I purchased two adjoining semidetached houses for €550,000 last year, both were purchased together in one lot at auction. I have since decided to sell one and keep the other as a rental.
The one I put on the market has just gone sale agreed for €350,000. Both properties had been on a single folio which we separated after the sale closed. Given the fact I have still not made a gain on my initial outlay, will I still be liable for capital gains tax (CGT)?
In this case, you must identify what cost relates to the property you are selling. The legislation in section 557 of the Taxes Consolidated Act sets down rules for calculating the allowable part of the cost in the case of the disposal of part of an asset.
The sum of the cost to purchase the property being sold will be allowable as a deduction in calculating the “gain” on its subsequent sale. This is calculated in proportion to the value of the sale over the value of the property that remains in possession of the owner, ie the rental property you have kept. The rest of the expenditure will effectively be attached to the property that hasn’t been sold.
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Broadly, in this case, if the market value of both houses is similar, the result of this will be that the base cost should be apportioned evenly. Your base cost would then be €275,000. Without including any other costs, you would have a chargeable gain on sale of approximately €75,000. The rate of CGT arising is 33 per cent.
Suzanne O’Neill is a tax partner at RSM Ireland
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