Dominic Coyleanswers your questions.

Tax trap for absent owners

I have a half share in the family home and this is the only property I have. It is agreed that the property will now be sold and the proceeds shared with my former spouse.

It was purchased in 1980 but I have not been resident there since 2000 (I rent an apartment).

I have been recently told that I am liable to capital gains tax on part of my share of the proceeds. Since this is the family home, I understood it was exempt from tax. What is the correct position?

Mr A.D. Dublin

Just when you think you know the rules, something comes up and nips you. On first glance, I thought the answer to your question was straightforward. As you say, one's principal private residence is not subject to capital gains tax. Point. Ends.

Now I am told this is not necessarily the case.

The Revenue assures me that there are two elements to the capital gains tax exemption on one's main home - ownership and occupation.

The first element is fairly straightforward. You are the joint owner of this property, it is your only property and therefore on that measure its sale qualifies for the capital gains tax exemption.

It is the second element that is now causing you some trouble.

Apparently, if you do not occupy this principal private residence as owner occupier, you effectively lose the capital gains tax exemption granted to the principal private residence. In essence, you are being treated just like someone who left their home and rented it out as an investment.

It is true, in general, that owners of a principal private residence are, by definition, owner occupiers.

However, the realities of modern Irish society are that you have a number of property owners who no longer reside in the main family home - for marital, employment or other reasons - but who do not own any other property.

Despite the fact that you clearly have not made the sort of financial gain as a landlord that this interpretation of the capital gains tax code was designed to address, you find yourself in a position where you have a tax liability.

To me, this is manifestly unfair, so much so that I would suggest you challenge this interpretation of the rule.

As it stands now, you will be deemed not to have been an owner occupier for the last seven years of the 27 years of ownership of this property.

Under the rules of capital gains tax, a homeowner - including an absent landlord - is deemed to be an owner occupier in the last 12 months of ownership, whether or not they actually live in the property for that period.

Thus, you are deemed for CGT purposes to have lived in the property for 21 of the 27 years of ownership.

For the balance - six twenty-sevenths, or 22.2 per cent - you are liable for capital gains tax.

Of course, as you are joint owner of the property, you will be liable for 22 per cent of half the price of the property - although obviously you will be deemed to have paid only half the purchase price.

You are, of course, allowed to deduct costs incurred in buying and selling the property.

You are also allowed to apply an inflation multiple to the original purchase price to reflect the falling value of the investment - at least up to the end of 2002.

Depending on whether you bought the property before or after April 6th, 1980, you can multiply the purchase price by a factor of 3.742 or 3.24 respectively to arrive at a new "indexed" purchase price.

Oh, and by the way, the recent stamp duty relief that says divorcees can be treated as first-time buyers won't help you either.

Apparently it only applies to people who receive no benefit from the family home. As you are receiving half the value of any sale - albeit before CGT - you would not be eligible to such relief.

Investor issue

In a recent Q&A, under the heading "residence query", you state that "the rules on investment properties hold that the last year of ownership is always considered to be owner occupation".

Could you elaborate on the implications of this statement for an investor? Does rental income or capital gains tax have any connection with the statement?

Mr J.D., Kildare

The situation is exactly the same for all property owners but, clearly, is of particular relevance to investors.

Normally, when selling a house you are liable to capital gains for any period when the house was let out. For an investor, this can be the whole period of ownership.

However, the rules state that, when assessing liability to capital gains, the final 12 months of ownership is deemed to be as owner occupier, regardless of whether the owner actually does occupy the property.

Indeed, it doesn't matter if you ever occupied the premises in question.

Thus, if, as an investor, you owned a house for 10 years, you would be liable to capital gains on only nine-tenths of the gain.

This clause relates only to capital gains.