Do we pay tax on deposit kept from failed sale?
Q In a failed attempt to sell our house we are in receipt of a non-refundable deposit for a considerable sum. Are we liable for tax on this sum whether we go on and sell the house to a third party or not? The house is our primary residence.
A You mention that the house is your primary residence so maybe you are hoping that the money will be exempt from capital gains tax – or any other tax. According to Caroline Rochford, senior manager at Deloitte, the sale of one’s home is generally exempt from capital gains tax provided it qualifies for principal private residence relief. But a forfeited deposit related to the sale of your home is subject to tax.
Although the sale of the house has fallen through, the deposit is treated as if it were consideration paid for an option to sell the house, which was not exercised. Hence, she says, there is a disposal of an asset, i.e. the option, and the amount of the non-refundable deposit is subject to capital gains tax, currently at a rate of 25 per cent.
You don’t elaborate on the circumstance of “the sale that never was” which would have been interesting. Either you sold at auction and on the day the successful bidder handed over a 10 per cent deposit and signed a contract and then pulled out, or you sold by private treaty and, after the buyers paid the deposit, they signed a contract committing them to buy, say, by a certain date. That date has now passed, they can’t buy, your solicitor says there is no point going after them for performance of the terms of the contract because they simply don’t have the money to go through with the sale and you can keep the deposit. However you came to be in this position, you only have to pay a relatively small amount of tax on what is a windfall of sorts.
Is it a good time to be selling my house?
Q Just over a year ago we withdrew our house (redbrick terrace, close to Dublin city centre) from the market because, after nine months trying with just two poor offers, it hadn’t sold and it was too much hassle. The estate agent has now got in touch to say that now is a good time to try again, obviously at a reduced asking price. In your opinion, is it a good time?
A Talk to any estate agent and they’ll tell you that in some areas supply is becoming a problem. Also as any active prospective buyer will tell you, the same houses seem to be on forever so there’s few new places to look at. There will always be a market for well-priced, period houses close to the city centre as they tend to appeal to both first-time buyers and people wishing to trade down who have already sold and are sitting on cash. You need to sound out the agent as to exactly why he/she thinks putting a “for sale” sign up is a good idea – for you. Has the agent sold recently in your area and for how much? How many people were chasing the property. Do they operate a list, taking names of prospective buyers, and how promising does that look. Ultimately it all boils down to whether it is a right time for you to sell in terms of finance, lifestyle, etc.
Your questions
Send your queries to Property questions, The Irish Times, The Irish Times Building, 24-28 Tara Street, Dublin 2 or e-mail propertyquestions@irishtimes.com. This column is a readers’ service and is not intended to replace professional advice.
