An Irish Times guide to the world of personal finance - this week Capital Gains Tax and Property.
Capital Gains Tax
Two weeks ago, you answered a query on capital gains tax in which you stated that "you also have a €1,270 capital gains tax-free allowance each year".
Can you please confirm if this only applies for the year that the gain is made or if an allowance for each year that has elapsed (assuming the allowance has not been used on other gains) since acquisition can be availed of?
Mr E.O'C., Dublin
It would be lovely if you could back claim each year's capital gains tax allowance but I'm afraid it does not work like that. It is very much a case of "use it or lose it".
It is precisely for that reason that many people go to considerable lengths to manage their investments in a way that takes best advantage of the tax breaks available.
Each year, investors have a tax-free allowance of €1,270 on capital gains tax - i.e. the first €1,270 of capital gains is tax free in that year - but it only comes into play if the taxpayer has accrued a capital gain in the 12-month period.
This is quite normal in the area of taxation. For instance, if you don't have any income in a given year, you cannot carry over your tax credit to a subsequent year.
Property
In the late 1980s, I bought an apartment in Dublin for £50,000 (€63,500). In 1992, I moved to the US to live and work permanently. I rented the apartment from 1992 until I sold it in 1999 for £180,000.
When settling up, my solicitor, who was handling the sale, deducted around £18,000 in capital gains tax, which was paid to the Government. Should I have paid capital gains tax?
Mr J.K., e-mail
It always makes me nervous when people start looking for straight answers on cross-border tax issues because, in my experience, when you drag two countries' tax codes into any situation it is never simple.
The language in which taxation agreements between countries are written only exacerbates the issue.
Anyhow, on first glance, your solicitor was right. The general rule in relation to "immovable property" is that income coming from it is taxed in the country where the property is situated. In your case, that would be here.
Owner-occupied principal private residences in Ireland are exempt from capital gains and, as such, you would not have faced any capital gains tax bill until you started renting the property.
However, once the property is rented, it does become liable to capital gains.
Basically what happens is that, when the property is sold, the vendor has to calculate the percentage of the period of ownership during which the property was rented. Capital gains is then levied on this percentage of the overall capital gain.
In your case, the overall capital gain was £130,000 minus the expenses involved in buying and in selling the property. That figure also does not allow for an indexation factor, which basically raises the purchase price to allow for inflation.
I am not sure whether your solicitor would have had to hand details of all the valid expenses and this might reduce your bill somewhat but not a lot.
I cannot tell you precisely what the indexation factor would be given that I do not have the precise purchase and sale dates.
The capital gains tax on the relevant portion of your gains after all the above factors would have been deducted at 20 per cent.
If you are in any doubt about the interpretation of the double taxation accord between Ireland and the United States, I would strongly advise you to get some expert advice from a lawyer or accountant familiar with Irish-US tax matters.
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.
