Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 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.
Capital loss
Can I offset a capital loss in my tax return? For example: if I buy 1,000 shares for £5 (€6.35) each in 1999/2000 and sell them all for £4 each in 2000/2001 (thus making a loss of £1,000) - can I offset this £1,000 capital loss against my earnings? Since I would of course have to pay 20 per cent capital gains tax on any capital gain made, I would assume the opposite applies in some way - or am I expecting too much of our tax regime?
Mr P.F., Dublin
The whole question of offsetting capital losses is one that is becoming increasingly relevant for the army of small shareholders in the Republic. For so long, an historic bull market in equities seemed to have rendered the notion of capital losses a fabled memory. This perception led to an ever-growing risk profile in investment portfolios best illustrated by the unsustainable dot.com bubble.
Exacerbating the downside in the past year have been the absence of any healthy market for the bulk of second-line stocks since the arrival of European Economic and Monetary Union and the disastrous performance of Eircom, the first truly public issue in this State.
Of course, it is possible to offset capital losses, but not against income tax liabilities, nice and all as the idea might appear to many of us. Any capital loss, including losses made on a share, can be set against capital gains in the same year. If any gains fail fully to offset the losses, the capital losses can be brought forward and offset against capital gains in subsequent years.
The problem, of course, for many newer investors, particularly those in Eircom is that they may not have other capital investments against which they can offset the current losses being incurred by our telecoms leader.
Bacon report
Prior to emigrating, I did not own a house in Ireland. Following emigration, when I was tax-resident outside the State, I purchased a holiday house in Ireland. I plan to keep this house for holiday purposes. If I should decide subsequently to become resident in Ireland for tax purposes, would I qualify as a "first-time buyer" for purposes of exemption from stamp duty on the first £150,000 payable for any house I may purchase as my primary residence in the State?
Ms A.McM, e-mail
Put simply, no. Until the arrival of the third Bacon report, the issue of stamp duty was not one that impinged on the issue of first-time buying. It was simply a matter of whether the home was newly-built and complied with standards laid down in the law on floor area, quality of building and VAT.
The arrival of Bacon, Mark III, brings stamp duty into the already overcrowded series of considerations for baffled homebuyers. There are now three categories of homebuyer - first-timers, buyers of principal private residences and speculative buyers or investors.
The first group pays no stamp duty on a property not exceeding £150,000. Thereafter the thresholds are higher than for existing owners buying a new home. They are 3 per cent (£150,001£200,000); 3.75 per cent (£200,001£250,000); 4.5 per cent (£250,001£300,000); 7.5 (£300,001£500,000); and 9 per cent on anything in excess of this.
It is also worth remembering that, regardless of price, residential property which fulfils the criteria for the first-time buyer's grant on floor area will be exempt regardless of price. This will mainly affect a small number of properties in urban centres.
The constraint is that you must be a first-time buyer, not just in Ireland but anywhere. This is the same as the provisions for the first-time buyer's grant disbursed by the Department of the Environment, contrary to information provided two weeks ago. This is why you would not be eligible to such relief. It is the purchase and not your residence for tax purposes at the time which counts. It would not have mattered if the house had been bought here, in England or elsewhere and a declaration to the effect that such a purchase has not taken place is required certainly to avail of the first-time buyer's grant. I imagine the same set-up will apply for stamp duty relief.
The rates of stamp duty applying to other owner-occupiers are slightly different, as are the bands within which it is imposed. Stamp duty kicks in at 3 per cent on homes worth £100,000 with the higher bands being activated at £150,001 (4 per cent), £200,001 (5 per cent), £250,001 (6 per cent), £300,001 (7.5 per cent) and £500,001 (9 per cent).
For investors, the structure is very simple. Stamp duty is charged at 9 per cent regardless of the value of the house.
One other point people should remember is that the lower rates can be withdrawn if the house is let within five years of purchase, a provision that could lead to some startling retrospective tax bills in today's more mobile workforce.
A separate point you may need to consider is the anti-speculative tax being implemented on second homes with certain exemptions. You don't say whether you have other property abroad but you certainly have this holiday home and intend to hold on to it. You also do not say if this home was purchased under any of the schemes allowing relief although it would seem unlikely if you were not a tax resident in the State.
Under legislation introduced last week in the new Finance Bill, any second home purchased after June 15th, 2000, will be liable to a 2 per cent tax for the first three years unless that home is the principal private residence or falls within certain other exemptions under existing relief schemes.
While any new home might well be your principal private residence, the secondary residence would then switch to the holiday home which, on my initial reading of the Bill, would become liable to this 2 per cent charge even though it was bought before the cut-off date.
For those already in the process of buying a home, the Bill is making allowance for transitional arrangements. Anyone who had entered into written contracts before June 15th, 2000, will be eligible to avail of these provisions provided the deal is completed by January 31st, 2001.
I bought a house in 1990 and sold the house in 1995, since then I have been renting. If I were to buy a house now, either new or second-hand, what are the implications of the Bacon report for me given I no longer own a house but am not a first-time buyer?
Ms M.K., e-mail
You will pay as an owner-occupier at the rates quoted in the above answer unless you are buying a newly-built home which would be exempt from stamp duty due to its size and certain other restrictions as pertained before the third Bacon report or unless you are able to avail of transitional arrangements applying to those who have entered written contracts before June 15th last and will close the purchase before the end of January next year.
As long as the home becomes your principal private residence, you would not be at risk from investor rates, but the first-time option is beyond you by virtue of the fact that you previously owned a property even if you no longer do so.
