Capital Gains Tax on Gifted Property

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maria1
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Capital Gains Tax on Gifted Property

Post by maria1 » 28 Jul 2011 06:31

Hello, I'm new to this forum, so please excuse me if I'm asking questions that have already been answered somewhere else.

Before she passed away a few years ago, my Aunt gifted to me her house in Cyprus (she was a Greek-Cypriot and citizen of Republic of Cyprus by birth, as am I). I understood this transfer of property was exempt from capital gains tax on the grounds that it was a gift to a second-degree relative. OK so far? Now I wish to sell that house. Will I have to pay Cyprus capital gains tax on the sale? From what I've read, it appears that I will have to pay 20% tax on the selling price, less the value on 1 January 1980, minus the cost of any additions, minus an "indexation allowance" - is that right? What is the "indexation allowance"? If this info is not correct, can someone advise me how would the Cyprus Inland Revenue calculate the capital gain in this case? Also I had assumed that if any tax was owed it would be payable with a tax return in the year following sale, but I'm told that the tax must be paid simultaneously with the closing and transfer of title deeds, which would require either having enough cash in hand to pay the tax, or getting a cheque from the buyer for the amount of the tax and have it made payable to the Inland Revenue - is that right?

So I understand that there is an individual capital gains deduction of €17,086, which rises to €85,430 if the property has been the main residence of the tax payer for a minimum period of five years. Is this pro-rated so that for two years residence the deduction would be €34,172 and so on? Or is it either €17,086 or €85,430 with nothing in between? Also if the house is in joint names, would the deduction be up to €170,860 after five years of residence, or is it capped at €85,430 even for joint owners?

As I am now a US citizen, I also need to know does the Tax Treaty between Cyprus and the USA covers capital gains taxes in this case? If so, does it mean that I could get an exemption from paying Cyprus taxes, so that I don't have a double taxation problem and have to pay capital gains taxes on this property sale both in Cyprus and the USA?



Pantheman
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Re: Capital Gains Tax on Gifted Property

Post by Pantheman » 28 Jul 2011 09:04

maria1 wrote:
Before she passed away a few years ago, my Aunt gifted to me her house in Cyprus (she was a Greek-Cypriot and citizen of Republic of Cyprus by birth, as am I). I understood this transfer of property was exempt from capital gains tax on the grounds that it was a gift to a second-degree relative. OK so far? Now I wish to sell that house. Will I have to pay Cyprus capital gains tax on the sale? From what I've read, it appears that I will have to pay 20% tax on the selling price, less the value on 1 January 1980, minus the cost of any additions, minus an "indexation allowance" - is that right? What is the "indexation allowance"? If this info is not correct, can someone advise me how would the Cyprus Inland Revenue calculate the capital gain in this case? Also I had assumed that if any tax was owed it would be payable with a tax return in the year following sale, but I'm told that the tax must be paid simultaneously with the closing and transfer of title deeds, which would require either having enough cash in hand to pay the tax, or getting a cheque from the buyer for the amount of the tax and have it made payable to the Inland Revenue - is that right?

Your assessment is correct. The CGT gets paid to get a tax clearance certificate before any transfer is over. The solicitor can pay this on obtaining the money before it is paid to you, or a bankers cheque can be requested. Usaually the former is more common.

As for the index figure, there is a website that I am sure Nigel will give the link to, but you need to know how to apply it.


So I understand that there is an individual capital gains deduction of €17,086, which rises to €85,430 if the property has been the main residence of the tax payer for a minimum period of five years. Is this pro-rated so that for two years residence the deduction would be €34,172 and so on? Or is it either €17,086 or €85,430 with nothing in between? Also if the house is in joint names, would the deduction be up to €170,860 after five years of residence, or is it capped at €85,430 even for joint owners?

The allowances ar 17,086 euros for less than 5 years stay and 85,430 euros for 5 and over years stay. nothing in between. no pro-rata. Joint names do not give twice the 85,430 euro either, it is a one off allowance
If the house is in joint names you can get 2x the 17,086 euroo figure however..


As I am now a US citizen, I also need to know does the Tax Treaty between Cyprus and the USA covers capital gains taxes in this case? If so, does it mean that I could get an exemption from paying Cyprus taxes, so that I don't have a double taxation problem and have to pay capital gains taxes on this property sale both in Cyprus and the USA?

There is no double taxation treaty between the US and Cyprus that I know of. In any case you will pay the CGT in Cyprus whatever. Depending on the level of CGT in the US, they may ask you to pay any difference. CGT is paid to the country in which you make the gain as a general rule.


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Re: Capital Gains Tax on Gifted Property

Post by Nigel Howarth » 28 Jul 2011 13:50

Pantheman wrote:As for the index figure, there is a website that I am sure Nigel will give the link to, but you need to know how to apply it.
I see you leave me the 'easy' part to answer Pan :-)

The inflation table can be found at http://www.mof.gov.cy/mof/ird/ird.nsf/A ... tion03.pdf - I'm not to sure how you use it and it will probably be best if you get your accountant to work out your liability.

And Cyprus does have a Double Taxation Agreement with the USA - you can get a copy from http://www.mof.gov.cy/mof/ird/ird.nsf/A ... a%20EN.pdf

Regards,


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Pantheman
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Re: Capital Gains Tax on Gifted Property

Post by Pantheman » 28 Jul 2011 17:08

Nigel Howarth wrote:
Pantheman wrote:As for the index figure, there is a website that I am sure Nigel will give the link to, but you need to know how to apply it.
I see you leave me the 'easy' part to answer Pan :-)

The inflation table can be found at http://www.mof.gov.cy/mof/ird/ird.nsf/A ... tion03.pdf - I'm not to sure how you use it and it will probably be best if you get your accountant to work out your liability.

And Cyprus does have a Double Taxation Agreement with the USA - you can get a copy from http://www.mof.gov.cy/mof/ird/ird.nsf/A ... a%20EN.pdf

Regards,
Aha! something you don't know :)

Well young man, let me educate you, how to use this:

You take the 1980 value on the title deed and multiply it by the index on the month of sale.
--- Call this (A)

You then divide (A) by 67.15 and the result we will call (B)

The selling price - (B) = (C)

If you have the lower allowance then it is (C) - Allowance then x 20%

If no allowance apply then (C) x 20%

and thats the tax you will pay.

This is true for a plot, if a house then there are other allowances, agents fees, interest payments, modifications to property, but all have to be proven.

Hope that helps.

Pan

Elementary my dear Watson and thats something you usual agent will not know !


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Re: Capital Gains Tax on Gifted Property

Post by Nigel Howarth » 29 Jul 2011 12:14

Pantheman wrote:Aha! something you don't know
Many thanks Pan - now I know everything :-))

Cheers,


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maria1
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Re: Capital Gains Tax on Gifted Property

Post by maria1 » 12 Aug 2011 04:24

Many thanks Pan! This is extremely helpful and I will use your complex formula to see if I come up with the same number as the tax office!

Now after reading your comments I'm just wondering (1) under what circumstances would one get no allowance and (2) if one qualifies for the 5 year allowance, would this be given in addition to the indexation allowance?

My Aunt gifted me her house in 2006 (5 years ago) but the title was not issued in my name until 2007. So I need to know what date will the tax office use for the purpose of claiming the 5 year tax deduction - was it (1) the date on the title or (2) could it be some other earlier date, such as the date on a title application? In other words, do they go by the date that I first became the legal owner of the property and if so, is that the date on the title?



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Re: Capital Gains Tax on Gifted Property

Post by Pantheman » 12 Aug 2011 09:57

maria1 wrote:Many thanks Pan! This is extremely helpful and I will use your complex formula to see if I come up with the same number as the tax office!

Now after reading your comments I'm just wondering (1) under what circumstances would one get no allowance and (2) if one qualifies for the 5 year allowance, would this be given in addition to the indexation allowance?

My Aunt gifted me her house in 2006 (5 years ago) but the title was not issued in my name until 2007. So I need to know what date will the tax office use for the purpose of claiming the 5 year tax deduction - was it (1) the date on the title or (2) could it be some other earlier date, such as the date on a title application? In other words, do they go by the date that I first became the legal owner of the property and if so, is that the date on the title?
The 5 year allowance can only be used if you are PERMANENT resident in the house, not when you took possession of it. It applies to your single permanent residence. If you have 2 houses, then how can you say which is the permanent one.

The likelihood will be you will be entitled to 17,080 euros allowance as long as you have not used it up in another sale. You only get the allowance once.

Your allowance is in addition to the indexation and the 1980 value. As you probably didn't do any major improvements to the house, did not take out a mortgage, then you cannot call apon these. I think you may be able to use the transfer fees you must have paid for the title against the CGT.

Good luck.

Pan
P.S. if you sold through an estate agent, a licenced one, you can also offset his fees as well!


For all your property needs, we offer Trust, Integrity, Honesty.
FSB Properties Ltd
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