Sunday Mail Financial advice column: Capital Gains Tax and the disposal of real estate
November 24, 2013
By George Mountis
A QUERY from a reader begging for clarification on Capital Gains Tax (CGT) is the theme of this week’s article.
CGT is imposed on ‘gains’ from disposal of immovable property situated in the Republic including shares of companies not listed on a recognised stock exchange which own immovable property situated in Cyprus, at the rate of 20 per cent.
In computing the capital gain the value of the immovable property as at January 1, 1980 (or cost if the date of acquisition is later), the cost of any additions after January 1, 1980 or the date of acquisition if later, any expenditure incurred for the production of the gain and the indexation allowance, are deducted from the sale proceeds.
The following expenses are not considered expenses for the production of the profit and therefore are not deductible: immovable property tax, immovable property fees, sewerage council fees.
The following disposals of real estate are exempt from CGT:
1. Transfer on death
2. Gifts between parents and children and relatives up to third degree
3. Gift to a company whose shareholders are members of the donor’s family and continue to be family members for a period of five years from the date of the gift
4. Gift by a family company to its shareholders, if the company had also acquired the property in question via donation. But if the shareholder disposes the property within three years then the shareholder will not be entitled to the deductions
5. Gifts to a charitable organisation or the government
6. Exchange and/or disposal under the Agricultural Land Laws exchange provided the gain is used for the acquisition of new property. The gain derived from the exchange reduces the cost of the new property and the tax is paid when the latter is disposed
7. Transfer of ownership or share transfers in the event of company reorganisations
8. Transfer of property of a missing person under administration
9. Transfer of ownership between spouses whose marriage has been dissolved by a court order or in case of transfer of ownership between the same persons for the purpose of settling their property according to the Settlement of Property Relationships between Spouses Law.
Individuals are entitled to deduct from the GCT the following (subject to revision):
Disposal of principal private residence €85,430 (subject to conditions)
Disposal of agricultural land by a farmer €25,629
Other disposals €17,086
These deductions are granted once in the lifetime, until fully exhausted and if an individual claims a combination of them, the maximum deduction granted cannot exceed €85,430.
It is noteworthy that there are perfectly legal ways of reducing your Capital Gains Tax liability:
Capital losses may be used to offset the gain.
If you are selling your house/flat partly or fully furnished, you can come to an ‘arrangement’ with your buyer whereby they purchase any furniture, etc. using a separate side agreement. This will reduce your Capital Gains Tax liability as the items included in the agreement should not be liable for CGT.
George Mountis is regional managing partner of The Parthenon Partners http://www.theparthenonpartners.com