Retrospective “Build/Capital Upgrade Cost Analysis” to Assist in Determination of Capital Gains Tax Liability

Here at OCFPM we have, over the last 12 months, carried out numerous retrospective “build/capital upgrade cost analysis” on properties and assets both commercial and domestic to assist in determining the Capital Gains Tax Liability on the sale of the asset.

What is Capital Gains Tax?

What is Capital Gains Tax or CGT as it is known? CGT is a tax charged on the profit made on the disposal of an asset. It is payable by the person disposing of the asset, at a rate of 33% currently.
The uplift from what you paid for the asset versus what you get paid for that asset at sale is considered a taxable income in the eyes of revenue.

How is CGT Calculated?

In a world where an asset is purchased and at a later date sold on by the same entity then this is a very clear calculation and the CGT is easily calculated as the costs and subsequent sale are readily available, so for example a property you bought for €200,000 and you sell for €250,000 then your gain is clearly €50,000 and CGT of 33% is applied.

You are entitled to deduct from the uplift any incidental costs on initially buying the asset, any upgrade works done to the asset while in your ownership of a capital nature and any costs incurred during the sale e.g. legal & auctioneer fees.

However, due to the collapse in the property market in Ireland and the subsequent change in ownership on many assets through Bank’s, Asset Managers, Managed Funds & Receivers the paper trail and ability to produce the costs incurred either in developing an asset from ground up or upgrading an existing asset to determine the initial costs in order to calculate the CGT liability, if any, of an asset at disposal is not clear cut.

Retrospective Build / Capital Upgrade Cost Analysis

OCFPM’s Quantity Surveying Department along with necessary input from our construction engineering professionals in planning and construction utilize various systems to carry out retrospective build and development costs on assets which can then be used to assist in the determination of CGT liability.

With the input of our multi-disciplinary team here at OCFPM we are able to look at an asset and determine where possible from planning files the approximate build date and generate current costs to build for these assets. These current costs to build are then indexed back with the industry published rates for construction inflation/deflation from the current date back to the original build date. Where building regulations have changed from the original build date OCFPM are able to determine these changes and only cost the regulations in place at the time of build.

A more complicated situation arises where an asset was purchased and the purchaser subsequently invested capital expenditure to upgrade the property in the intervening period. Obviously the determination of the cost of this capital expenditure is difficult to access if the asset owner is no longer involved or trading and the receipts or the records for this work are no longer available.
OCFPM’s ability to examine the available information and determine the extent of these capital works from the available records and cost this capital expenditure allows us to determine the costs expended on the building during the duration of ownership which may be of use in assessing CGT liability.

Our team here in OCFPM are available to discuss any requirement in terms of a retrospective cost to build on an asset that you have for disposal to help with the calculation of any CGT that may arise.