When a company disposes of Irish immovable property, other than in the course of a property development trading activity, any gain made on the disposal will be subject to tax in Ireland. The tax rate that will be applied will be dependent on whether the property is/has been treated as a fixed asset or current asset by the company.
Fixed Asset
When a company disposes of a fixed asset an makes a profit/gain on the disposal, the gain will be subject to Capital Gains Tax at a rate of 33%.
Current Asset
When a company disposes of a current asset (trading stock) any profit/gain on the disposal will be subject to the higher corporation tax rate of 25%.
How do I know whether property is a fixed asset or a current asset?
On a basic level whether the disposal of immovable property is a fixed asset or a current asset will be determined upon how the property has been presented in the company’s financial statements.
There are several factors which will impact upon which category of asset the immovable property will be presented which will include but not limited to:
The intended use of the property at the time the property is acquired;
If any financing is obtained at the time the property is acquired, over how many years will the loan be repaid. For example, if the loan is over 5 years the property may be a current asset however, if the property is financed over 20 years the property is most likely a fixed asset; and
Any previous disposals of immovable property the company has made.
Summary
Given there is an 8% differential between the two rates of taxation, it is important that any immovable property is correctly classified in the financial statements. It is also important to note the above is for information purposes only and it is not intended as tax advice.
Should you wish to discuss your specific circumstances please do not hesitate to contact us on adrianwatson@registeredoffice.ie