Capital Gains Tax

As the name suggests, Capital Gains Tax (CGT) is a tax levied on capital gains, ie profits arising on the disposal of land, property, shares and other assets. until the mid-1990s, Capital Gains Tax was a tax that concerned most Irish people only once or twice in a lifetime. The temporary property boom of the so-called Celtic Tiger years changed all that, and nowadays everyone who sells or otherwise disposes of property or shares (eg by gift) must know the possible CGT implications.

Disposal  

It is important to note that CGT arises in relation to the disposal of an asset – not just its sale. CGT may arise on transactions (eg gifts), even when no money changes hands. Where an asset changes hands for free or at less than its market value, CGT must be calculated using the “open market value” of the asset at the date of the transaction.

For example, Ted sells land worth €200,000 to his brother Dougal for €50,000. Ted must calculate his CGT liability on the sale by reference to the actual value of the land (€200,000). He is not allowed to base it on the actual sum he received, even though the tax bill may eat up most of the sale proceeds. 

Residence

All individuals who are classed as Irish residents for tax purposes are liable to capital gains tax (CGT) on worldwide disposals. Non-Irish residents are taxed in Ireland on gains from disposals of Irish assets, land etc and on the proceeds of some foreign gains.

How is the Gain calculated?

The standard rate of Capital Gains Tax is 25%.

To calculate a Capital Gain, simply deduct the original cost of the asset (adjusted for inflation where appropriate) from the sale proceeds (or market value) of the asset on disposal.

The incidental costs of acquisition and disposal can be included, as can the cost of any improvements or enhancements to the asset in the meantime.

Indexation Relief

The effects of inflation (up to 31 December 2002) may be included in calculating the amount of a gain for CGT purposes. The Revenue have published a list of the relevant CGT inflation multipliers for each year.  An inflation factor of nil is applied for acquisitions or enhancements from 2003 onwards.

Exemptions & Reliefs

The following gains are normally exempt from CGT

In addition, a very valuable relief known as Retirement Relief can be claimed in certain circumstances by individuals over 55 years who dispose of certain business assets or trading company shares.

Payment and Compliance

For disposals between 1 January and 30 November, in any given year, CGT must be paid by 15 December in that year. For disposals in December in a given year, the liability must be paid by the following 31 January.

For each tax year where there is a capital gain, a CGT return must be filed with the Revenue by  31 October in the following tax year

The Benefit of Expert Advice

Because most provisions of the Capital Gains Tax Act are subject to terms and conditions, anyone who disposes of property or other assets should always obtain expert professional advice on the CGT implications.