When does a charge to Capital Gains Tax arise?
You are liable to capital gains tax (CGT) on taxable gains (less allowable losses) when you make a disposal of an asset, such as a house (excluding the family home), shares or other business assets and investmetns.
Tax is payable at 20%, with some exceptions.
Exemptions
Each person has an annual capital gains exemption of €1,270. This exemption is not cumulative and is lost if not used in any one tax year.
The exemption is not transferable between spouses.
You are exempt from paying CGT if you dispose of your only or main residence and grounds up to one acre, providing that the disposal proceeds are not inflated because of development value.
If you dispose of certain Irish Government stocks you are exempt from CGT. However there may be income tax implications if the stock has been held for less than two years.
The disposal of assets to a spouse does not give rise to CGT. Should that spouse subsequently dispose of the asset, he or she will be treated as having acquired it on the same day and at the same cost as the other spouse, thus providing maximum indexation relief. No CGT will arise where a person who has obtained a decree of divorce disposes of certain assets pursuant to a court order to his/her former spouse. Similar provisions apply to persons who have been granted a judicial separation or are party to a deed of separation.
Annual Review
You should review your investments at least once a year. This will help to ensure that you utilize your annual exemption. You might consider selling and buying back the same asset to rebase the cost. (There is some anti- avoidance legislation to beware of here.) Or you might sell a loss making asset to offset a gain.
You could consider holding assets in joint names of spouses so each spouse can avail of the €1,270 exemption.
Land
In general, disposals of land are liable at a CGT rate of 20%.
This 20% rate of CGT applies to disposals of land for residential development until 5 April 2002.
Thereafter it is intended that a 60% rate will apply to disposals of such land. Special rules restricting indexation relief apply to gains on the disposal of development land or shares deriving their value from development land.
Roll over relief for business assets
CGT may be deferred if you sell certain business assets and reinvest the proceeds in similar assets within a certain time limit.
This is commonly known as "roll over relief". Roll over relief may be claimed on plant and machinery, buildings, land and goodwill.
The relief is not available in respect of development land except where it is farmland sold as a result of compulsory purchase powers for road building purposes or where it has been certified by the relevant local authority that the land being disposed of is subject to a use which is inconsistent with the protection and improvement of the amenities of the general area.
An entrepreneur can defer paying CGT on gains arising from the disposal of certain shares or securities in a quoted or unquoted company by reinvesting in certain companies. A number of restrictions apply regarding the shares, the individual and the company.
Retirement
If you are aged 55 or over and have owned your own business for at least ten years, the gain from the sale of your business assets may be exempt where the sale is for €476,152 or less. If the sale proceeds exceed €476,152, the CGT is limited to one half of the difference between the sales proceeds and €476,152. The €476,152 limit does not apply when you are selling or gifting your business to your children.
Retirement relief may also apply to trustees of settled property where a life interest is relinquished.
Negligible Value
Where the value of an asset becomes negligible it may be possible to claim loss relief equivalent to the difference between the cost price and its market value. It is necessary to make a claim to your Inspector of Taxes to obtain this relief.
Exemption for Art Objects
An exemption from CGT is available in respect of certain works of art with a market value of at least €31,744 where they have been on loan to the State and on display to the public for at least six years.
Clearance Certificates
A CGT clearance certificate is required where the disposal proceeds are €380,921 or more. Without a clearance certificate the purchaser is obliged to deduct tax at 15% of the sales proceeds and pay this to the Revenue. Where the disposal proceeds are not made up of cash but may be in some non-pecuniary form, the provision still applies unless a CG50 form is obtained. For newly constructed houses if the seller has a certificate of authorization or a tax clearance certificate the purchaser does not have to deduct withholding tax.
Self Assessment
CGT is a self-assessment tax with preliminary tax due on 31 October 2005 for the the initial period ended 30th September 2005. (The preliminary tax for the secondary period ended 31st Decemer 2005 is due on or before 31st December 2006.
You must submit your tax return on or before 31 October of the year following that in which the disposals are made. For example, if you sold an asset in the year to 31st December 2004, you must make a CGT return of the gains made by 31 October 2005.
