We lived in Spain for five years - will we face tax when we sell our Irish home?

Q: My husband and I are retired public servants. We became Spanish residents in July 2021 and rented a home there.Our daughter lived in the family home in Ireland, paying €500 a month to cover expenses. We reserved the right to reside in the house, paid for utilities and used it over the years, advising Revenue of the arrangement. We have continued to pay income tax on our pensions to Revenue. I declared my State pension to tax authorities in Spain, incurring a small tax liability.I returned to Ireland permanently in January this year, my husband is returning this month. READ MOREWe’re now in the process of selling the home. What are the capital gains tax implications of selling up?A: After five years in Spain, the reader and her husband are back, and ready to sell the family home. A property located in Ireland is always potentially subject to capital gains tax on a disposal, regardless of the country of residence of the owner.When selling your main home, Principal Private Residence (PPR) relief provides an exemption from capital gains tax (CGT), a tax normally levied at 33 per cent on the gain. [ We want to lend our daughter €350,000 to buy a home – what do we need to know?Opens in new window ]A capital gain is any increase in value between how much you paid for the house and the price at which it sells.The couple’s time spent living in Spain doesn’t mean they can’t avail of the relief, but it does limit it for them, says Helen Ferguson, solicitor and partner in the private client department at Mason Hayes & Curran. A property located in Ireland is always potentially subject to capital gains tax on a disposal. Photo: Andrew Matthews/PA “If you are absent from the property for a period of the ownership, Revenue will allow you a partial relief, calculated based on your total number of years of ownership and how many years you were absent,” says Ferguson.The last 12 months of ownership before the sale are always deemed a period of occupation.If, for example, the couple owned the home for 41.5 years, and 4.5 years of those were spent in Spain, they would get partial relief of 37 out of 41.5 years, says Ferguson.Multiplying the capital gain by 37 and then dividing it by 41.5 will give them the part of the gain that is exempt from tax. The capital gain multiplied by 4.5 and divided by 41.5 will give them the proportion of the gain that is taxable at 33 per cent, she says. If the couple bought their house before 2003, they could also avail of indexation relief, a relief from Revenue that allows you to increase the base value of the house to take inflation into account. [ I inherited my mother’s house. Do I need a solicitor to transfer ownership?Opens in new window ]This has the effect of reducing the gain between the purchase price of a house and its sale price.You multiply how much you paid for the house by the indexation factor, or multiplier for the year you bought it. Revenue provides different indexation factors for different years.“So, if they bought the house in July 1985 for example, they would use the multiplier of 1.713 to bring up the base value of the house for the purposes of calculating capital gains tax, and so reduce their tax bill,” says Ferguson. The couple also has an annual exempt amount of €1,270 each which can be set off against any capital gain that arises in Ireland, she says. As the couple’s daughter would be unlikely to be considered to be a dependent relative within the meaning of the legislation, her presence in the house does not impact things, nor does the fact that the couple had reserved a right to reside in the house. While the couple will get CGT relief here, things could be tricky on the Spanish side.Ferguson can’t advise on Spanish tax, and she strongly urges the reader to get this advice. “Spain can tax a capital gain on a property in Ireland for Spanish residents,” says Ferguson.“Spain doesn’t have an exactly equivalent principal private residence relief, so the reader could be quite badly caught if the husband is still resident in Spain at the time of the disposal of the property.“If they sell their home in 2026 for example, and the husband is still treated as Spanish resident in 2026, Spain could potentially look to tax the gain as well, and there would be no equivalent exemption,” she says.“The Irish tax liability is likely to be quite small compared to the gain because most of it is exempt, but the liability in Spain could really hit them if they get the timing of the sale wrong.“Get Spanish tax advice before you place the property on the market because you could be really badly caught there.”The name of the reader who submitted the question is not being published to protect the identities of those involved. Please send your legal queries to Joanne Hunt, Ask the Lawyer, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to joanne.hunt@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice.