I acquired a suite in a hotel some 17 years ago claiming full tax relief over the following 7 years under the hotels’ allowances scheme. The hotel closed seven or eight years ago and is now in a total state of disrepair; unoccupied; and worthless. Am I in a position to claim the full cost of this investment as a loss for capital gains tax purposes?
In general, the occasion of complete destruction or extinction of an asset is treated as a disposal of the asset for capital gains tax purposes, even where no capital sum is received by way of compensation or otherwise. This may give rise to a loss, or a gain if compensation is received. This is often referred to as a ‘negligible value claim’.
The word negligible is not defined under Irish tax legislation and therefore takes its normal meaning i.e. not worth considering; insignificant. The Irish legislation relating to a ‘negligible value claim’ is not intended to be a provision for making losses available on an artificial basis in circumstances where there would be no impediment to their actual disposal in the market place. Therefore, the owner of the asset must make a claim to Revenue for the allowance of a loss on an asset the value of which has become negligible even though the asset remains in existence. If, on a claim being made, Revenue are satisfied that the value of the asset has become negligible, they may allow a loss.
If a claim is accepted by Revenue, the person disposing of the asset is treated as if he/she had sold it and immediately reacquired it for a consideration equal to its market value at that time. The loss is computed based on the amount equal to the value specified in the claim.
On a strict interpretation of the Irish legislation, a loss arising on a deemed disposal is allowable only in the year of claim. However, in practice, Revenue have permitted a claim made within twelve months of the end of the year of assessment or accounting period for which relief is sought, provided that the asset was of negligible value in the year of assessment or account period concerned.
Expenditure which qualified for capital allowances is not ineligible for deduction in computing chargeable gains. However, where a loss arises on the disposal of the asset, the amount of the loss available for set-off against chargeable gains is restricted by any capital allowances claimed. Therefore, where allowable expenditure on the asset has already been fully recouped by way of capital allowances, the Irish tax legislations, precludes relief for the loss incurred i.e. expenditure which has fully qualified for capital allowances restricts a negligible loss claim and, in such circumstances, the capital loss is not available for offset against capital gains.
Susan Blake, Tax Manager, RSM Ireland.
As seen in the Irish Times Property Clinic 24th January, 2019