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Capital Gains Tax (CGT) Flashcards

1
Q

What triggers Capital Gains Tax (CGT) liability in Ireland?

A

CGT is triggered by the disposal of an asset such as property, shares, or business interests, where a gain is realized. It applies to residents on worldwide gains and non-residents only on Irish assets.

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2
Q

What is Principal Private Residence Relief (PPR Relief) in Ireland?

A

PPR Relief exempts homeowners from paying CGT on the profit gained from the sale of their principal private residence, under certain conditions.

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3
Q

How do you qualify for PPR Relief on your home sale?

A

To qualify for PPR Relief, the property must have been your principal residence for the entire period you owned it. The gain from the sale is exempt from CGT if this condition is met.

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4
Q

What is the ‘5-year rule’ in relation to PPR Relief in Ireland?

A

The ‘5-year rule’ allows homeowners to claim full PPR Relief if they lived in the property as their main home, moved out, and sold the property within 5 years of moving out. This rule is particularly beneficial if you had to move due to circumstances like work relocation and couldn’t sell the property immediately.

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5
Q

How is CGT calculated if the property wasn’t the principal residence for the entire period of ownership?

A

If you haven’t lived in the property as your principal residence for the entire period of ownership, the CGT exemption applies proportionately to the time you lived there, plus the last 12 months of ownership, irrespective of your residency during that final year.

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6
Q

What are the conditions to qualify for Transfer of Business Relief (TOB) for VAT purposes?

A
  1. Transfer to an Accountable Person: The assets are transferred to someone who is accountable for VAT. (The sole trade business, purchaser and new limited company must be VAT registered)
  2. Constitutes an Undertaking: The transferred assets must constitute an entire undertaking or a part of an undertaking that is capable of being operated independently. This can include goods and goodwill.
  3. Nature of Business Transfer: The relief can apply whether transferring the complete business or just a part of it, provided that the part transferred can be operated as a standalone business. (TOB is not available on the transfer of assets alone).
  4. VAT Supply Test: If these conditions are met, the transaction is deemed not to be a supply for VAT purposes, meaning no VAT is charged on the transfer.
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7
Q

What is Capital Gains Tax (CGT)?

A

CGT arises on gains on the disposal of assets by a person in the calendar year (1st Jan to 31st Dec).

The main CGT rate is 33%.

There is a reduced rate of 10% for the disposal of certain business assets qualifying for Revised Entrepreneur Relief (RER).

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8
Q

What is a disposal for CGT purposes?

A
  1. Sale of all or part of an asset
  2. Gift of all or part of an asset
  3. Transfer of an asset to a company
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9
Q

What are some CGT exemptions and reliefs? (7 exemptions and relief)

A
  1. Annual exemption- €1,270
  2. Transfer between spouses/civil partners living together
  3. Principal Private Residence (PPR) Relief
  4. Wasting chattels (movable, tangible assets that have a limited useful life, typically because they depreciate quickly or are consumed or used up within a relatively short time frame ex. vehicles and machinery)
  5. Non-wasting chattels sold for <€2,540
  6. Disposals of a site to child
  7. Land & buildings acquired between 7 Dec 2011 – 31 Dec 2014
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10
Q

What happens to CGT on death?

A

No CGT arises when an asset is disposed of as a result of the death.

Date of acquisition for the recipient is the date of death.

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11
Q

What is the base cost for the recipient of an asset disposed of due to death?

A

The base cost for the recipient is the market value at the date of death.

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12
Q

What is Indexation Relief in CGT?

A

The amounts deductible are “indexed” to take account of inflation.

Costs may be multiplied by an index factor (multiplier) to increase the amount deductible.

Indexation is only applied to expenditure pre-2003.

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13
Q

What are the restrictions on Indexation Relief in CGT? (5 restrictions)

A
  1. Indexation relief cannot create a gain where an actual loss occurs; this results in a No Gain/No Loss situation.
  2. Indexation relief cannot increase an actual monetary gain.
  3. Indexation relief cannot increase a loss.
  4. Indexation relief cannot turn a gain into a loss; this also results in a No Gain/No Loss situation.
  5. Indexation relief cannot be applied to Development Land Gains.
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14
Q

What is a part disposal in CGT and how do you apportion the cost to the part disposed of?

A

Part disposals arise where the entire asset is not disposed of.

This formula is used to apportion the cost to the part disposed of:
1. The original acquisition cost of the asset
2. Incidental costs of acquisition
3. Enhancement expenditure

Apportioned Cost= C x (A/A+B)

Where:
A = Sales consideration for the part disposal.
B = Market value of the remainder of the asset.
C = Original cost of the asset.

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15
Q

How is ‘Development Land’ defined for tax purposes?

A

‘Development Land’ is:

  1. Land in the State
  2. The consideration for the disposal of which, or
  3. The market value of which at the time the disposal is made,
  4. Exceeds the Current Use Value (CUV) of the land at the time the disposal is made.
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16
Q

What is ‘Current Use Value’ (CUV) in the context of Development Land?

A

Current Use Value (CUV) is:
- The value the land would have if it was not development land.
- When no development, other than of a minor nature, could be carried out.

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17
Q

What are the rules for ‘Development Land’ in relation to CGT? (5 rules)

A
  1. Indexation relief is only allowed in respect of the “current use value” portion.
  2. Incidental costs of acquisition are apportioned between the “current use value” (to be indexed) and the “hope value” (not to be indexed).
  3. Indexation relief is not allowed in respect of enhancement incurred.
  4. Normal capital losses cannot be offset against development land gains.
  5. Development land losses, however, can be used against normal Capital Gains.

Incidental costs refer to the minor expenses or fees that are not the main expenses but are associated with the execution of a larger transaction or project.

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18
Q

Who are considered ‘Connected Parties’ for CGT purposes? (5 relationships)

A
  1. Children
  2. Spouses
  3. Business Partners
  4. Companies under the same control
  5. Direct Relatives and their spouses
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19
Q

How are transactions between connected parties treated for CGT purposes?

A

Transactions between connected persons are deemed to be other than at “arms length”.

Market value rules are imposed on the transaction.

The term “at arm’s length” is used frequently in tax contexts to describe transactions where the parties involved act independently and on equal footing, without any special relationship that might influence the terms or outcome of the transaction.

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20
Q

What is the rule regarding the use of indexation for capital losses?

A

Normal computational rules apply, meaning indexation cannot be used either to create or augment a loss.

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21
Q

How are allowable capital losses offset for CGT purposes?

A

Allowable losses are offset against current year capital gains and carried forward for offset against future capital gains.

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22
Q

What happens if an asset is not a chargeable asset for CGT purposes?

A

If an asset is not a chargeable asset for CGT purposes, then a loss on the sale of the asset is not an allowable loss for CGT purposes.

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23
Q

How are losses between connected parties treated for CGT purposes?

A

Losses arising to an individual as a result of the imposition of the Market Value rules are only allowable against gains made as a result of a disposal to the same connected person.

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24
Q

When is CGT payable for disposals in the “initial period” (1st Jan – 30th Nov)?

A

CGT is payable by 15th December for disposals in the “initial period” (1st Jan – 30th Nov).

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24
Q

When is CGT payable for disposals in the “later period” (1st Dec – 31st Dec)?

A

CGT is payable by 31st January of the following year for disposals in the “later period” (1st Dec – 31st Dec).

25
Q

By when must the CGT return be filed?

A

The CGT return must be filed by 31st October of the following year.

26
Q

What is the CGT liability for an Irish resident/ordinary resident who is also domiciled in Ireland?

A

They are liable to CGT on worldwide gains.

27
Q

What is the CGT liability for an Irish resident/ordinary resident who is non-domiciled in Ireland?

A

They are liable to CGT on a remittance basis, meaning foreign gains are taxed to the extent that the proceeds are remitted to the State.

There is no loss relief for capital losses situated outside the State.

28
Q

What is the CGT liability for a non-Irish resident and non-ordinarily resident, irrespective of domicile?

A

They are liable to CGT only on specified Irish assets.

29
Q

What determines the location of assets for CGT purposes?

A

Land & Buildings: Where it is physically located
Shares: Where the share register is kept
Goodwill: Where the business is carried on
Tangible Property: Where it is physically located

30
Q

What are considered specified Irish assets for CGT purposes? (4 specified assets)

A
  1. Land and buildings in the State
  2. Interests in mining or minerals within the limits of the Irish continental shelf
  3. Unquoted shares deriving their value or the greater part of their value (>50%) from the above
  4. Assets situated in the State which at the time were used for the purposes of a trade carried on in the State through a branch or agency
31
Q

What are the rules for territoriality and capital loss relief in Irish CGT?

A

No loss relief is available to a person who is not resident or ordinarily resident.

Unless, if a gain had arisen instead of a loss, the gain would be subject to Irish CGT.

32
Q

What is the administration process for non-residents regarding CGT due dates?

A

CGT is due on the later of:
- 2 months after the issue of the notice of assessment, or
- 3 months from the date of disposal.

33
Q

When is withholding tax applicable for disposals of Irish specified assets?

A

For disposals of Irish specified assets:
>€500,000
>€1m (Houses or Apartments)

34
Q

What must a purchaser do if a Tax Clearance Certificate (CG50) is not obtained for the disposal of Irish specified assets?

A

Purchaser must withhold 15% of proceeds & pay to Collector General within 30 days with information relating to acquisition.

Vendor is entitled to set this off against CGT due on disposal.

35
Q

When will Revenue issue a Withholding Tax Clearance Certificate (CG50A)? (3 situations)

A

Revenue will issue a Tax Clearance Certificate (CG50A) if:

  1. Vendor is resident in the State, or
  2. No CGT is due on the disposal, or
  3. Vendor has already paid CGT on this disposal and no CGT is outstanding on a previous disposal.
36
Q

What is the “Temporary Non-Resident” Rule in Irish CGT?

A

It is an anti-avoidance provision. (An anti-avoidance provision in tax law is a set of rules and regulations designed to prevent taxpayers from using legal means to reduce or avoid their tax liabilities in ways that are considered contrary to the intent of the tax laws.)

If an individual becomes non-resident, disposals of certain types of shares known as ‘relevant assets’ may still be liable for Irish CGT.

37
Q

When does CGT apply to disposals under the “Temporary Non-Resident” Rule?

A

CGT will apply to such disposals unless the individual has been non-resident for more than 5 consecutive tax years between the year of departure and the year of return.

38
Q

What qualifies as “Relevant Assets” under the “Temporary Non-Resident” Rule for Irish CGT?

A

A holding in a company which, when the person ceases to be chargeable to CGT in the State (i.e., the last day of the tax year in which the person departs):
1. Is 5% or more by value of the issued share capital, OR
2. Has a value more than €500,000.

39
Q

What are some issues associated with share disposals for computing gains or losses?

A

Shares present special problems when attempting to compute gains or losses on disposal.

Shares may have been acquired in several “tranches” over time at different prices.

40
Q

How are costs identified for share disposals?

A

Disposals of shares are identified with purchases on a “First In First Out” (FIFO) basis. Longest held shares are deemed to be disposed of first.

41
Q

What is a rights issue in the context of shares?

A

Shareholders may be entitled to purchase additional shares in a company based on their existing shareholding.

For example, a 1 for 5 rights issue means a shareholder can purchase 1 share for every 5 held at a certain price.

42
Q

How are shares from a rights issue treated under FIFO?

A

Under FIFO, shares acquired through a rights issue form part of the original block of shares.

These “new” shares are deemed to be part of the original holding.

43
Q

How is the cash paid in a rights issue treated for indexation relief?

A

The cash paid in a rights issue is treated as enhancement expenditure for indexation relief.

44
Q

What is a bonus issue in the context of shares?

A

Shareholders may acquire additional shares in a company at no cost based on their existing shareholding.

45
Q

Is there any deductible expenditure for CGT purposes in a bonus issue?

A

No, as no consideration was paid for the additional shares, there is no further deductible expenditure for CGT purposes.

46
Q

What does the anti-avoidance legislation state about re-acquiring shares within 4 weeks of disposal?

A

If a person makes a loss on the disposal of shares and then re-acquires shares of the same class within 4 weeks of the disposal, this loss can only be offset against a subsequent gain on the disposal of the re-acquired shares. This loss cannot be used against other gains.

47
Q

What rule should be applied when disposing of shares within 4 weeks of acquisition according to anti-avoidance legislation?

A

Ignore FIFO (First In First Out)
Apply LIFO (Last In First Out)

48
Q

How does anti-avoidance legislation prevent share manipulation between married persons?

A

Prevents one spouse from selling shares and the other spouse from re-acquiring them within 4 weeks.

49
Q

What are share options and how are they generally taxed for an employee?

A

Share options arise when an employee is granted an option to acquire shares in their employer’s company at a fixed price at some time in the future.

An employee is generally subject to income tax on the exercise (and possibly the grant) of the option (covered later within Session 10.2).

50
Q

How are gains from share options treated for CGT purposes?

A

Any gains that are subject to income tax on the grant/exercise of the option are treated as additional expenditure in acquiring the shares.

51
Q

What is the Key Employee Engagement Programme (KEEP)?

A

KEEP is a share option incentive scheme which applies until 31 Dec 2025.

It helps unquoted companies recruit and retain key employees.

52
Q

What tax exemptions does the Key Employee Engagement Programme (KEEP) provide?

A

KEEP provides an exemption from Income Tax, USC, and PRSI on a gain on exercise of a qualifying share option by a qualifying individual in a qualifying company.

53
Q

How is tax handled under the Key Employee Engagement Programme (KEEP) when the shares are disposed of?

A

Tax is deferred until the shares are disposed of (the company can also buy back the shares).

CGT is payable on the difference between the sales proceeds and the price paid on exercise (amount you originally paid to acquire the asset)

54
Q

What are the limits on the relief provided by the Key Employee Engagement Programme (KEEP)?

A

The market value of all shares of which qualifying share options have been granted to an employee/director cannot exceed:
1. €100,000 in any one tax year
2. €300,000 in any three consecutive tax years
3. The annual emoluments of the qualifying individual in the year the option is granted

Emoluments refer to the compensation, earnings, or benefits received from employment

55
Q

What are the requirements for the Key Employee Engagement Programme (KEEP)?

A
  1. Qualifying Share Options
  2. Qualifying Company
  3. Qualifying Trade
  4. Qualifying Employee/Director
56
Q

What are the criteria for Qualifying Share Options under the Key Employee Engagement Programme (KEEP)? (5 criteria)

A
  1. Must be a written contract (number and type of shares, the option price, etc.)
  2. Ordinary fully paid-up shares in a qualifying company
  3. Option price at date of grant cannot be less than the market value at that date
  4. Options must be exercised between 1 - 10 years of the date of the grant
  5. Granted for bona fide commercial purposes and not part of a tax avoidance scheme
57
Q

What are the criteria for a Qualifying Company under the Key Employee Engagement Programme (KEEP)? (6 criteria)

A
  1. Incorporated in the State/UK/EEA state
  2. Resident in the State or carries on business in the State through a branch
  3. Exists mainly to carry on a qualifying trade
  4. Be an SME at the date of the grant
  5. Market value of share options cannot exceed €6m at the date of the grant
  6. Be an unquoted company and not be in difficulty under EU rules
58
Q

What are the excluded activities for a Qualifying Trade under the Key Employee Engagement Programme (KEEP)? (7 excluded activities)

A
  1. Financial activities
  2. Medical & Dental
  3. Architectural
  4. Accountancy
  5. Legal
  6. Developing land, building, and construction
  7. Forestry
59
Q

What are the requirements for a Qualifying Employee/Director under the Key Employee Engagement Programme (KEEP)? (4 requirements)

A
  1. Work a minimum of 20 hours per week
  2. At least 75% of their working time devoted to the company
  3. The employment is capable of lasting 12 months from the date of grant
  4. Own LESS than 15% of the ordinary share capital

Tax (18 decks)

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