Last week we looked back on some funny and embarrassing moments in our working years. In case you missed it see here. This week we will look at some Capital Gains Tax tips for 2022. We will look at:
- Background
- Calculation
- Deductions
- Personal Exemption
- Losses
- Payment Dates
Background
Capital Gains Tax [CGT] came into Ireland on the 5th of April 1974. It is a tax on gains on the disposal of an asset. So, there must be a disposal and the asset must be liable to CGT. We all associate a disposal of an asset with a sale of an asset such as selling property, shares, or land. But a gift is also a disposal. If you gift shares or property to someone you are transferring the ownership from you to them. This is liable to CGT if there is a gain. If there is a loss, then you should calculate the loss as you can use the loss against a gain.
An asset that transfers on death is not a disposal. The recipient of the asset gets it at market value. You can also sell part of an asset like a site from your farm or some shares of a shareholding you hold.
On assets like Irish Government bonds, prize bonds and betting winnings there is no CGT. The current CGT rate is 33%
Calculation
How to calculate the tax was one of the first things we did back in WIT in 1995. Let’s say our lecturer Margaret Cusack was a very patient lady.
Dan & Dora Diego sell an investment property in March 2022 for €350,000. The property cost them €180,000 in February 2011. Costs of sale such as legal, tax, and auctioneering fees will be €11,000. When they bought the property, they incurred costs of €5,000 between legal costs and stamp duty.
| Sales Proceeds | €350,000 |
| Less Costs of Sale | €11,000 |
| Net Sales Proceeds | €339,000 |
| Less Cost of Property | |
| Purchase Price | €180,000 |
| Incidental Costs of Purchase | €5,000 |
| Gain | €154,000 |
| Less Personal Exemptions €1,270 X 2 | €2,540 |
| Chargeable Gain | €151,460 |
| Tax Payable at 33% | €49,982 |
Deductions
You saw that Dan & Dora got a deduction for incidental costs of buying and selling the property. Incidental costs include legal, auctioneers, accounting fees, engineers’ fees and stamp duty.
If you bought the property before the 31st of December 2002 the asset price and costs can increase for inflation. This indexation relief increases the costs of the asset by a set percentage. For more information on this see here
If the Diego’s bought the property 10 years earlier in February 2001 they can index the cost. The index factor for the tax year ended 5 April 2001 is 1.144. Did you remember that our tax years used to go from the 6th of April to the 5th of April?
| Purchase Price | €180,000 |
| Incidental costs of purchase | €5,000 |
| Total Purchase costs | €185,000 |
| Indexation fact for 2000/01 | 1.144 |
| Indexed Cost | €211,640 |
| Increase in Cost | €26,640 |
The increased cost of €26,640 will result in a tax saving of €8,790
You can also get a deduction for expenditure that you incurred on increasing the value of the asset. This doesn’t include your own labour – see blog re own labour. Let’s assume that Dan and Dora converted the garage to an office in 2015 for €25,000. The sales value would reflect that there is an office. The costs of this enhancement expenditure will reduce the gain by €25,000 saving €8,250 in CGT.
Personal Exemption
The first €1,270 of chargeable gains of an individual is exempt. As the property is in joint names Dan and Dora can get two personal exemptions. Assuming Dan owns it then there is one personal exemption. You cannot transfer the personal exemption between spouses or civil partners.
Losses
You can offset losses forward or losses in the same year. For example, if the Diego’s have an asset that has lost value, they could dispose of that in 2022. Bank shares come to mind from painful experience! Say Dora inherited 5000 AIB shares from her dad in 2005 that had a value of €100,000. They are worth €10,000 now. If Dora sells those shares in 2022, she will realise a loss of €90,000. She can set the loss against the gain.
| Chargeable Gain – Property | €154,000 |
| Loss on bank shares | €90,000 |
| Net Gain | €64,000 |
This will save CGT of €29,700.
Losses forward or losses in the same year will work. But if Dora sells the bank shares in 2023, she can’t carry back the loss into 2022. It is possible to share losses between spouses and civil partners. That’s why if you have a loss then it makes sense to calculate that loss for future use.
Payment Dates and Tax Return
You pay first and file the tax return later. Like Domestos killing 99.9% of germs, this applies in 99.9% of cases that we have seen. There are two payment dates
- If you dispose of the asset in the period from 1 January to the 30th of November, you pay CGT by the 15th of December
- When you dispose of the asset in December then you pay the CGT by the 31st of January of the following year
As Dan and Dora sold their property in March 2022, they must pay their CGT liability by the 15th of December 2022. Should they sell it in December 2022 then the payment date is the 31st of January 2023.
You must file the CGT return for the tax year 2022 by the 31st of October 2023. If you already file an Income Tax return Form 11 every year, then the CGT return will form part of that tax return. If you don’t file a Form 11 then you will need to complete a CGT return called a Form CG1. For more information on this see here
The two things to watch out for here are interest and surcharge. Not paying on time can cost interest and the rate is about 8% per annum. If you file your return late, even if you have paid on time, the surcharge is either 5% or 10% of the liability. Say the Diego’s didn’t file their tax return until December 2023 the surcharge of 5% would be €2,500. If they filed in January 2024 or after, the surcharge would increase to €5,000.
Summary
These are some basics to cover off when disposing of assets. Getting the tax payment and the return in on time is a must. Making sure you pay no more than you have to is also a priority. This means making sure you maximise all your deductions. Check for losses but don’t propose to your partner for the tax benefits. It must be love.
Selling an asset in 2022 and need help to get the taxes right? Call Deirdre on 051396703 or start here.
