We built our home in 2004. When the crash happened in 2008, we tried to sell our home but failed. We moved abroad to work between 2010 and 2013, renting out the home during this period until our return. We have lived in the house since it was built in 2004 until now except for those 3½ years when we had to leave for work.
We are now considering selling the house. Are we liable for capital-gains tax (CGT) for the period we were abroad? And as it was a new build, how do we know the market value of it in 2004?
We are also considering renting the house out now for a year before we sell it. We could then move back in to prep it for sale. If rented for that year, are we liable for CGT?
Ms C.B.
On the Money: the personal finance newsletter from The Irish Times
The key decisions now facing Donald Trump which will have a big impact on the Irish economy
‘I feel Irish Rail are just running down the time and hoping I will go away’
Pulling in top talent: Doggy day care, free lunches, pensions - not all perks are created equal
* This is an experience that will resonate with many people up and down the State who were forced to move in search of work after the financial crash. It was a very traumatic time for many families, not helped by the fact that, in general, those most vulnerable would have been at earlier stages in their careers.
That meant that, where they had families, they were very young, and where they had bought a home, they had little or no equity in it – not least because of the 100 per cent-plus mortgages they held due to the reckless lending by Ireland’s banks, which played such a large part in the scale of the crash fallout here.
What little equity they may have had, if any, was quickly wiped out as property prices plummeted, leaving all too many people in the same position as you – unable to sell their homes to start again elsewhere because the prices achievable would not even have met the outstanding mortgage.
While no capital gains tax applies on the purchase and sale of a principal private residence – your family home – that is only on the basis of it not being rented out. And that certainly was not a practical proposition for people who found themselves in a position similar to you back when the crash happened.
However, there is relief available to you. There are a small number of scenarios where you can retain principal private residence relief from capital gains tax and one of them covers time where you had to work abroad – as long as all the duties of that job took place outside the State.
Revenue has confirmed that in this scenario, renting out your house while you were abroad will not impact on the principal private resident relief – as long as you were working for someone else when you were abroad. Periods of self-employment are not covered.
So, assuming you worked for some company when you were abroad after the crash, you will not have any capital gains tax to worry about for those three and a half years that your home was rented out.
However, that may not apply in the circumstances you outline at the end of your query where you are now considering renting out the property for another year before selling it.
There is a provision in the capital gains tax code that any rental in the final year of ownership of a family home is exempt from consideration for capital gains tax – but it only applies to the 12 months up to the sale. If you were to rent the property now for a year and then move back in to prepare it for sale, as you are considering, then only part of the rental period would be excluded.
How much depends on how long it takes you to prepare and then sell the house. In the current housing market, you might expect property to sell very quickly but that depends both on its location and the type of property. I have seen several properties close to where I live on the market for well over 12 months – never mind the time spent staging them in advance of that.
In that case, the whole of this extra year of rent would have to be taken into account when assessing capital gains.
Only when you finally sell will you know the position definitively and be able to accurately assess the amount covered by capital gains tax.
Sorting out how to value the property when you built it is now a moot point in your case as there is no capital gains tax liability due to your working abroad at that time. However, for others who may find themselves in need of a valuation dating back many years to a property they built themselves or had built, it is worth explaining.
So how do you go about valuing a home you built 20 years ago?
Revenue says you need to tot the “consideration, given wholly and exclusively by the taxpayer or on his or her behalf for the acquisition of the asset. Where the asset was created by the person making the disposal, it is the expenditure incurred in creating the asset which is allowable.”
In simple language, this means it is the actual cost of the land and the cost of building the property back then that counts, and not what the market value of such a property in that area would have been at that time. That position is dependent on you not buying the land from a relative.
So, for those in that position, you do not need to approach a value. However, you will need to keep records of the cost of buying the land and the costs of construction so that you can make an accurate determination of an y capital gain, if necessary, down the line.
* This article has been amended to state that renting out your home while you were working outside the State for an employer does not impact the capital gains tax exemption on the family home. We have also amended the detail on valuing a property built by the owner to note that the relevant base cost is the cost of buying the site and the construction costs, not the market value of the property when built.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
