A Reminder Of The 7 Year CGT Exemption
Did you purchase a property anytime between 7 December 2011 and 31 December 2014? If so, now may be a tax efficient time to consider selling.
The 7 Year CGT Exemption was originally introduced by way of Finance Act 2012 with the intention of boosting investment in Irish properties during the last recession.
The scope of the exemption was widely drafted and is available in respect of land or buildings situated in all EU Member States (including Ireland) and also, Norway, Iceland and Liechtenstein. In addition, the exemption is available for both commercial and residential properties and irrespective of whether the property was purchased by an individual or a company. There is also no limit on the amount of the gain which may be relieved which could result in the exemption being very valuable indeed.
When originally introduced, the investor was required to hold the property for a minimum seven year period in order to avail of the exemption. The unintended consequence of this condition was that investors seemed to be holding onto Irish properties for longer than they otherwise would have which in turn led to a stifling of the Irish property market. In order to deal with this issue, Finance Act 2017 reduced the holding period for qualifying properties from seven to four years.
Following this amendment, a full CGT exemption would be available were a qualifying property was held for at least four years and up to seven continuous years. If the investor held the property for in excess of seven years, partial relief from CGT would be available.
So, for example, say an investor purchased an Irish commercial property during December 2014 for €500,000 and the property is now worth €800,000. In the absence of any relief, CGT of circa €100,000 should arise in respect of the disposal. However, provided that the property is disposed by December 2021, any gain realised on the disposal should be wholly exempt from tax.
Alternatively, say the investor held onto the property for a further five years to December 2026 at which time the property had increased in value to €1 million. In this case, the CGT arising for the investor would be circa €68,000 (assuming the current CGT rate of 33% would still apply).
The somewhat impossible question for the investor is whether to exit now with tax certainty or hold for the long-term with the associated risks of a fluctuating property market and an ever more uncertain economic environment.
The decision to sell a property is a big one. If this is something you are considering, we encourage you to make a better decision and contact Gordon, Gerry, Eamonn or Gillian in the tax team.
So, for example, say an investor purchased an Irish commercial property during December 2014 for €500,000 and the property is now worth €800,000. In the absence of any relief, CGT of circa €100,000 should arise in respect of the disposal. However, provided that the property is disposed by December 2021, any gain realised on the disposal should be wholly exempt from tax.
Alternatively, say the investor held onto the property for a further five years to December 2026 at which time the property had increased in value to €1 million. In this case, the CGT arising for the investor would be circa €68,000 (assuming the current CGT rate of 33% would still apply).
The somewhat impossible question for the investor is whether to exit now with tax certainty or hold for the long-term with the associated risks of a fluctuating property market and an ever more uncertain economic environment.
The decision to sell a property is a big one. If this is something you are considering, we encourage you to make a better decision and contact Gordon, Gerry, Eamonn or Gillian in the tax team.