Relief on capital gains for selling part of our home.
Q&A: Dominic Coyle
You cannot offset the expenses incurred in the necessary refurbishment work on the property against any capital gains tax bill arising on the sale of your shares. Photograph: Jason Alden/Bloomberg
My sister and I inherited our family home and adjoining shop premises from a parent last year. This property was amalgamated over the years, with business and home becoming one unit.
We needed to downsize and isolate the shop as an independent property, and also carry out necessary refurbishing/repair work, thus needing finance. For this, I sold shares last year, which I had inherited and bought over the last 30 years.
While I will be liable for CGT, can I offset expenses incurred in the refurbishing the property as described above against the CGT?
Ms B.C., email
Capital gains is a reasonably straightforward tax – at least for the sort of financial transactions that most readers will be dealing with.
At its simplest, you have capital gains (money you make on the sale of an asset over the price that you paid for it or that it was valued at when you otherwise received it). On the other hand are capital losses (assets you sell for less than the purchase value or valuation at the time they came into your ownership).
In any given year, you deduct any losses arising from any gains and you are then liable to pay tax on these capital gains at a rate of 33 per cent in the year in which they arise.
There is an annual exemption – €1,270, which is simply an awkward transposition form the old pre-euro £1,000 allowance.
What I think you are doing is conflating two elements of the regime.
There is provision, in calculating the capital gain on a sale, to offset expenses incurred in the purchase and sale of the asset. Specifically in relation to your scenario, this includes what are called enhancement expenditure – money that you spend to the value of the asset.
However, this can be offset only against a gain accruing from the sale of the asset itself.
So, in your case, you cannot offset the expenses incurred in the necessary refurbishment work on the property against any capital gains tax bill arising on the sale of your shares.
You would, however, be allowed to claim some or all of it back against the gain from the eventual sale of the property next door as an independent unit – if there was any capital gains tax liability – but that is very unlikely.
The sale of the family home – which this is, for you – is exempt from capital gains tax. Revenue does reserve the right to restrict the exempt if the property has development value. That normally relates to selling part of a large garden and, essentially, relief is restricted to the value the property would have had if it had no development value.
I cannot see how it would apply here, as what you are doing is essentially downsizing and the value of the property you retain – and on which you could subsequently claim relief if later sold – will be lower.
You can, of course, set any dealing costs that you had to pay to buy and/or sell those shares against the gain that arose on that transaction.
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.