CAPITAL GAINS TAX AND END OF RELIEF

PROPERTY INVESTMENT & THE END OF CAPITAL GAINS TAX EXEMPTION:
As we are approaching the final quarter of 2014 it is worth noting that the current Capital Gains Tax exemption available on property purchased before the end of the year and held for seven years is due to expire. With the improvement in the general property market and positive economic indicators those in a financial position to acquire property may benefit considerably from making use of this tax relief.
This relief from Capital Gains Tax was initially announced in the 2012 Budget and was originally only for property acquired before the end of 2013 but this was extended to the end of 2014.The Minister for Finance Michael Noonan has recently stated that this relief is going to be removed from the end of this year and will only apply to properties that are acquired before 31st December 2014.
How the relief works: Basically the relief applies where land or buildings are acquired and held for a period of seven years. Any capital gain on disposal referable to that seven year period is tax free (no income tax or capital gains tax). If you hold the property for longer than seven years then the relief will operate on a time apportioned basis.
For example, Mary acquires a property this month (September 2014) and sells in 7 years’ time with a capital gain of €100,000 there is no Capital Gains Tax liability. If Mary holds the property for 10 years and again there is a gain of €100,000 only 7/10 of the gain is tax free, being €70,000 and the remaining €30,000 is taxable under Capital Gains Tax rules at the current rate of 33%.
This relief could potentially be joined effectively with a sale and leaseback option of premises held within business structures, giving an added incentive for the investor and the business owner. In such instances investors may be interested in acquiring premises and renting back to the businesses at a rent less than current debt repayments on the same asset thereby freeing up internal cash flow that would not otherwise have been accessible to the business.
Overall, with the poor return on cash deposits held in banks for those with funds to invest and prepared to take the additional risk this may be an opportunity worth considering before the end of the year.
Clive Kavanagh, MSCSI, MRICS is a Director of Jordan Auctioneers & Chartered Surveyors with 12 years experience across all property sectors.