I have an apartment in Romania I bought five years ago. I bought it as a shell and have been doing it up bit by bit. It is still not totally finished but I’m going to sell it. It was never rented out so I derived no income from it.
I am tax resident in Ireland. I didn't declare it to Revenue. What will happen when I go to pay capital gains tax on it ?
Ms M.G., email
Good luck with the plan. You’re clearly quite adventurous. Investing in and carrying out the necessary work on a “doer-upper” for onward sale is a complex enough issue at home. Trying to do so in Romania while you are based here is altogether more challenging.
While the costs involved in Romania would no doubt be lower than in Ireland, unless you have local experience or very good local contacts, finding tradespeople with the necessary experience or suppliers, and overseeing their work remotely, is a big ask.
The last thing you need at this stage is a headache with the Revenue. And, depending how you went about buying the property in the first place and funding the refurbishment, it shouldn’t be an issue.
Was the money used to purchase this apartment drawn from already taxed income?
Revenue’s responsibility is to ensure that people who are liable to declare tax in Ireland do so. Depending on their status, that could be just on Irish income, or worldwide income.
As long as the money people use has been properly taxed, it is not a matter for Revenue. And that is the nub of the issue here. Was the money used to purchase this apartment drawn from already taxed income? And was any money used to fund its upgrading similarly drawn from net income?
If so, there is no issue. The money used to fund the apartment was already taxed so that is fine and, as it was never rented, there is no rental income to interest the Irish Revenue.
If, however, the money used to buy or pay for the refurbishment of the property was not previously declared to Revenue and tax, you could have a major problem.
Undeclared income
Revenue conducted a highly publicised campaign two years ago as it secured access to foreign tax records to warn people to come forward with details of any previously undeclared income or assets held offshore – such as bank accounts, pensions, property etc. And it made clear that anyone failing to avail of the partial amnesty would be pursued.
It is now tracking down those people who thought they could still game the system. If you’re in this cohort, you can expect heavy penalties and fines on top of any tax owing.
So what happens when you approach Revenue on any capital gain you make on this property?
Revenue now has access to records of income, assets and tax across the EU
If the money was previously declared, there is no issue and you simply declare the gain, allowing for any permitted expenditures to mitigate the bill.
If the money was not declared, you still need to follow that process, but will face further inquiry, audit and penalty. Don’t think of ducking the issue. Revenue now has access to records of income, assets and tax across the EU so you are only putting off the dreaded day and, the longer the transgression, the higher the interest bill and potential penalties.
While we’re at it, just because you have no tax liability – other than on any capital gain – in Ireland, that doesn’t mean you have no tax liabilities in Romania. I’m not fully across their regime but there are likely annual property levies and capital gain issues over there.
A double taxation agreement between the two countries means you get credit here for any capital gains – or income tax where relevant – payable in Romania but you do still have to clear your lines with the Romanian authorities. I'm not sure that applies to any property taxes. Again, local advice is worth seeking.
