Expiration of the Capital Gains Tax 7 Year Relief in relation to the purchase of certain properties

The Capital Gains Tax relief for property purchased between 7 December 2011 and 31 December 2014 will be soon expiring (the “Relief”). The Relief applies to residential and commercial property. 

The subsequent sale of property purchased between those dates can be fully or partially exempt from Capital Gains Tax if certain conditions are satisfied.

Recap of the conditions

(i)   The property must be acquired in the period commencing 7 December 2011 and ending on 31 December 2014;
(ii)  The property must be in Ireland or any other European Economic Area (EEA) state;
(iii)  The property must be acquired for consideration equal to market value;
(iv) If the property is acquired from a relative (being a brother, sister, uncle, aunt, niece, nephew, ancestor or lineal descendant), consideration of at least 75% of the market value must be paid; and
(v) The property must be held by the acquirer for at least 7 years.

If a property is purchased on or before 31 December 2014, held for 7 years and then immediately sold, the entire capital gain arising will not be subject to Capital Gains Tax.

Where the property is held for more than 7 years, the portion of the gain which relates to the 7 year period of ownership is exempt from Capital Gains Tax. Any period of ownership after the 7 years becomes liable to Capital Gains Tax. For example, if the property is sold 10 years after the purchase, 70% of the gain will be exempt from Capital Gains Tax. The balance of the gain (30%) will be subject to Capital Gains Tax.

Therefore, the timing of any sale in the future will need to be carefully considered. 

Timing of acquisition prior to expiration of the Relief – position in relation to conveyancing

Revenue has confirmed that the normal Capital Gains Tax provisions in relation to the timing of acquisition and disposal of assets continue to apply to the Relief.

In order to come within the scope of the Relief, an unconditional contract must be in place by 31 December 2014, although the conveyance or transfer of the property may take place after that date. Where a contract is subject to a condition precedent, the condition must be satisfied by 31 December 2014.

A Revenue guidance note is expected to issue shortly.

Other Issues – Stamp Duty

There is a low rate of Stamp Duty on residential property purchases (1% up to EUR1m and 2% on excess above EUR1m). A rate of 2% applies to commercial property purchases.

Owners of residential property will be subject to an annual property tax based on market value of the property (0.18% on value up to EUR1m and 0.25% of value in excess of EUR1m).

For further information, please contact:
Anthony Smyth - asmyth@byrnewallace.com
Patrick Mulcahy - pmulcahy@byrnewallace.com
Caitríona Callanan – ccallanan@byrnewallace.com