The seven-year exemption from Capital Gains Tax

IN ORDER to boost the property market, an exemption from Capital Gains Tax (CGT) was introduced in 2012. It has attracted a lot of foreign capital to Ireland.

The property has to be bought between December 2011 and the end of this year. The price paid has to be market value but if bought from a relative then the price actually paid must be at least 75% of the market value of the property.

Because of EU rules, the property can be located anywhere in the EU but it is for investment in Ireland that the incentive was introduced.

The property bought must be used for a taxable activity so that if just held it will not qualify.

The rate of CGT has now risen over the last 6 years from 20% to 33% but it is generating very little yield to the Exchequer as many people have large losses. These losses can be carried forward indefinitely. Losses on AIB and Bank of Ireland shares are only allowable where the shares are actually sold.

A typical investor, under the new incentive, is an Irish person working abroad who wants to own something at home for sentimental reasons and to avail of the bargain prices.

Most of the funds tend to come in from abroad and the Irish banking system will only have a marginal impact on the financial arrangements.

The investor must own the property for at least 7 years to qualify for the exemption. If they sell the property after, say, 8 years then1/8th of the gain is taxable and the other 7/8th is exempt.

The Irish CGT exemption will most likely not be recognised abroad in whatever country the investor resides. However, if the investor does not remit the proceeds of sales to his country of residence then no local CGT may arise.

An Irish resident investor has no such problem. Once the property is sold and the 7 year exemption claimed with the balance of the ownership period liable to CGT. After paying tax on the liable proportion he is then free to do as he likes with the funds.

The Minister for Finance has stated that the relief will not be extended to purchasers beyond 31st December 2014.

What this means is that a buyer must sign a standard Contract of Sale before the end of the year. The fact that it might not close until late January 2015 should not deprive the buyer of the CGT exemption.

The experts say that a large number of Buy-to-Let properties will be repossessed by the Banks and will be coming to the market.

There appears to be attractive opportunities for investors between now and the end of the year.