Brother facing CGT bill after family home burned down

I have a query for you. My brother lived in his family home up until he divorced his wife. He went back to live with his parents, and stayed there for the last 20 years.

As part of the divorce settlement, which took over 10 years to finalise, he was awarded the family home. Over those years his wife was not living in the house, and it fell into disrepair. And over seven years ago it was burned down by vandals. My brother was never in a position to do up the house.

He now wants to sell, but he has been told that he will have to pay capital gains tax as he is selling it as a site with planning. Is this correct. He wants to make a new start. He is in his mid-50s, not in good health, so a mortgage would be out of the question.

Where does he stand. He was paying the mortgage on the property up to three years ago. It was a county council loan.

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Ms M.F., email

This is a really sad situation. The break-up of your brother’s marriage saw him having to move back in with family where, I gather, he remains today. It took a decade to get his affairs sorted out with the final divorce decree, and he is no longer in great health. The last thing the man needs clearly is additional strain.

Unfortunately, however, I think he is likely to be in a position where he is liable for tax on the sale of the site of his former home. The key thing here is precisely that – this is a site.

The relief from capital gains of the sale of someone’s principal private residence is one of the best known tax reliefs. Given that our homes are among the most valuable assets we have, it is very welcome.

And the fact that your brother was not living there for so long due to the circumstances of his marriage break-up and subsequent health issues would not of themselves deprive him of the relief.

Had he rented out the property in the meantime that would have had an effect and he would have had a bill on part of any gain made, but that’s not relevant here – though it might have been preferable to the position he now finds himself.

The problem here is that the house burned down. And as it burned down only seven years ago it would appear that it occurred when he was in full control and ownership of the property under the terms of the divorce settlement.

Unoccupied buildings

It’s not clear from your letter but I am assuming there was no insurance policy on the property – or that it was invalidated by the home being unoccupied and derelict for so long. It is possible to get special insurance for unoccupied buildings, which is quite common for executors dealing with estates where property is left empty following a death, though you won’t get contents cover.

Had he insurance presumably the house could have been rebuilt either for him or for sale – with the relief.

The principal private dwelling relief from capital gains tax only applies when you are selling a home on its site – without the physical property there is no principal private dwelling. All that remains is a site and permission to rebuild something along the lines of what was previously there. That being the case, my understanding is that the tax applies.

The one thing I would suggest is that he or his family contact Revenue outlining his health position, and explaining why it meant he was unable to occupy the property at the time, especially if it ended up invalidating the insurance. I certainly won’t guarantee that it will work, but it is worth making the case.

Victim of circumstance

He has nothing to lose at this point, and while Revenue is certainly no easy touch its interest is in making sure everyone plays fair by tax rules and pays what they should. Your brother is not gaming the system: he appears simply to be an unfortunate victim of circumstance, and there may be some accommodation available.

And finally, in the circumstances I think it would be important that he seeks professional legal advice. Yes, it costs, but from what you say a tax bill here might fundamentally prevent your brother being able to acquire his own smaller place and get on with his life. So it’s worth the price of a consultation with someone who is familiar with tax law.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice