Week 5 - CGT

Question 1

What is the tax treatment for when instead of purchasing shares under rights issue, a shareholder sells the right to subscribe for shares at an agreed price?

Answer 1

The sale is treated as a part-disposal of the shareholding to which the rights issue relates.

Question 2

What is the tax treatment for a person in receipt of a scrip dividend?

Answer 2

The shares acquired are treated like a rights issue. Thus, the dividend foregone is treated as payment for acquisition of rights issue (i.e. enhancement expenditure).

Question 3

What is the treatment in the anti-avoidance legislation for the acquisition of shares within 4 weeks of disposal?

Answer 3

If someone executes an acquisition of shares within 4 weeks of disposal it may mean they are attempting to crystallize a loss while retaining shareholding.

This treatment is to ringfence the loss, only allowing the loss to be set against a gain on the future sale of the same shares.

Question 4

What is the treatment in the anti-avoidance legislation for the disposal of shares within 4 weeks of acquisition?

Answer 4

If someone executes a disposal of shares within 4 weeks of acquisition it may mean they are attempting to crystallize a loss while retaining shareholding.

The treatment is to change the disposal rule from FIFO to LIFO.

Question 5

Where else do provisions apply in the anti-avoidance legislation?

Answer 5

• The acquisition of shares by one spouse within 4 weeks of the disposal of shares in the same company by the other spouse.
• The disposal of shares by one spouse within 4 weeks of the acquisition of shares in the same company by the other spouse.

Question 6

Explain the relief from CGT on the transfer of a business to a company as a going concern.

Answer 6

There is relief from CGT on the transfer of a business to a company as a going concern.

• The relief is in the form of a deferral, CGT is paid on the sale of shares.
• All of the business assets (other than cash) must be transferred to the company (not necessary to transfer investment property).
• Assets must be transferred in return for shares.

Question 7

How is relief from CGT given given on the transfer of a business to a company as a going concern?

Answer 7

Relief is given by:

• Computing the gain on the disposal of the business assets.
• Deducting the gain from the base cost of the new shares.

Question 8

What is the formula to calculate the relief on the transfer of a business to a company when the disposal is partly for non-share consideration?

Answer 8

The formula is:

Gain * (Consideration in the form of shares)/ (Value of Assets acquired)

Revenue concession regarding bona fide trade creditors does not apply.

Question 9

In terms of CGT retirement relief, there is relief for disposal of “qualifying assets”.

What constitutes qualifying assets?

Answer 9

Qualifying assets are:

• Chargeable business assets owned for 10 years ending with disposal (includes goodwill; does not include investments or chattels)
• Shares in family trading/farming company owned for 10 years ending with disposal. (Provided individual was a director for 10 years and full-time working director for 5 years).
• Land, machinery or plant used by family trading/farming company owned for 10 years ending with disposal. (Provided disposed of at the same time and to the same person as shares).

Question 10

Explain the conditions for CGT retirement relief.

Answer 10

• Relief for disposals of “qualifying assets” (by individuals over 55 (not required to actually retire))
• If under 66 on date of disposal:
  
  • > No CGT if proceeds < €750’000 (Lifetime limit)
  • > Marginal relief if proceeds > €750’000
    - > CGT cannot exceed: (Sales proceeds - €750’000) * 50%
• If 66 or over on date of disposal
  
  • > Limit is reduced to €500’000
• Relief is not given unless disposal made for bona fide commercial reasons and not part of a tax avoidance arrangement.

Question 11

What constitutes a “Family company”?

Answer 11

• 25% voting rights exercised by individual
• 75% voting rights exercised by individual, individual’s spouse and family, with 10% exercised by individual himself/herself. “Family” means brother, sister, ancestor or lineal descendant of individual or spouse.
• Must be family company for 10 years ending with disposal.
• For 10 year period of ownership, can:
  
  • > include period where business/shares owned by spouse
  • > include period where business run before incorporation.
• Where retirement relief applies, annual exemption cannot be claimed.