Property Clinic: While capital gains tax must be considered when selling, there are reliefs

I live in a Victorian house in Dublin. It is my principal private residence. I may consider selling the house in three years’ time depending on the implication of tax liabilities. If they are too costly it would not be worth selling as I could not afford to buy a smaller property in the same area.

I lived on the hall level first and then moved down to the basement. I have rented the hall level and completed annual tax returns and PRTB requirements. My query is as follows:

Can you explain what exactly ‘apportionment’ means? Do I get an agent to value the square footage of the rental portion of the house? Is it 33 per cent of that value or is it 33 per cent of the value of the entire house?

Also, I hear that I may be liable for two property taxes? Is this correct? My accountant never advised me about this, and I am very concerned.

I read a similar article in the Property Clinic on October 7th, 2021, by Suzanne O’Neill at RSM Ireland. Should I get a second opinion from a tax partner?

If I don’t sell, I need to spend considerable money upgrading the first-floor level to be able to futureproof renting ability. So, the lesser bill will aid my decision. I would appreciate advice at your convenience.

When selling your property, you need to consider any capital gains tax implications you may have. In this case, we will need to consider the use of principal private residence relief and a property acquisition relief, writes Suzanne O’Neill

Principal private residence relief (PPR)

You say that you have rented a portion of the property and lived in another section of the house. It is advised that you get an independent agent, such as a chartered surveyor, to determine the part of the property that you have occupied as your principal private residence. An apportionment based on square footage should be acceptable. It is this part of the property that will not be subject to capital gains tax, as PPR relief covers this for the taxpayer. It is important that the taxpayer has lived in the property or part of the property for the entire length of time they have owned it, otherwise PPR relief is reduced on a time basis.

Once the property is valued and the proportion of the property that has been occupied as their residence is determined, the taxable element can be calculated. The capital gains tax rate is a standard 33 per cent and will apply to the proportion of the property that has been rented.

Rent-a-room relief

You may be entitled to rent-a-room relief which was introduced in 2001. The relief can apply where a person lets a room(s) and can include a self-contained unit within the residence such as a basement flat or a converted garage attached to the residence. The entitlement to this relief depends on the level of rent received for the let part. Since January 1st, 2017, the annual limit on exempt income is €14,000. Before that it was somewhat lower. Where rent-a-room relief applies in any year, the PPR relief is not restricted.

Properties acquired from December 7th, 2011, to December 31st, 2014

Another possible relief available is for properties purchased between December 7th, 2011, and December 31st, 2014. Any gains that are made from selling the property can qualify for an exemption from capital gains tax. This exemption is dependent on the following criteria being met:

  • The property was owned for at least four and up to seven continuous years and,
  • Sold on or after January 1st, 2018.

It should be noted that the exemption is capped at seven years over the total period of ownership. For example, if the taxpayer owned the property for 10 years, the gain realised on the sale of the property will be reduced by seven years/10 years.

Local property tax

You will be liable to a single local property tax (LPT) charge for the residential property. The fact you are both residing in and renting the property simultaneously doesn’t affect the LPT position. The second property tax that was referred to may be the “non-principal private residence” charge that was in place from 2009 to 2013.

Published in The Irish Times. Answered by Suzanne O’Neill, Tax Partner at RSM Ireland.