Capital Gains Tax (CGT) Flashcards
What triggers Capital Gains Tax (CGT) liability in Ireland?
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.
What is Principal Private Residence Relief (PPR Relief) in Ireland?
PPR Relief exempts homeowners from paying CGT on the profit gained from the sale of their principal private residence, under certain conditions.
How do you qualify for PPR Relief on your home sale?
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.
What is the ‘5-year rule’ in relation to PPR Relief in Ireland?
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.
How is CGT calculated if the property wasn’t the principal residence for the entire period of ownership?
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.
What are the conditions to qualify for Transfer of Business Relief (TOB) for VAT purposes?
- 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)
- 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.
- 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).
- 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.
What is Capital Gains Tax (CGT)?
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).
What is a disposal for CGT purposes?
- Sale of all or part of an asset
- Gift of all or part of an asset
- Transfer of an asset to a company
What are some CGT exemptions and reliefs? (7 exemptions and relief)
- Annual exemption- €1,270
- Transfer between spouses/civil partners living together
- Principal Private Residence (PPR) Relief
- 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)
- Non-wasting chattels sold for <€2,540
- Disposals of a site to child
- Land & buildings acquired between 7 Dec 2011 – 31 Dec 2014
What happens to CGT on death?
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.
What is the base cost for the recipient of an asset disposed of due to death?
The base cost for the recipient is the market value at the date of death.
What is Indexation Relief in CGT?
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.
What are the restrictions on Indexation Relief in CGT? (5 restrictions)
- Indexation relief cannot create a gain where an actual loss occurs; this results in a No Gain/No Loss situation.
- Indexation relief cannot increase an actual monetary gain.
- Indexation relief cannot increase a loss.
- Indexation relief cannot turn a gain into a loss; this also results in a No Gain/No Loss situation.
- Indexation relief cannot be applied to Development Land Gains.
What is a part disposal in CGT and how do you apportion the cost to the part disposed of?
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.
How is ‘Development Land’ defined for tax purposes?
‘Development Land’ is:
- Land in the State
- The consideration for the disposal of which, or
- The market value of which at the time the disposal is made,
- Exceeds the Current Use Value (CUV) of the land at the time the disposal is made.
What is ‘Current Use Value’ (CUV) in the context of Development Land?
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.
What are the rules for ‘Development Land’ in relation to CGT? (5 rules)
- Indexation relief is only allowed in respect of the “current use value” portion.
- Incidental costs of acquisition are apportioned between the “current use value” (to be indexed) and the “hope value” (not to be indexed).
- Indexation relief is not allowed in respect of enhancement incurred.
- Normal capital losses cannot be offset against development land gains.
- 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.
Who are considered ‘Connected Parties’ for CGT purposes? (5 relationships)
- Children
- Spouses
- Business Partners
- Companies under the same control
- Direct Relatives and their spouses
How are transactions between connected parties treated for CGT purposes?
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.
What is the rule regarding the use of indexation for capital losses?
Normal computational rules apply, meaning indexation cannot be used either to create or augment a loss.
How are allowable capital losses offset for CGT purposes?
Allowable losses are offset against current year capital gains and carried forward for offset against future capital gains.
What happens if an asset is not a chargeable asset for CGT purposes?
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.
How are losses between connected parties treated for CGT purposes?
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.
When is CGT payable for disposals in the “initial period” (1st Jan – 30th Nov)?
CGT is payable by 15th December for disposals in the “initial period” (1st Jan – 30th Nov).