I have section 23 property rented out for more than 10 years with some section 23 loss still remaining. I have property in Scotland also rented out.
The section 23 property shows a paper CGT loss while the Scottish property shows a paper profit. My question is in relation to Irish CGT: Can I write off a loss, taken now, on the Irish property against a subsequent gain taken on the UK property?
Mr JM, Dublin
Section 23 relief allows for the setting off of allowable costs against rental income. In relation to capital gains, you are neither adversely nor positively impacted on the sale of this section 23 property as long as you have held and rented out the property for more than 10 years – which you have.
So there will be no diminution of capital gains to take account of the relief received during your period of ownership.
In your case, a gain is not the issue. In relation to the section 23 property, you will be selling at a capital loss. In the general scheme of things, this would be offset against capital gains arising on other asset sales. However, there is a new capital gains regime in the UK that will likely affect you.
Before we get to that, the underlying rule for an Irish tax resident is that you are liable here for any capital gain accruing on a property sale, whether that property is in Ireland or abroad. Thus, the gain on your Scottish property investment would be liable to tax here. Clearly if you had a residual capital loss on the sale of your section 23 property, the gain would be set against that before calculating any capital gains tax liability as long as that gain arose in the same tax year.
Of course, a capital loss does not expire at the end of the tax year in which it arises and, if it remains in place when you sell the Scottish property in a subsequent tax year, any gain on the Scottish property would be offset against that loss before assessing capital gains tax liability.
Coming back to that new UK regime, as of April 6th last year, the UK has introduced a capital gains charge on non-residents selling property in the UK.
Previously there was no capital gains tax charge for people who were not tax resident in the UK in such circumstances. Targeted at some very wealthy foreign residents who were building up valuable UK property portfolios without any tax charge, it also affects people like you.
However, before you get too concerned, the UK capital gains tax charge is due only on the gain in value of the Scottish property since April 6th last year. Any capital gain in the property up to that is not taken into account – at least in the UK.
If you actually lived in the Scottish property as your home for any period, you will also be able to discount the final 18 months of ownership for capital gains tax purposes – which would extend that April 6th, 2015, date to October 5th, 2016. So the new UK regime would not affect you on any sale of the Scottish property before October 5th next: however, this applies only if you lived there as your home for some time.
Assuming you have a capital gains charge for the period from April 6th last year to the eventual sale date, it will be offset against any Irish capital gains tax liability on the sale of the Scottish property. However, in terms of offsetting a Scottish gain against the section 23 property sale loss, only the residual gain on which you have not paid UK tax – the pre-April 2015 gain – is taken into account.
Can I invest in pension for an adult child? I want to put €3,000 a year into a pension fund for my 24-year-old daughter for the foreseeable future. I have three questions:
Firstly, would I be better off gifting her €3,000 and letting her invest it herself or should I invest it directly for her? Secondly, as it is to be put in a pension fund, would there be a tax saving for me? Thirdly, where would I invest it? I would be partial to doing it online.
Ms EC, email
While it is certainly commendable that you are trying to encourage your daughter to start making provision for her retirement at an age when it is generally the last thing on a young person’s mind, I’m not sure that the manner you propose to do it will work.
An early start to pension saving will clearly pay dividends later in life, but I’m conscious that the prospects of travel and entertainment seem so much more attractive than saving for some point at least 25 years down the line. Still, the secret is to try to persuade your daughter to make provision for her retirement.
The only person who will be able to get tax relief on contributions to a personal pension plan for your daughter is your daughter. No pension provider would allow you open a pension plan for your daughter: she would have to sign up for it herself and any relief will accrue to her.
So what to do in terms of maximising benefit? You could certainly look at gifting her €3,000 a year – a figure that maximises the annual small gift allowance without her incurring any tax bill or having to offset the gift against her lifetime capital acquisitions tax limit. It would then be possible for your daughter to invest this money in her pension. She would receive full tax relief on the sum.
The fly in the ointment, obviously, is that you are relying on your daughter to use this gift as you intend. You have only the power of persuasion.
Where you invest it, as I mentioned above, is a moot point, as you won’t be able to open such a plan in your adult daughter’s name. Beyond that, you would need to consult a qualified and regulated financial adviser for guidance on the options in that area. I am neither.
What I would say is that you should consult someone who is not tied to a particular product provider and, given her age, she has the capacity to adopt a slightly higher risk profile in her pensions savings than someone five or 20 years older.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
