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GAZETTE
JULY/AUGUST 1987
CORRESPONDENCE
The Editor,
Gazette Law Society,
Blackhall Place, Dublin 7.
30th June, 1987
Re:
Capital Gains Tax
Purchase of Business Premises
held under short-term tease
Dear Sir,
A matter concerning the above
has recently come to my attention
and I think it should be brought to
the attention of the Profession in
general, as it would appear to have
serious implications for anybody
thinking of buying a business
premises or, indeed, any property
not being a principal private
residence, held under a short-term
lease.
Following consultation with the
Revenue Commissioners and hav-
ing taken the Advice of Counsel, it
would appear that when a person
purchases a property held under a
lease with less than fifty years left
to run, such leasehold interest is
regarded as a "wasting asset" and
any premium payable by the pur-
chaser will, at the expiration of the
term of years granted by the lease,
be deemed to have wasted com-
pletely. To take a simple example:
X purchases a property held under
a twenty-one year lease with three
years left to run and he pays a con-
sideration of £25,000.00. When
the lease expires he avails of his
rights under the Landlord and Te-
nant (Amendment) Act 1980 and
obtains a thirty-five year lease with
five yearly rent reviews at a market
rent for the property. Five years
later he sells the property for
£45,000.00.
When the Revenue Commis-
sioners come to assess X's Capital
Gains Tax liability, they will regard
the £25,000 paid by X initially for
the interest in the premises as hav-
ing " wa s t ed" over the three years
remaining on the twenty-one year
lease. This means no deduction
can be made from the considera-
tion of £45,000 received in respect
of the £25 , 000 initially paid.
Therefore, if X is a married man he
can avail of the £4,000 exemption
for chargeable gains and he may be
able to seek relief for enhancement
expenditure. In such a case as this
X could be liable for Capital Gains
Tax at the rate of 40% on
£41,000.00, giving a tax bill of
£16,400.00. X may be able to
seek "roll over" relief, but this will
merely 6e putting off the "evil day"
as same is only a deferral of tax.
Whilst the Revenue Commis-
sioners will admit that X in such a
case has paid £25,000, not only
for three years left to run on the
twenty oné year lease, but also in
the expectation of taking up his
Statutory rights for a further thirty-
five year lease, they interpret
CARROLL'S TAX PLANNING
IN IRELAND
with precedents
by Michael F. O'Reilly
Consultant Author: Brian A. Carroll
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Irish Tax Review, February 1987
Available from your local bookshop
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December 1986 Hardback £48.00 0 421 36750 4
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199