How can we minimise tax bill selling small commercial property?
Sale of the property will attract capital gains tax, which is 33%
The tax of 33% is not assessed on the entire sales proceeds, but rather the chargeable gain, if any, arising on the sale of the property.
My wife and I put all our savings together and purchased a small property in Gorey, Co Wexford three years ago. It is a commercial property with a tenant hairdresser since we purchased the property.
We are now hoping to sell the property but it looks like the capital gains tax will be an astounding 33 per cent. Stamp duty of 6 per cent will bring the total tax before charges to 39 per cent. Is there any way we can try and cut this tax bill? We are both PAYE workers in our 40s.
The sale of the property will attract capital gains tax (CGT), which currently is at a rate of 33 per cent. However, the tax of 33 per cent is not assessed on the entire sales proceeds, but rather the chargeable gain, if any, arising on the sale of the property. The chargeable gain is calculated by taking the sale proceeds of disposal and deducting the following items, if applicable:
- The purchase price of the property
- Enhancement expenditure eg additional costs incurred, after the date of acquisition, which add value to the property and is reflected in the state of the asset at the date of sale. It does not include routine maintenance such as painting.
- Certain costs incurred when acquiring and disposing of the property, eg a solicitor or auctioneer fee, stamp duty.
Other factors to take into consideration:
1. Capital losses
If a capital loss was previously suffered or arises in the same year as the chargeable gain you may be able to offset the loss against any future gains arising. There are, however, certain restrictions around the utilisation of capital losses, including where the disposal is to a connected person. In general, a loss which accrues to a person on a disposal to another person with whom they are “connected” may not be utilised against any other gain accruing to them unless the other disposal/s is to the same person, at a time when they are connected persons.
2. Indexation relief
Indexation relief may be claimed in respect of assets being sold that were acquired before 2003. This means the market value of the asset at the time you became the owner is increased by reference to a specific rate, known as an indexation factor. As we understand, the property in question was acquired three years ago and therefore in this particular circumstance indexation relief will not be applicable.
3. Annual exemption
The first €1,270 of chargeable gains of an individual, per annum, is exempt, this is known as the annual exemption. This exemption is not transferable between spouses; however, each individual can claim this annual exemption when an asset is jointly owned by them.
4. Stamp duty
The stamp duty of 6 per cent is imposed on the purchaser of the property and not the vendor selling the property.
Susan Blake is tax manager with RSM Ireland, rsmireland.ie