11 July 2017
Tax question of the week #3
Client bought property for €3m in 2008. He has a bank debt of €2.5m. There are no capital allowances on the property. The bank accepts €1m sale proceeds (market value) in settlement of the loan. The bank writes off the €1.5m capital.
The bank also writes off €100k in interest arrears.
What are the tax consequences?
- In general, for an individual developer/dealer in land the €1.5m may be taxed as a trading receipt.
- This trading receipt is offset by the corresponding “loss” arising on the disposal of the stock.
- Broadly as regards investment assets, if there is no tax avoidance, there is no “gift” from the bank to the customer (Ebrief 12/13).
- No CGT as there is a loss on the sale of the asset (€1.5m).
- The capital loss is restricted to the economic disadvantage suffered.
- If client has claimed interest relief (on the interest he did not pay) he is subject to tax under Case IV on the interest write-off.