Capital Gains Tax is payable on any “chargeable gain” that arises on the sale of a chargeable asset, i.e. the difference between the sale price less the cost price (or market value in certain cases) and taking account of incidental costs associated with the purchase and the sale as well as any enhancement expenditure that may have been incurred. It would therefore be necessary to know each of these elements in relation to each property sold before it could be established whether a gain or a loss arises on each property. Where a loss is made on the sale of a chargeable asset, that loss is allowable against other chargeable gains made in the same year or, if not capable of being so used, is carried forward against losses in future years. Where a chargeable asset now being sold was acquired prior to 6 April 1974, the market value of the property at 6 April 1974 is substituted for its cost price. The market value at 6 April 1974 or the cost price, if purchased between 6 April 1974 and 31 December 2002, is indexed to take account of the effects of inflation, so that only the real gain in monetary terms is chargeable.
For example a property with a market value of (say) € 15,000 at 6 April 1974 would be indexed by an indexation factor of 6.112, so that the adjusted base cost/market value would be €91,680. Any consideration on sale in excess of this indexed base cost would be a chargeable gain (subject to any necessary adjustment for incidental costs associated with the sale as well as any enhancement expenditure that may have been incurred). On the other hand, a property purchased in 2005 for (say) €500,000, might only realize (say) €300,000 if sold today – giving rise to an allowable loss to the taxpayer of €200,000, which could be set against other chargeable gains, thereby potentially reducing the amount of CGT that would be raised.
As principal private residences have been exempt from capital gains tax since its introduction in 1975, none of the elements required to calculate a gain or a loss is not returned by taxpayers or otherwise collected by Revenue in a manner that would enable a chargeable gain or allowable loss to be calculated. Neither the introduction of local property tax nor the preparatory work that preceded it will be of assistance in estimating the yield from the removal of the CGT exemption for principal private residences.
Given the fall in the value of residential properties in recent years, it is likely that many residences, if sold, would not make a chargeable gain – and would in fact incur a loss, thereby reducing the CGT that would be raised in such cases.
It is necessary to balance the collection of statistical information for Exchequer purposes with the desire to minimise as far as possible the administrative burden placed on individual taxpayers and on the business community to provide such information in tax returns. In the circumstances, I have no plans to require taxpayers to provide the information necessary to estimate the possible yield from removing the exemption. Policies are formulated using the best available data having regard for the need for balance for the reason outlined.
