Q: I have just read the answer to a query in the Property Clinic in The Irish Times. In it you state that one can sell one’s principal primary residence without incurring Capital Gains Tax.The site under discussion is a development site with planning permission for four houses. In 2006 we sold our principal primary residence (a 1960s bungalow) on 2/3 of an acre in Co Dublin to a developer who had pursued us for years to sell and we were told we had to pay Capital Gains Tax. We hadn’t sought planning permission for the site. We didn’t get the full amount for the house until one year after signing the contract. Having got the money we paid the CGT even though we didn’t get a bill. We were expected to know that we had to pay. Some time later we received a bill from Revenue requesting interest penalty payment on the CGT as we hadn’t paid it immediately on signing the contract. Has the law changed since 2006 or were we “robbed”? It doesn’t seem fair does it?

A: The relief referenced in the previous query is Principal Private Residence (PPR) relief. In certain circumstances, PPR relief may exempt a chargeable gain arising on the disposal of a person’s dwelling house from CGT. An individual’s PPR and land of up to one acre may be exempt from CGT if the individual has used the house as their PPR throughout the period of ownership. PPR relief is calculated based on a comparison of the period of occupation of the premises as a PPR and the total period of ownership.

However, PPR relief is restricted to the gain that would have arisen if the property was both bought and sold for its value solely as a residence. If upon disposal part of the value of the property is attributable to development value, PPR relief does not apply to this part of the gain. Development land is defined as land which at the time the disposal is made, the consideration or market value exceeds the Current Use Value. Current Use Value is the market value of the land if it were unlawful to carry out any development.

Based on the description of the transaction provided, it would appear that the developer may have paid an amount in excess of the current use value of the property, ie the value as a residential property, and therefore the development value would have been subject to CGT.

CGT is a self-assessment tax. This means that it is the taxpayer’s responsibility to pay their tax and file their tax return, unprompted by Revenue. Where an individual has overpaid tax and is due a refund, a claim for the repayment of tax cannot be allowed by Revenue where it is made more than 4 years after the end of the tax year to which the claim relates. Unfortunately, as the transaction outlined below was completed in 2006, the timeframe for a successful refund claim with Revenue has passed.

Published in The Irish Times