We want to rent our home and live in our investment apartment. What is our tax liability when we sell?

Q. We are thinking of renting out our family home for an indefinite period as we are retired and wish to spend more time living in a warmer climate.

Our plan is to use an apartment that we currently have rented as our Irish base as we come back and forth to visit family and friends throughout the year. This property is currently valued at €320,000 and was originally bought for €420,000.

We are aware that any rental income we receive from the family home is subject to tax. Our query relates to:

1. What would the position be in relation to Capital Gains Tax (CGT) on the family home if we decided to sell it in say, five years' time. The property was originally bought in 2000 for €500,000 and the current value is about €950,000.

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2. If we decided to move back into the family home after a couple of years of renting it how long would we have to live there before we could sell it as the family home and incur no CGT?

A. A liability to Capital Gains Tax (CGT) arises upon the sale of an asset when the proceeds (less incidental costs of sale) are greater than the original purchase price (plus purchase costs and adjusted for inflation). Based on the assumption that the value of your house in five years’ time exceeds the cost, a liability to CGT will arise on the sale.

Principal Private Residence (PPR) relief applies to the sale of an individual’s only or main residence. It is a beneficial relief that can significantly reduce an individual’s liability to CGT. An individual’s house and land of up to one acre may be exempt from CGT if the individual has used the house as their PPR throughout the period of ownership.

If you sell the house in five years’ time and do not reside in it during the five-year period, partial relief may be available. PPR relief is calculated on a pro rata basis based on a comparison of the period of occupation of the premises as a PPR and the total period of ownership. Assuming a gain arises on the disposal of the house, you would be entitled to PPR relief only for the period of actual occupation by you as a PPR, ie 2000 to mid-2017. Any period following this will be deemed to be a period of non-occupation, excluding the final 12 months of ownership which are deemed periods of occupation for the purposes of the PPR exemption.

Exemption

An individual cannot have more than one qualifying PPR, for the purpose of the relief. We understand that the family home is not your only residential property. Where an individual has more than one residential property, a procedure should be followed whereby Revenue is notified in writing of which house has been elected as the main PPR. If you have not already done so, we would recommend that this election is made, as in its absence Revenue will determine which property qualifies as a PPR.

You should also be entitled to the annual exemption of €1,270. If you jointly hold ownership with your spouse, you are both entitled to this exemption.

Your tax residence position is likely to change, should you spend more time living abroad. However this will not impact your charge to CGT as the property is an Irish situate asset.

To answer your second query, if you do not occupy the PPR throughout the entire period of ownership, the property will not be fully exempt from CGT, regardless of the period spent residing in the property following the period of non-occupation.

We would recommend you contact a tax adviser if you decide to rent or sell your family home. They can calculate your liability and advise you of your tax obligations.

Niamh Horgan, tax manager, RSM Ireland, rsm.global/ireland