must I pay tax on sale of Irish home as I move to France?
We are in the process of selling our house here in Ireland, with the proceeds, not exceeding €80,000, going towards a property in France. This is showing a big loss as we bought at peak time.
The plan is to settle in France on a permanent basis. What are the tax liabilities, if any, that we should be aware of?
Mr JE , email
Despite the horrors of last week, a move to France sounds like an incredible adventure. Clearly, it is not one that you would want undermined by any unforeseen financial liabilities.
From your short letter, I am assuming that the property you are selling here is your main home. If that is the case, regardless of how much you secure for it, you will not have any liability here to tax on that money.
And, while I am certainly no expert on the French property market and taxes, I think it very unlikely that you would be taxed on the money you provide for the original purchase of your home there – although there may be all manner of local and other taxes on your home thereafter under French law.
And that is something you would be well advised to get an accurate fix on before you proceed.
If, however, the home you are looking to sell here is an investment property, you would, in theory, be liable to capital gains tax. Of course, this presumes you make a gain on the sale and your letter states that this will certainly not be the case.
If it is an investment property and you rented it out, you will need to ensure that all your tax bills on that rental income are also paid.
Of course, either way, you will need to ensure that all outstanding residential property charges and water bills are paid or you could well find yourself with an outstanding tax bill.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice