Revenue Note for Guidance
This section provides capital gains tax “rollover” relief where a person disposes, before 4 December 2002, of certain residential rental property and reinvests the proceeds in certain other residential rental property. While the qualifying premises being disposed of can contain any number of residential units, the replacement premises must have at least the same number of residential units as the qualifying premises being disposed of, but not less than 3 such units. All properties must comply with the Housing Regulations. Full relief is given if all the proceeds from the disposal are reinvested in acquiring a replacement premises, and partial relief where part only of the proceeds are so reinvested. The relief will not apply if it does not meet certain time or profit requirements. If the premises was not a qualifying premises for a period of the person’s ownership, or if other assets are included in the consideration for acquisition or disposal of the qualifying premises, then said consideration for acquisition or disposal will be apportioned according to what proportion of the consideration relates to the qualifying premises.
The relief operates on the basis that the capital gain on the disposal of the qualifying premises is “rolled over”, that is, it is deemed not to arise until the replacement premises is disposed of. Moreover, the gain, subject to the same conditions being satisfied, continues to be “rolled over” where the replacement premises is disposed of and the proceeds from that disposal are reinvested in a further replacement premises and so on. However, while gains arising on disposals before 4 December 2002 may be “rolled over”, and continue to be “rolled over” while the person continues to invest in replacement premises, this entitlement will not apply to any gains arising on disposals on or after that date. However, provision is made to allow relief where a replacement premises is acquired before 4 December 2002 but the related qualifying premises has not been disposed of before that date.
(1) “qualifying premises” means a building / part of a building which consists of one or more residential units, generates a rent and complies with the Housing Regulations.
“Regulations” means —
“replacement premises” means a building / part of a building acquired with the consideration realised from the disposal of a qualifying premises, generates a rent and complies with the Housing Regulations. It must contain at least 3 residential units, but if the qualifying premises consists of more than 3 rented residential units, the replacement premises must contain at least that number of units.
“residential unit” means a part of a residential premises which is self-contained and is used or suitable for use as a dwelling.
(2)(a) The relief afforded by the section is that where a person disposes of a qualifying premises before 4 December 2002, which was such a premises throughout the period of the person’s ownership, and with the proceeds from the disposal acquires a replacement premises, then the chargeable gain on the disposal of the qualifying premises on a claim being made in that respect, is treated as if it did not arise until the person disposes of the replacement premises or those premises cease to be a replacement premises.
(2)(b) If the proceeds from the sale of replacement premises are re-invested in further replacement premises there is a further deferral of the chargeable gain.
[However, if a person has acquired a replacement premises before 4 December 2002, with the intention of disposing of the related qualifying premises, but has not done so before 4 December 2002, they may still be eligible to avail of the relief if they dispose of the qualifying premises on or before 31 December 2003. In this situation any gain arising on such a disposal may be treated as if it did not arise until the person disposes of the replacement premises or those premises cease to be a replacement premises.]
(3) Where only part of the consideration for the disposal, before 4 December 2002, of qualifying premises is re-invested in replacement premises there is capital gains tax deferral only where the amount not re-invested is less than the gain on the disposal, and then the gain is only deferred to the extent that it exceeds the amount not re-invested. Where replacement premises are acquired before 4 December 2002 but the qualifying premises were not disposed of before that date, relief under this subsection may be available where not all of the consideration is reinvested and the disposal is made on or before 31 December 2003.
(4) The deferral of a gain under this section gives no entitlement to any additional indexation relief under section 556.
(5) The relief only applies if the acquisition of the replacement premises takes place, or an unconditional contract for its acquisition is entered into, in the period beginning 1 year before and ending 3 years after the disposal of the qualifying premises. (This time limit may be extended by the Revenue Commissioners). Where an unconditional contract is entered into within this period, the relief may be given provisionally and all necessary adjustments made by way of making assessments (and without regard to the general time limits for making assessments) or repayments of tax (notwithstanding the general time limit for making a claim for a repayment of tax in section 865) or discharge of tax when the full facts are known.
(6) The relief only applies where the replacement premises are not acquired wholly or partly for the purpose of their resale for profit.
(7) Where a premises was not a qualifying premises throughout the whole of the owner’s period of ownership, the cost of acquisition of and consideration for the disposal of the premises is apportioned on a time basis and relief given to the proportion of the gain on disposal attributed to the time when the premises was a qualifying premises.
(8) Where the consideration for an acquisition or disposal relates to assets some of which are and others which are not the subject of a claim under this section, the consideration is apportioned between such assets in a manner which is just and reasonable.
Relevant Date: Finance Act 2021