Capital Gains write-off from Property

Hi All,
long time lurker…
Just wondering if any other self employed people have used the Capital Loss (Negative Equity) in their property (investment or PPR) as an offset against the sale of a business.

I’m sure there must be plenty of Pat the Plank types or humble software contractors who wish to extract income in this way

e.g. I own a limited company and invoice my customers and build up a profit- I pay Corporation Tax and after a few years sell my cash shell /liquidate the company and sell my house in the same year. I’ll lose say 100k on the house and will accumulate the same in my company.

Any thoughts on this for me?

  • if this is like I think it is surely there must be professionals all over the place doing the same?

[edit] yes I know I’d have to crystallise the loss by selling and would have to designate it as a non-PPR by renting it out. I paid hefty Stamp Duty and I believe I could also include this in the cost

You don’t pay capital gains on a PPR.

I have written off share losses against capital gains on a company wind up.

I would assume you need to crystalise the loss in order to use it.
I used to do this with shares via ‘Bed & Breakfasting’.
Slightly different to B&B’ing profits, due to the time lag needed between transactions, but otherwise the same thing.

As far as I know, if it was a loss from an Investment property…than yes you can write it off againts Capital Gains elsewhere

But if its your PPR, then u cannot offset it, as PPR would have had no tax due if you had made again.

Tax system is generally ‘symmetrical’…ie if a tax would have been due if you made a gain, then if u make a loss you can offset the loss…
But if no tax would have been due on gains, then you cannot offset losses

Same for Spread Bets and betting in general…cannot offset losses againts other CGT due as the whole betting lark is a tax-free adventure

Thanks - I know you don’t pay CGT on your PPR (and that this means a symmetry issue) - however, it’s easy to designate a PPR as an investment property - just rent it out.

Going the other way and claiming that a place you had rented out is now your PPR - not so much.

Yes - crystallising the loss is an issue; especially as a mortgage is in situ -(i.e. for the sake of argument - I couldn’t do a swap with my mate across the street like one might do for shares (B&Bing)).

wouldn’t the starting price only be set from the date that you start renting it out(thereby losing out on the prior loss in value) or, if you claim to have rented in the past, then you should have shown rental income in previous tax returns?

not sure but AFAIK:

If there was a capital gain it would apply from the original date of purchase - say one lived there for 15 years from 1990 to 2005 and then rented it for 2 years to 2007 and sold the CGT would be payable on the 1990 price (ignoring indexation)

No, the total gain or loss is determined and then the taxable (or tax allowable bit) is determined by time apportioning it (after allowing for an additional year as PPR). So, if you owned it for 10 years and let it out for 4 years then 50% of the loss would be allowable.

doesn’t using it as an office - also come in?

If you are writing off a portion of your mortgage as a self-employed person expense then CGT applies if you make a profit on it;

I’m speaking from a Sole Trader rather than Ltd Company experience

Er, maybe I’m very old-fashioned, but if I were you I’d ask a tax accountant rather than strangers on the Internet. (No disrespect meant to you or my fellow posters.) I know that my suggested approach runs entirely contrary to what seems to be standard Irish business practice, of course, but I threw that particular book out a loooong time ago.

don’t worry I will; it seems so straight forward I don’t understand why I haven’t heard of others doing it.

just trying so see if it’s worth paying for advice! I can’t say “Well, how’re you goin’ on?” to my current guy without getting an invoice

[edit] thanks Nige, I was not aware of that.

Certainly, if you knew you had CGT gains to make at a future date, and you’d bought a house in 2007, it might be worth your while renting it for a few years to try and get a decent percentage of that loss to offset.

given that you could get decent rental income and not be liable for tax you could see the bizarroworld situation where people pretend to rent out their gaff but actually live in it. Complete reversal from usual Rent-A-room/FTB shenanigans

The value on the date you change it from a PPR is the cost for CGT purposes in relation to a disposal. You cant claim the decline from 07 to now. There is a valuations office which looks at this and there is more tot the process than convincing an EA buddy int he pub to write you a highball current valuation.

Practically speaking, my professional advice would be not to be too aggressive with the valuation. My informal advice would be not to go too far as I’ve seen the valuations office dig their heels in at great cost.

So really, the scope is to trigger a future cash loss on the PPR to shield a potential gain on the sale of the business. Not a great idea.

OK - thanks for your input.

I will do some research (revenue.ie not very illuminating so far) and speak with my accountant. At least now I know the questions to ask him…

sorry grumpy but this is complete tosh.

If you read section 604 Taxes Consolidation Act 1997 you will clearly see that the taxable bit is done on a time apportionment since acquired and there is no provision to substitute a valuation at the time of transfer from PPR.

On is point of using some of the house as an office, any proportion of the property which is exclusively used for the purposes of a trade, business or profession is outside the PPR relief (and so is taxable or the loss deductible). However the use of the word “exclusively” means it doesn’t apply to a home office which doubles as a guest bedroom or playroom or other residential purpose.

I thought this too.

I figured maybe something had changed in the way they do things - because certainly apportionment was always the way. (I worked in tax for 3 years). Also, any new valuation scheme could get very messy where the property is old and there have been multiple periods of PPR/other going on.

:blush: Umm yeah you’re right.