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Tax Implications of Selling a Property Overseas

Article written by Diarmaid Condon in 2008

If you are resident or ordinarily resident in Ireland the sale of the property will, in most cases, be subject to Irish CGT. If you are not domiciled in Ireland you only pay Irish CGT on the portion of the gain that is remitted to Ireland. A gain on the disposal of a property located in the UK is fully chargeable to Irish CGT regardless of domicile or whether the gain is remitted to Ireland or not.

If the property was held in a copmany then you will be liable to Irish CGT if you are entitled to a share or interest in the capital or income of the company, if the company is controlled by five or fewer participators (is a close company) or if it is an Irish resident company then any gain realised by the foreign company may lead to an Irish CGT liability. This is the case even if the proceeds of sale are not distributed to you at the time of the sale. You will get credit for CGT paid in respect of the property sale against any Irish CGT due if the sale proceeds are distributed to you within two years of the date when the foreign company realised the gain. If you own the property through a shareholding in a non-close company, you will be liable to Irish CGT on the disposal of your share in the company.

If you buy a foreign property ‘off the plans’ and sell for a profit before building has finished (often referred to as ‘flipping’), any increase in the value of the property sold is subject to Irish CGT. However, if you undertake a number of such transactions in a year you may well be considered to be in the business of trading in properties, whereby the profit will be treated as income and subject to income tax at your marginal rate rather than CGT.

If you make a full or partial gift of a foreign property to another person, you will be deemed to have disposed of the property at full market value and will be liable to pay CGT on that basis. The person to whom you made the gift may also be liable for Capital Acquisitions Tax (CAT). If this is the case, Irish CGT paid by you may be credited against the recipient’s Irish CAT liability.

Remember that if you dispose of a property between January 1st and September 30^th you must pay any CGT due by October 31^st that year. If the disposal is between October 1^st and December 31^st you must pay your liability by January 31^st the following year.

To calculate CGT you deduct the cost of the asset from the sale proceeds. Certain expenses of disposal and purchase, as well as enhancement expenditure, may be allowed as a deduction. Inflation relief may also be allowable on expenditure incurred on or before December 31^st 2002. You can also deduct a single annual exemption amount of €1,270 in respect of all gains arising in a year. Any expenditure allowable in computing income, profits, gains or losses for income tax purposes is excluded in computing CGT. The current Irish CGT rate is 20% on the profit realised after deductions.

If you are Irish resident or ordinarily resident and Irish domiciled you can set any loss made on a sale against other capital gains, other than gains made on the disposal of Irish development land. If you have no capital gains in the year of disposal, you can carry the loss forward against future gains. You cannot set your capital loss against income such as employment, rental or investment income.

If you are not Irish domiciled, your non-Irish and non-UK capital gains are only taxable if remitted to Ireland, and you cannot claim such losses against current or future gains. A capital loss on the disposal of a UK property can be claimed against other current and future capital gains.

If you sell a property in a country which has a DTA with Ireland, you may still be liable for Irish CGT depending on your residence and domicile status, as well as the amount of tax paid abroad. You will likely be able to reduce your Irish tax liability to take account of some, if not all, of the foreign tax paid on the capital gain. As with income tax, there is a system of credits for CGT paid in countries with a DTA and an allowance made for CGT paid in countries without a DTA. Sample calculations of both scenarios are available on the Revenue website.

If you own a property in a country which carges no CGT (e.g. the UAE) then you are liable for full Irish CGT, less allowable expenses.

For further information visit www.revenue.ie/index.htm?/leaflets/foreign-property-ownership.htm.

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Further Information:

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For independent articles on overseas property click here.

For advice on purchasing property overseas click here.

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You may also enjoy a visit to the OverseasCafe.com's topical blog at http://overseascafe.blogspot.com.

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