Questions & Answers

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

First-time buyer

I purchased my first home nine months ago and received the first-time buyer's grant. I subsequently lived in the house for four months and have since rented it out as I found the commuting too difficult. I have not claimed for mortgage interest relief. What is my tax liability? Do I have to repay the first-time buyer's grant or pay any stamp duty?

Ms. C.O'B., e-mail

The one bit of good news is that you are unlikely to have to repay the first-time buyer's grant. This is disbursed by the Department of the Environment and, while it will understandably not discuss individual cases, it maintains that what matters was your eligibility and intent at the time you applied for the grant.

Eligibility is no problem as you did not previously own property here or abroad. On the issue of intent, you will have stated on the grant application that you intended to live in the house as your principal private residence. It appears you did do that, initially at least. A spokesman for the Department said it accepted that people's circumstances did change for reasons that could not have been foreseen at the time of such a grant application. However, that is not to say it would never pursue repayment of such a grant if it felt the initial application had not been accurate.

As I say, that's the good news. On the downside, you will certainly have to pay the stamp duty. As a first-time buyer, you will have been exempted this tax. However, one of the requirements is that you occupy the property as your place of residence for five years after you buy it. You clearly do not meet this condition and so face a stamp-duty bill based on the original purchase price of the house. As for mortgage interest relief, it is just as well that you have not claimed it because you would not be entitled to such relief once you rented out the property.

Renting

Further to your answer to Mr S.McC. on the capital gains liability arising from selling his first house (after having lived there for a period and rented it out for a further period), my understanding was the capital gains tax was calculated based on the difference between the value of the house when he moved out and the eventual sale price. This came from the Revenue in a phone call some time ago. You suggest that it is purely based on the number of years rented divided by the number of years it was owned in total, this fraction then being multiplied by the difference between the original purchase price and the eventual sale price. Can you confirm that your answer is correct?

Mr C.D., e-mail

The information you were given is wrong. Indeed, it would be very hard to see how a precise valuation could be put on a property vacated years earlier but retained for renting. Equally, what would happen in a situation where the property was occupied by the owner for the bulk of his or her ownership but rented out at different times?

It would get horribly complicated for both the Revenue and the taxpayer.

What happens when one sells a house that has been rented for part of the time it has been in your ownership is that the tax authorities take the sale price, less expenses involved in selling it. From this, they subtract the purchase cost plus an indexation figure, which adjusts that purchase cost to allow for inflation in the intervening time.

That figure gives the authorities a capital gain on the property. From this, they would deduct the owner's annual capital gains tax exemption of £1,000 (€1,270). The balance is taxed at 20 per cent.

At this stage, the figure is adjusted to allow for the time the property would have been the principal private residence of the owner. Let's say the capital gains tax bill was £20,000 on a house you owned for 15 years, for six of which you rented it out. The eventual tax due is calculated by working out 6/15ths of £20,000 - £20,000 * 6/15 = £8,000.

Stamp duty

My wife and I have just returned from the UK with money to apply against a mortgage. We are both Irish nationals and have been living in the UK for over 10 years. Because our house in the UK was in both our names, we have been told by our solicitor here that we no longer qualify as first-time buyers in Ireland and are therefore liable for stamp duty. Can you please clarify/confirm if this is correct?

Mr. F.O'C., e-mail

Your solicitor is correct. You are in the same situation as the reader returning from the United States who faced the same position recently. It does not matter where the property was owned; once you own property, you are no longer regarded as a first-time purchaser in the Republic. The fact that you have not previously owned property here is irrelevant.

Deposits

Which financial institutions in Ireland offer the best returns for the following amounts - £50,000, £100,000 and £150,000 - for a lock-up period of 12 months or for 24-hour access?

Mr T.E.F., e-mail

The best deposit rate available on the sums you mention, according to information provided by Moneymate and published in The Irish Times last week, is the 5.25 per cent available on the Northern Rock demand deposit account. This rate is better than any offered on a 12-month notice period, according to those figures.

Of course, deposit rates change regularly as institutions react to changes in European Central Bank base rates or adjust rates in an effort to secure more business. Your best bet, on the sums you are talking about, is to ring around the various institutions at the time you wish to invest. Then again, with that sort of money, you should probably be looking at other options. Deposit accounts are generally risk-free but rates are accordingly low.