Capital Gains?

1. What is the threshold for a capital gains tax clearance certificate?
2. What indexation multiplier applies if I dispose of any assets?
3. If I sell part of my garden to a builder, who builds a house on it, am I liable to pay capital gains tax?
4. Calculation of gain?
5. First in - First Out (or "FIFO" rule)
6. Disposal of shares within four weeks of acquisition
7. Bonus/Rights issues

Where certain assets are disposed of and their value exceeds €500,000, the purchaser must deduct an amount equal to 15 per cent of the payment for capital gains tax, (referred to as "withholding tax"). The purchaser is then required to forward this sum to the Revenue Commissioners along with information regarding the acquisition. Where the person disposing of such an asset produces to the purchaser a tax clearance certificate in relation to the disposal no deduction of withholding tax is necessary. If, however, in order to avoid the application of the section, an asset exceeding this value is sold in parts (by the same person or connected persons), then those disposals are to be treated as one disposal. This section applies to assets, which are: Land or buildings in the State, Minerals in the State or any mineral or mining rights, Exploration or exploitation rights in a designated area, Shares deriving their value from any of the above assets, Unquoted shares deriving their value from the above assets acquired on a share-for-share basis on a reorganisation or reduction of share capital, and Goodwill of a trade carried on in the State.

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What indexation multiplier applies if I dispose of any assets. This table is currently included in Publications-Leaflets and Guides-CGT- Capital Gains Tax Multipliers for years ended 5 April 1995 to 31 December 2003.

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Yes, normally when an individual disposes of his/her principal private residence and a garden or grounds of up to one acre (excluding the site of the house), then any gain on such a disposal is exempt from capital gains tax. However, where a dwelling house or garden/part of a garden, is sold for greater than its current use value, then this constitutes the sale of development land and principal private residence relief will apply only to the current use value. In general terms the difference between the consideration and the current use value is liable to capital gains tax. Development Land rules do not apply to disposals where the total consideration from such disposals does not exceed €19,050.

Example:

An individual disposes of part of his garden for €40,000. The current use value of the site is €2,000. The entire property originally cost €100,000. The market value of the property after the sale of the site is €360,000.

Step 1. Calculate the gain arising using the part disposal rules and ignoring any development land implications.

 

Step 2. Calculate a notional gain, as if the site was sold for current use value. This is the principal residence relief.

 

Step 3. Deduct 2 from 1 above. This is the chargeable gain.

As in the previous example, on a subsequent disposal of the remaining property, the base cost of the land disposed of, will be the original cost less the base cost allocated to this disposal.

i.e. €100,000 - €10,000 = €90,000

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Bought   100 Ordinary €1.27 shares for €2.54 per share in 1997
Sold      50 Ordinary €1.27 shares for €3.81 per share in 1999

Gain is:
Proceeds €190.46, less cost €126.97 (50 x €2.54) = Gain of €63.49.

*(ignoring indexation, expenses of sale and personal exemption for ease of illustration)

Often, however, there will be increases in the shareholding, either because a person purchases additional shares of the same type or they receive additional shares under bonus or rights issues. There are special capital gains tax rules for these situations.

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Where a person holds shares of the same class which have been acquired at different dates, the shares acquired at the earlier time are deemed to be disposed of first. For example:

2006 bought 1,000 Ordinary €1.27 shares in X Ltd. for €1.27 per share
2007 bought 200 Ordinary €1.27 shares in X Ltd. for €1.90 per share
2008 bought 500 Ordinary €1.27 shares in X Ltd. for €2.54 per share
2009 sold 1,500 Ordinary €1.27 shares in X Ltd. for €3.81 per share

Sold 1,500 shares for €5713.82 in 2009

Allowable cost - before indexation
FIFO

1,000 @ €1.27 £1269.74
200    @ €1.90 €380.92
300    @ €2.54 €761.84
___
1,500

Remaining shares: 200 €1.27 Ord. in X Ltd. acquired in 2008 costing €2.54 per share.

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The FIFO rules are modified in any case where shares of the same class are bought and sold within a period of four weeks. Where shares are sold within four weeks of acquisition the shares sold are identified with the shares acquired within that period. Furthermore, where a loss accrues on the disposal of shares and shares of the same class are acquired within a four week period, the loss is not available for offset against any other gains arising and instead is only available for set off against any gain that might arise on the subsequent disposal of the shares so acquired in the four week period - this provision does not apply where there is a gain on the disposal.

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Sometimes the holder of a class of shares will receive additional shares, being either a bonus issue (no additional cost) or a rights issue (for a cost which is usually less than open market value), in respect of their holding. In these situations, despite the fact that the new shares are actually acquired at a later date, they are deemed to have been acquired at the date the original shares giving rise to the bonus or rights issue were acquired. Thus, if a person acquired, say, 100 shares in company X Ltd. in 2006 and in 2008 received 50 shares as part of a bonus or rights issue they will be deemed to have held the entire holding of 150 shares from 2006.

Furthermore, there is no question of imputing a notional cost or value for the new shares acquired but the actual price paid to acquire the shares under a rights issue is allowed as enhancement expenditure.

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