Christmas – and a CGT exemption – comes early for investors

Christmas is set to come early for canny property investors on the back of a measure in Tuesday’s budget which has brought forward the date property investors can exercise a capital gains tax exemption.

It’s a measure that may not have received too much hoopla, but may yet have a significant impact both on supply of property and on the pockets of bust-era investors.

The CGT exemption was first introduced on both residential and commercial property back in the dark days of December 2011 to stimulate activity in the beleaguered property sector. At the time, it was in freefall in the aftermath of the financial crash. The relief was available to both companies and individuals, from December 2011 until end-2013, a date that was subsequently extended by then minister for finance Michael Noonan to the end of 2014, when he shut it down.

At the time, prices had halved from an April 2007 high, according to the property price index from the Central Statistics Office, and investors were thin on the ground. The carrot from the government in Budget 2012 was a capital gains tax holiday; the only caveat was that investors had to hold on to the property for at least seven years. And, as figures from the property price register show, investors rushed in by year-end 2014 to avail of the exemption.

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Now the Government is trying to reverse its original policy. It now wants them to sell, but even the earliest investors in this scheme were locked in to the end of 2018. Hence the new early-release date allowing these properties to be sold after four years of ownership.

And, as prices have surged in recent years, these investors are sitting on significant gains. For example, an investor in Dublin city would have paid a mean price of €279,040 back in December 2011; today that has soared to €402,453. The €123,413 gain would ordinarily be subject to CGT at 33 per cent. However, thanks to the budget decision, investors can bring their properties to market now and benefit from a €40,726 windfall.

But if the Government is to lose on one hand, it will gain on the other; its decision to up stamp duty on commercial property transactions means the State’s coffers too will benefit from an uptick in transactions.