Jill Kerby

JC writes from Dublin: My parents are elderly pensioners and are selling a house that has been in my father’s name since it was left to him in the 1950's (He built it with his dad). The house was left to him with the stipulation that his mother would live in it for the duration of her life. She passed away in 2003. This house is, of course, not my parents "principal residence" and has remained unoccupied since 1998, when my grandmother went into a nursing home. The simple question is, are my parents liable for full CGT on the proceeds? 

“There is CGT relief available where a dependent relative is living in a property that is in your name under the circumstances that your reader describes,” says tax advisor Sandra Gannon of TAB Taxation Services in Dublin. “The house must have been provided free of rent or any other consideration," says Gannon. The calculation of the amount of CGT your father will have to pay is complicated however:  it depends on the date he took over the title, the years your grandmother occupied the house, the fact that CGT was only introduced in 1974, the date from which the house should be valued; that your father’s CGT liability will be calculated based on his unencumbered ownership from 1998, but mitigated by all of the above.  A tax advisor, or your father’s tax inspector should be able to assist him with this calculation. Since April 9th, 2009 the CGT rate has increased to 25%, but your father can offset any expenses involved in the sale of the property against the tax as well as his personal capital gains tax annual allowance of €1,270.

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JD writes: We are in the process of purchasing a house that requires a lot of work. The architect informs us the project may take up to one year to complete. Are we obliged to pay CGT on our current property that we will sell as soon as we are able to move?

Your principal private residence is not liable to any capital gains tax when it is sold and in this case, it remains your PPR until you move out and into your new one. However, if you change your mind, and decide once your new home is ready that you’d prefer not to see your original house and you either rent it out or leave it vacant, you would then have to pay a proportionate amount of CGT, relative to the amount of time involved – when your original property is eventually sold.  For future reference, the first 12 months of your ownership of the new house is usually exempt from any CGT liability if it is being refurbished.  This means that you are unlikely to be liable to any CGT for this period when it was still a second residence if you decide to ever sell it.   

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LK writes from Glasnevin:  Please could you answer a question that I'm sure many of your readers, especially Permanent TSB customers, may find interesting. Could you explain the relationship between the euribor and mortgage rates. In 2007 I looked for a business mortgage and was quoted the euribor three month rate + 1%. At that stage euribor was tipping 5%. Given this offer I presume banks use euribor as a basis for some loans. As mortgage rates were increased a few weeks ago I checked to find that the three month euribor rate is just under 1%, the 12 month rate is 1.38%. Both figures give a bank charging a standard variable rate of 2.69% a margin of at least 1.3%. If the euribor represents the rate at which banks can get funding at then where is the justification for a rate rise? Has euribor become as irrelevant as the ECB rate? I would be grateful for your expert view.

The euribor is the rate of interest at which banks borrow funds from other banks in the EU interbank market. It varies daily but it used to operate at a small margin above the official ECB rate. Time was when these rates were all in close alignment, such as when tracker mortgages were established: they were based on a set margin above the official ECB rate, reflecting the lender's confidence that the ECB rate would be almost identical to the euribor rate.  But no longer. When the credit crisis hit, banks pulled back dramatically on their lending - even to each other, charging exorbitant rates and shortening the length of the loans. Recently, euribor rates have come into closer alignment with the ECB but the amount of money that can be borrowed by different institutions means that the rate is no longer as influential in setting mortgage rates as it used to be and the banks say they must rely on a mixture of  retail deposits, corporate deposits, inter bank borrowing (often at a margin above the euribor), the bond market and the ECB itself  to fund mortgage lending.  The banks argue that the average rate they pay is now higher than the euribor, hence their reluctance to advance loans tied to a rate that is costing them money, like trackers.  The PTSB say the traditional link between ECB, the  euribor and mortgage rates is now gone and is unlikely to be restored