CAPITAL GAINS TAX EXEMPTION TO END

THE present 7 year Capital Gains Tax exemption is not being extended past the last day of the year.

Under the legislation, if the owner bought the property in the period from December 7 2011 to December 31 2014 and uses it or rents it for seven years and then sells it, then the gain will be exempt from Capital Gains Tax.

It is not too late to take advantage of this tax break – as long as you have signed an unconditional Contract to buy the asset before December 31 2014 then you will be in time. The sale does not have to be closed by year end, typically closure one month after signing of the contract will be sufficient to qualify as a pre–December 31 purchaser.

However, if you buy property and you make the closing of sale subject to getting Planning Permission then the effective sale date is not that on signing the contract but rather the date that planning is granted.

There is no prohibition on buying property from a relative or from a connected company except that you must pay a price at least equal to 75 per cent of the market value of the property.

If you have large Capital losses forward as a result of the property crash then it is unlikely that the seven-year tax holiday will be attractive as Capital Gains Tax losses can be carried forward to go against future gains.

Not all losses can be offset. Suppose you have a large potential loss on a property and in order to crystallise it, you transfer it to your child. This creates a connected loss but unfor- tunately connected losses can only be offset against connected gains made on transfers to the same person. Therefore, don’t transfer property to relatives, thinking that you have crystallised losses for offset against current or future unconnected gains.

Where there is a Capital Gain arising on a transfer to a relative and also a Gift Tax liability, as the relative did not pay anything for the asset, then you can offset the Capital Gains Tax against the Gift Tax so that only one tranche of Tax has to be paid. The current rates of Capital Gains Tax and Gift Tax are 33 per cent – in the good old days before the Crash they were both 20 per cent.

When has Capital Gains Tax to be paid? If you sell something between January 1 and November 30 it is due on December 15. If you sell in December it is due on January 31. Thus, the best time to sell something is in January as you have the use of the tax money for eleven months and the worst months for selling are November and December.

Given the very low deposit interest rates from the banks, if you have surplus funds then you may be correct to put them into property. However, if you have to borrow some or all of the funds then you will most likely not make it by year end. The banks have introduced Forms and Procedures which are difficult to deal with and take up time.

If they had a quarter of these measures in force prior to the Crash then they would not have to be rescued by the Irish taxpayers.