The weekend is upon us. According to recent surveys, we will be heading to the supermarket for the finest cuts of meat and treats. Oh, don’t forget the wine and craft beers! We will be a bit scruffier as we are not buying shampoo or razors. Going by the cut of me a hair grooming kit would be a wise buy. Am a cross between a grumpy Gallagher brother and the 5th Beatle. A wooly hat is a must to hide the offending mop on the streets of Tramore.
Last week we spoke about some Tax tips for business owners for this year. In case you missed it Read here
This week we will look at tax tips to be aware of when you sell assets. The aim is to give you some tips so that you are not leaving cash behind you.
“One of the greatest responsibilities that I have is to manage my assets wisely, so that they create value” Alice Walton
We all have assets but may not think it. Jobs, businesses, pensions, shares, property, land and other investments are assets. We will focus on the taxes on the sale of property, shares and land. The main taxes are Capital Gains Tax [CGT] and Stamp Duty. Other taxes are relevant such as Income Tax if you own the property, or Corporation Tax if your company owns it. Gift or Inheritance Tax can also come into play as can Vat. There could be a book in this!
What expenses can I deduct?
You can deduct incidental costs of purchase and sale. On a property, building or land, these costs would include.
- stamp duty on the purchase
- legal fees
- auctioneering fees
- advertising costs
- accountancy fee
- Enhancement Expenditure
Billy Bob Butler bought a rental property at 5 Home of Hurling Square in Clonmel in June 2011 for €100,000. Legal fees were €1,750 and the other costs €1,000 stamp duty. Due to wear and tear he put in a new kitchen in 2017 for €8,000. He sold the house in May 2020 for €195,000. Auctioneering, legal, and accountancy fees on sale were €2,300, €2,250, and €800. BBB’s CGT liability is as follows;
| Sales Proceeds | €195,000 | |
| Less Costs of Sale | €5,350 | |
| Net Sales Proceeds | €189,650 | |
| Less Purchase cost | €100,000 | |
| Less incidental costs of purchase | €2,750 | |
| Less Enhancement Expenditure | €8,000 | |
| Gain | €78,900 | |
| Less Personal Exemption | €1,270 | |
| Taxable Gain | €77,630 | |
| Tax Payable | 33% | €25,618 |
When Do I Pay the CGT?
In the above case, BBB would pay the CGT on or before the 15th of December 2020. If he sold the property in December 2020 then he would pay the CGT on or before the 31st of January 2020. If you sell the property in the period from 1 January to the 30th of November, you pay the tax owing by the 15th of December. If you sell it in December, you have until the following 31st of January.
If you don’t pay by the due dates Revenue has the power to charge interest from the due date to the date you pay.
Does BBB have to do anything else?
Yes, he will have to include the details of the sale in his Income Tax return. As part of that return, he will need to file a CGT return. This is where he includes the proceeds, the gain, the taxable gain and the CGT period in which he had the gain. He will also need to complete a CGT self-assessment panel which will show the tax liability and the tax paid.
He will need to file a tax return by the 31st of October 2021 and include the details in that return. There will be an extension of up to 2 weeks to that date once he is paying and filing on ROS. The return must go in on time. If the return is late by more than 2 months the liability will increase by 10%. If less than 2 months the surcharge is 5%. Don’t be late BBB it could cost you €2,562!
Click here to see the tax return you will need to file in different situations and to find out more information.
Can he do anything else to reduce the liability?
BBB calls his accountant to ask him if there’s anything else he can do to reduce the liability. “I am paying you a small fortune to look after my taxes. Surely there must be something I can do to reduce the liability”. He gets a reply from the patient lady that he is 50% correct, small yes but a fortune no. She asks him some questions and finds out that he has 4 AIB shares that cost him €13,000 back in the day. They are now worth €6. She asks him to sell these shares before the end of 2020 to realise the loss. Once he does that, he can offset the loss against the gain. Based on a loss of €12,994 his CGT liability will now look like this
| Gain | €78,900 | |
| Losses | €12,994 | |
| Gain | €65,906 | |
| Less Personal Exemption | €1,270 | |
| Taxable Gain | €64,636 | |
| Tax Payable | 33% | €21,330 |
You will see from this that his liability has reduced by €4,288. This is the value of the losses at 33%. There is a box of Black Magic winging its way to his accountant for Christmas.
What if?
His accountant told BBB to sell the shares before the end of December 2020. BBB was so excited that the pub was open for a few days that he went on the beer. This continued into Christmas day and even to the end of the year. He deserved it because he had a tough year working from home in his tracksuit for 9 months. With a massive hangover on New Year’s day, he realised he forgot to sell the AIB shares. He thinks the shares could come back in value and calls to confirm that he wants to hold onto the shares. His accountant confirms she doesn’t dispense investment advice. She also confirms that he cost himself €4,288. Billy’s skin colour changes from an off pink to a mix of bluey-green.
If you have losses, you can carry them forward or use the losses you have in the same year as which you have gains. You cannot carry the losses back. For CGT, losses can only be carried back in the year of death. Billy is not happy with Revenue and all their rules!
He is having a deep and meaningful conversation with Barbara Bridget, his wife, over a bottle of wine. During a break in the Late Late Show, they get talking about losses and she mentions that she had the same bad luck with shares. She had lost €15,000 on Anglo Irish shares. Billy goes wild with joy and buys his wife the best bouquet of flowers from Lidl on Saturday morning. He can use her losses to reduce his CGT liability. This will save him €4,950. He can carry forward the losses on the AIB shares to future years and use them against any future gains. If Barbara has any gains in the future, she can use Billy’s losses. An election for separate assessment would scupper this.
Summary
The above is a basic guide to how a CGT computation looks and what costs you can offset. We had a look at payment dates and tax return dates and explored losses a bit. We will take a further look at some of the intricacies of selling assets next week.
Interested in talking to us? Call Deirdre on 051396703. She will point you in the right direction. Or start here and tell us a bit about you so that we can help.
