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27 Jun

Irish Times-Property Clinic (7th June 2012)

What should I be thinking about when downsizing? 

Q Now retired, I am downsizing. I intend buying a small house, then putting my prime residence on the market. I will not move into the new house until my own residence is sold. Unfortunately, in the current market, selling my house could take time. When I eventually move, could there be capital gains implications? Will I have to pay stamp duty a second time? 


A The concept of downsizing remains a popular one and has obvious advantages. However, buying and selling property needs to be planned carefully, particularly when you plan to sell one property to acquire another. There are a number of issues that need to be addressed before progressing further.


The first one is by first purchasing a second property before disposing of your main residence property, you will have to maintain, heat and insure two properties as opposed to just one. You will have to pay the second home property charge. Moreover, you do leave yourself open to losing your capital gains tax exemption on disposing of your main residence when you come to sell.


From an investment point of view, assuming you are not borrowing to purchase the smaller property, you will also be sacrificing whatever rate of interest you are currently getting on the funds. As you quite rightly say, in the current market, selling your own property could take some time and you may well find yourself with far more costs and headaches than you bargained for.


It may be worthwhile to consider selling your own property first and availing of the capital tax exemption on disposing of your single primary residence, assuming the property is not located on a site of larger than 0.40 hectares (1 acre). Once the contracts have been signed, I would consider renting for a short period.


This would allow you sufficient time to look closely at the market and find the ideal smaller property. With respect to stamp duty, if you purchase a new house under 125sq m, there is no stamp duty. If it is a second-hand property, the prevailing rates of 1 per cent on purchases up to a value of €1 million will apply. I suspect the sum involved may well be relatively small, as you are seeking to purchase a smaller property.


If you are determined to first acquire a smaller property, you could, once you complete on the deal, consider renting it out while you try to sell your own house while residing in it. This would have the advantages that you would not jeopardise your capital gains tax exemption on disposal, while at the same time getting some rental income.


Have your property valued by someone who is familiar with the market in your area and seek their advice on how long it will take to sell your property. This should help inform you of how long you might need to rent your smaller property before you wish to move into it.


Personal tax matters can be complex and before proceeding any further, I would strongly advise that you seek the advice of a qualified professional accountant and/or a solicitor.


Gerard O’Toole is vice chair of the Western Region Council of the Society of Chartered Surveyors Ireland .


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