Transfers Taxable under the Old System

Capital Gains Tax

• Transfers Under the New System
• Purchased Property
• Inherited Property
• Donated Property
• The Final Tax System
• Partition of Property
• More on the Final Tax System
• Property not Taxed at 12%
• Transfers taxable under Old System
• Transfers that are Exempt from Tax

Other Topics

• General Questions
• Final Settlement System
• Tax Index of Financial Data
• Host Families
• Capital Gains Tax
• Income From Part-Time Work
• IR Services On-Line
• Reduction in Add. Tax & Interest
• Power to Request Information

1. If I choose to be taxed under the old system how am I going to be taxed?

   If you choose to be taxed under the old system you will pay provisional tax on the deed at 7%. Then you would have to declare the gain in your income tax return. To calculate the taxable gain you have to see if the transfer is taxable on business profits or capital gains.

   Business

   If the gain is taxable as a business profit, it is taxed in terms of article 4 and you have to declare it in the same manner as all other business profits. You will be allowed to deduct the cost of acquisition and other expenses made in the production of the income. The net profit has to be declared in box 1 of your tax return. A profit and loss account is to be attached.

   The Tax on Property Transfers Rules, 2006 establish what records should be kept in respect of your property trading activity, apart from the other business records; how to establish the cost of acquisition and the transfer value in certain cases; and how to allocate expenses in case of a project.

   Capital gain

   If the transfer is taxable as a capital gain, it is taxed in terms of article 5. You will be allowed a deduction for the cost of acquisition and the other deductions mentioned by article 5 and the relative Capital Gains Rules, 1993. Special rules regarding what records are to be kept apply in this case too.

   If the tax on the capital gain or on business profits, as the case may be, is less than the tax that you would have already paid as provisional tax, you will be refunded the excess tax paid. If it results to be more, you will have to pay the balance.

   What deductions can I claim to calculate the capital gain under the old system?

   To calculate the capital gain under the old system you can claim the following deductions:

   • the price at which the property was acquired;
   • the inflation element;
   • any ground-rent paid on the property and for which a deduction has not been already claimed in any other way;
   • a maintenance allowance at the rate of 0.4% for every year that you owned the property;
   • improvements carried out;
   • any duty paid on acquisition;
   • notary's fees;
   • brokerage fees;
   • other expenses directly related to the transfer but not exceeding 5% of the selling price.
2. Can you give an example?

   Example: A property was purchased in 2003 for €60,000. €10,000 improvements were carried out in the same year. €3,000 was paid as duty and notarial fees amounted to €500. The property is sold in 2006 for €150,000. The transferor has elected to be taxed under the old system. The capital gain is calculated as follows:

   		€
   Selling Price		150,000
   Deduct the cost of acquisition and other allowable deductions
   Cost of the property per deed of purchase	60,000
   Improvements carried out in 2003	10,000
   Legal and notarial fees	500
   Duty on documents paid on acquisition	3,000
   Inflation (calculated as follows)	5,080
   Cost of acquisition x indexyd - indexya   indexya
   yd = index for the year immediately preceding that in which the transfer is made;
   ya = index for the year immediately preceding that in which the property had been acquired;
   In this case we apply the index for years 2002 (638.54) and 2005 (684.88), i.e.:
   70,000 x 684.88 - 638.54   638.54
   Click here for a full table of indices of inflation.
   Maintenance allowance	840
   (0.4% of the cost price for every year) i.e. 70,000 x 0.004 x 3
   Total cost of acquisition and other allowable deductions		79,420
   Capital gain to be declared in the tax return		70,580

   
   
   
   

   The Lm70,580 gain is added to your other income for the year and the total is taxed at the normal rates which are applicable to you. If your other income has already reached the 35% tax bracket, all the capital gain amounting to €70,580 is taxed at 35% and the tax would therefore be equal to €24,704.

   The notary would have already withheld 7% of €150,000 as provisional tax, i.e. €10,500. You will therefore have to pay the remaining balance equal to €24,704 - €10,500 = €14,204. This amount must be paid when you file your tax return.

   Where the property had been acquired through a donation and is disposed of within 5 years of the donation, the cost of acquisition shall be arrived at by taking into account the cost of acquisition of the property at the time it was acquired by the donor.