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Property Law Property Purchases and Sales

Capital Gains Tax on Property Sales-the Essentials

Capital Gains Tax (CGT) arises when there is a chargeable gain on the disposal of an asset. CGT is calculated on the gain on the disposal of an asset.

For example, if you buy a house for €150,000 in 2011 and sell for €195,000 in 2020 the tax is charged on the gain of €45,000. You will have certain expenses which you are allowed to write off, and you may have a tax exemption you can avail of, too-for example, principal private residence relief.

The capital gains of a company are generally, but not always, charged to corporation tax.

The disposal of an asset includes:

  1. The sale of an asset
  2. The gift of an asset
  3. A part disposal
  4. The setting up of a trust

Allowable deductions in calculating your capital gain

Allowable deductions include

  1. The cost of the asset together with the costs of acquisition
    This would include stamp duty in the case of property, legal fees, auctioneering fees.
  2. The amount of capital expenditure spent on the asset.
    This would include the cost of improvements to the asset-for example, an extension to the property.
  3. The costs of making the disposal.
    This would include solicitor’s fees, auctioneer’s fees, and any other incidental costs in respect of the disposal.

The multiplier

CGT was introduced in 1975 and a table containing a multiplier was introduced to take into account the effect of inflation on assets and had the effect of increasing the base cost of the asset. After 1st January 2003 indexation is not allowed for acquired assets.

Losses

Capital losses can be used to offset gains and unused losses can be carried forward to later years.

Annual exemption

Individuals have an annual exemption which can be deducted from the gain before calculating the appropriate tax. This annual exemption, or any unused portion, cannot be carried forward to later years. In 2020 the annual exemption is €1,270.00.

The rate of CGT in Ireland is 33% for most gains.

Capital Gains Tax Computation

Proceeds of sale/disposal xxxxxxx

LESS

Cost of asset (xxx)

Cost of acquisition of asset (xxxx)

Enhancement expenditure on asset (xxxx)

CHARGEABLE GAIN XXXXX

LESS: 

Allowable losses (xxx)

Annual exemption (xxx)

TAXABLE GAIN XXXX

TAX AT CURRENT CGT RATE (33%) x

Note: if the asset was purchased before 1st January 2003 indexation will be allowed in calculating the cost of the asset, cost of acquisition, and enhancement expenditure, if any.

Voluntary transfers

For the purposes of CGT a voluntary transfer is a “disposal” and may give rise to a CGT liability. The cost of the asset will be the market value at the time of transfer.

Part disposals

CGT also applies to part disposals.

The formula for calculating the cost of the part which was sold is as follows:

Total cost of asset X Sale proceeds/Sales proceeds plus market value of the retained portion

For example, asset cost €200,000 and part was sold for €150,000 and the unsold part is valued at €100,000

€200,000X€150,000/150,000+€100,000=€120,000.

So, €120,000 is the cost of the  part disposal. 

Therefore the capital gain is €150,000-€120,000=€30,000.

Development land

Development land (land whose market value exceeds its use value), from the perspective of CGT, has had special rules and a company must pay capital gains tax on such disposals, not corporation tax. Indexation Relief applies only to the current use value at the time you became the owner. The development value (current use value deducted from the market value) is an allowable expense but cannot be indexed.

There is no CGT on wasting chattels-that is, an asset that has a predicted life of less than 50 years. A lease, however, does not qualify for the exemption. Compensation and winnings are also non-chargeable gains.

CGT Reliefs

  1. Principal private residence relief
    There is no CGT on the disposal of your principal private residence including grounds up to 1 acre. the house must have been occupied as her main or only residence throughout the period of ownership. There are periods of deemed ownership-for example, you may have been working abroad.
  2. Dependent relatives and principal private residence
    If a dependent relative has been occupying your house, rent free and with no consideration, there is a relief available.
  3. Transfer of a site to a child
    The market value of the land being transferred must not exceed €500,000 and the site’s size must not exceed 1 acre. The purpose of the transfer must be for the child to build a dwelling and the child must occupy the property as his principal or only residence. Failure to comply with these requirements may result in a clawback of the relief and a CGT liability.
  4. Credit of CGT against CAT
    In an inter vivos transfer there is a relief which allows the person paying CAT/gift tax to reduce the amount of CAT payable by the amount of CGT paid by the donor/disponer/person making the gift.
  5. Inter vivos disposal between spouses
    No CGT arises from a transfer between spouses provided they are living together.
  6. Assets passing on death
    There is no charge on the estate of a deceased person where the assets of the deceased pass on his/her death.
  7. Settled property
    There are two reliefs which trustees might avail of: i) principal private residence relief ii) retirement relief
  8. Disposal of business or farm (“retirement relief”)
    Where an individual disposes of his business or farm to his children there may be “retirement relief”, provided the value of the assets does not exceed €750,000 or €500,000. The qualifying criteria are that a) it must be an individual b) over 55 years c) he is disposing of qualifying assets
  9. Disposal of business to a company
    This arises where an unincorporated business is transferred to a company; there is a deferral of the tax payable on the amount of the consideration for the transfer taken in the form of shares in the company.

Conclusion

Always obtain tax advice if you are buying or selling property because the consequences of mistakes in respect of capital taxes such as capital gains tax and capital acquisitions tax can be costly.

Categories
Property Law Property Purchases and Sales

Commercial Property Investment-4 Vital Things to Consider

Thinking about buying a commercial investment property? There are a number of factors you will need to consider. 

Here are four important ones: 

1. The tenant

The quality of your tenant is critically important because it will determine how sound your rental income stream will be. Having a major retail brand or franchise as a tenant is a huge advantage over having a one man or woman business.

If there is difficulty in collecting the rent you can certainly go to Court and get a Court order for vacant possession and a judgment for the outstanding rent and costs. But this judgment will be of little value if you cannot enforce it and your debtor simply does not have the money to pay the judgment amount. This is a strong possibility with an inexperienced sole trader.

You will also have incurred your own legal costs and you can be sure your solicitor will want to be paid.

So, a weak tenant carries inherent and obvious risks from the outset.

2. The physical condition of the property

The physical condition of the property is worth considering carefully if you want to avoid a property which will require significant expenditure in maintenance or repair and refurbishment. The type of lease in place will determine who is responsible for repairs and maintenance to the building so this would want to be checked before investing.

3. Location

The location of your investment property is vitally important for a number of reasons. Firstly, from the perspective of selling the property on when you are ready. Secondly, if you have to evict the tenant or he does not renew the lease you will have to find another tenant and the location, if good, will make this a much easier task.

On the other hand the business that was carried on may have been one which relied to a large extent on the business and personal contacts and reputation of the tenant. It may be difficult to re-let the premises if it is in a secondary location and is only suitable for a small number of businesses.

4. The legals

You will need to ensure that all legal, planning, and regulatory matters are in order. This involves checking that good title is being offered, the planning and building regulations/building bye-laws are in order, the terms and conditions of the existing lease, and any rates or management company liabilities have been fully discharged and there will be no unpleasant surprises for a buyer of the building.

Conclusion

Buying a commercial investment property is broadly similar to buying a residential investment property. You are more likely, however, to have a sitting tenant with a commercial property and you may be buying a property that is subject to a long commercial lease-for example for 15, 20, or 35 years.

Categories
Property Law Property Purchases and Sales

Signing a Contract in Trust Where Principal Did Not Exist-Interesting Court of Appeal Decision

Signing contract in trust

The Court of Appeal handed down an interesting decision in this case involving the sale of land.

The facts were that Mr Gibbons was selling real property and Mr Doherty signed the contract for sale in trust and on behalf of a limited company. Mr Gibbons then nominated the beneficiary of the trust and the purchaser as ADT Investments Limited.

ADT Investments Limited was unable to complete the purchase and Mr Gibbons then sued Mr Doherty and ADT Investments Limited for specific performance of the contract. Mr Gibbons argued that as the company was not incorporated at the time of execution of the contract by Mr Doherty he was entitled to sue Mr Doherty in his personal capacity for specific performance.

The High Court refused to agree with Mr Gibbons who then appealed to the Court of Appeal.

The Court of Appeal agreed with the High Court decision and dismissed the appeal.

The Court of Appeal held General Condition 30 of the Law Society General Conditions of Sale, 2001 Edition permits a person to sign a contract in trust or as agent.

And importantly it does not expressly provide that the beneficiary or principal be in existence at the time of the contract. It also observed that that commercial reality sometimes demands that contracts be signed in trust and once the principal is in existence to complete the transaction there is no obvious problem.

You can read the full decision of the court of Appeal here (Gibbons -v- Doherty & anor [2019] IECA 275)

Categories
Property Law Property Purchases and Sales

Problems arising with title to your property-statutory provision to the rescue?

buying irish property from abroad

The Land and Conveyancing Law Reform Act 2009 may come to your rescue if there is a problem with the title to a property.

Recitals

Section 59(1) provides

59.— (1) Recitals, statements and descriptions of facts, matters and parties contained in instruments, statutory provisions or statutory declarations 15 years old at the date of the contract are, unless and except so far as they are proved to be inaccurate, sufficient evidence of the truth of such facts, matters and parties.

Rent of leasehold

Section 59

(2) Where land sold is held under a tenancy (other than a subtenancy), the purchaser shall assume, unless the contrary appears, that the tenancy was duly granted; and, on production of the receipt for the last payment due for rent under the tenancy before the date of the actual completion of the purchase, the purchaser shall assume, unless the contrary appears, that all the covenants and provisions of the tenancy have been duly performed and observed up to the date of actual completion of the purchase.

All estates

Section 76 states

76.— (1) Subject to subsection (2), a conveyance of land passes all the claim, demand, estate, interest, right and title which the grantor has or has power to convey in, to or on the land conveyed or expressed or intended to be conveyed.

(2) This section takes effect subject to the terms of the conveyance.

Receipt clause

Section 77 (1) states

77.— (1) A receipt for consideration in the body of a deed is sufficient discharge for the consideration to the person giving it, without any further receipt being endorsed on the deed.

Implied covenants

Section 80 Land and Conveyancing Law Reform Act 2009 sets out the implied covenants in a conveyance for value. These implied covenants would include

  • The vendor has full right to convey the property
  • The vendor warrants a covenant for quiet enjoyment
  • The vendor warrants the property is free from encumbrances
  • The vendor will execute further assurances to vest the interest contracted, if necessary.

Statutory acknowledgment and undertaking

Section 84 binds the person in possession of documents to produce them for inspection or in court to establish title and to furnish copies on request.

Categories
Property Law Property Purchases and Sales

How to Negotiate Successfully-10 Tips for Effective Negotiations

negotiation tactics

Many people do not like to negotiate or haggle. But it is essential in our daily lives and we are regularly forced to negotiate whether we like it or not.

It may be with a loved one, with a child, with a service worker at an airline desk, with a receptionist in a hotel, with a Judge or member of an Garda Siochána, with a referee on a sports pitch, with an adjudicator at a WRC hearing, or when you are buying something like a car or a house or business.

If you accept this, you might as well learn how to do it successfully and for the best possible outcome.

I have negotiated to buy and sell property for over 30 years and I have learned, through practice and research, some useful tactics to the best results.

Let’s look at what I have learned, shall we, in the context of buying a house?

1. Listen carefully and aggressively to the other side

You need to listen very carefully to what the other side is saying because you will usually pick up some vital clue as to the other party’s real position-their real position as opposed to what the auctioneer says is the reason for sale. You may not meet the vendors themselves but if you do it is a good opportunity to pick up some vital clues about the property and the motivation for sale.

You need to practice the same aggressive listening skills when speaking with the auctioneer and the staff working in his/her office. It is amazing what you might hear in an unguarded moment when you speak with a busy receptionist or support staff.

You may not hear anything but keep in mind you have two ears and one mouth for a reason.

2. Adopt a friendly/playful voice

The tone of your voice and your general demeanour are factors in how the other side will react to you and your position. A friendly, non-threatening voice is the one I have found most helpful.

3. Tactical empathy

Showing empathy for the other party’s position is valuable and is only possible when you follow the advice in number 1 above: listen carefully to the other side.

4. Be prepared to walk away

No deal is better than a bad deal and you do need to be prepared to walk away. Splitting the difference is a lazy, misguided way of negotiating.

5. Getting to ‘no’

Forget about getting to ‘yes’ because you can very easily get to a false ‘yes’ which will not be delivered upon; you are better off getting to ‘no’ from the other side as you will have a better idea of their true position.

6. Deadlines can be an ally

You can make time your ally by recognising that even if a deadline is missed a new one can easily be introduced. Don’t rush into a bad decision, though, just to meet a deadline-let the other side worry about the deadline.

7. Stay calm

Keep your emotions in check, adopt the approach that ‘it’s just business’ and there is no need to lose the head or get carried away.

8. Most important word in negotiations

The most important word in negotiations is ‘fair’. If you tell the other side you only want what’s fair or want a fair deal you are more likely to get a deal.

9. Don’t ask ‘why’

Ask how or what questions, not ‘why’ questions. For example, ‘how am I supposed to do that?’, ‘how am I supposed to pay that much?’ Such ‘how’ questions will encourage the other party to bid against themselves and try to find a solution to your problem.

10. Arrive at a precise, specific final offer

Make whatever offer you like-something between 60% and 80% of what you are eventually prepared to pay-and increase this by reducing increments to arrive at a final specific, odd number-never an even number.

This gives the other party the impression that this is your true final offer and you have thrown everything at it to do a deal. Offer an even figure and the other party will not accept you are at your limit.

Conclusion

Negotiation is not an art that you cannot learn, or which is only something that you can do naturally and you are a born haggler. Far from it. There is a science to negotiating, too, and following the 10 tips above will help you getter better deals. Over time you will get better and better at it.

Good luck!