Capital Gains Tax

Capital gains tax is chargeable on the gains arising from the disposals of assets including an interest in property (e.g. a lease).

We can devise a structure, which will significantly reduce the tax costs associated with the transaction.

Disclaimer: Always contact a professional before proceeding with a transaction.

Disposal of assets include:
A transfer by sale, exchange, or gift,

The settlement of an asset on trustees, or

The receipt of a capital sum derived from assets such as compensation or insurance money in respect of the loss or destruction of an asset or for forfeiture or surrender of rights.

However, the death of an owner of assets is not an occasion of charge in respect of those assets. Where a disposal is made other than by way of an arm's length sale between connected parties, the consideration is deemed to be equal to the market value of the asset at the date of disposal.

Persons chargeable and the extent of the charge
All persons who are resident or ordinarily resident in the State for a year of assessment are liable to the tax in respect of chargeable gains accruing in that year on the disposal of assets, wherever the assets are situated. The charge extends to individuals, companies, trustees and other bodies of persons.

Individuals resident or ordinarily resident, but not domiciled, in the State are chargeable to tax on gains on the disposal of chargeable assets located outside the State and the United Kingdom, only to the extent that such gains are remitted to this country.

Non-resident persons are chargeable to tax on gains made on the disposal of specified assets including:

• Immovable property situated in the State, minerals or mineral rights in the State (including the Irish area of the Continental Shelf),
• Shares in a company deriving the greater part (>50%) of its value from such property or mineral rights,
• On the disposal of assets used for the purposes of a trade carried on in the State through a branch or agency.

Basis of charge
The tax is charged based on each tax year (i.e. 1st January to 31st December).

Calculation of gain
The taxable gain is the amount of the consideration as reduced by "deductible expenditure", that is, the cost of acquisition and certain enhancement expenditure. Deductible expenditure is also adjusted for inflation (indexation relief). This adjustment is not made in respect of any expenditure incurred within one year of the date of disposal of the asset. Indexation relief (to 31.12.02) is available to all taxpayers, including companies and non-residents.

In the case of development land, indexation relief applies only to the current use value (i.e. value without permission to develop or change its use) at the date of acquisition (or 6 April 1974, if later).

CGT Exemptions and relief's
Various exemptions and relief's from capital gains tax are provided, the most important being the following:

1. The first €1,270 of taxable gains by an individual in a tax year is exempt. In the case of a married couple this exemption is available to each spouse but is not transferable.

2. Gains realised on the following are not taxable gains:

(i) Irish government securities, including land bonds, prize bonds, savings certificates and bonuses payable under the National Installment Savings Scheme;

(ii) securities of local authorities, certain State-sponsored bodies and the European Union;

(iii) futures contracts based on government and other securities that are not chargeable assets for the purposes of capital gains tax;

(iv) life assurance policies and contracts for deferred annuities, unless purchased from another person etc.

(v) chattels sold for €2,540 or less;

(vi) wasting chattels, such as private motor cars, animals;

(vii) winnings from betting, lotteries and sweepstakes;

(viii) gains accruing to superannuation funds, charities and certain bodies, such as local authorities and trade unions;

(ix) certain works of art below a specified value, where they have been loaned to an approved gallery for a period of not less than six years for display to the public;

(x) a gain on a dwelling-house (including grounds of up to one acre) where the house has been used as an individual's only or main residence (or, under certain conditions, as the sole residence of a dependent relative) during the individual's period of ownership. In certain circumstances there may be a restriction on the relief or partial relief may be due.

Retirement Relief
A gain on the disposal of a business or farm by an individual aged 55 years or older for a consideration not exceeding €750,000 is exempt from capital gains tax. There is no limit where the disposal is to a child or a niece/nephew that works in the business. Marginal relief applies where the consideration does not greatly exceed that amount. Where the disposal is made to a child of the individual (or, in certain circumstances, to a nephew or niece), the gain is exempt irrespective of the amount of the consideration. Budget 2007 increases the threshold to €750,000 for farmers who owned and farmed land for 10 years, leased it for less than 6 years before selling it to the third party who leased the land.

CGT Indexation Factors
The Revenue Commissioners have made Regulations specifying the multipliers to be used for indexation purposes in order to arrive at the expenditure allowable as a deduction in computing chargeable gains accruing on disposals of assets after 2003. Indexation will not apply to assets acquired after 31st December 2002.