Capital Gains Tax Overview
Capital Gains Tax (CGT) is a tax charged on the capital gain (profit) made on the disposal of any asset. It is payable by the person making the disposal. The gain/profit (the difference between the price you paid for the asset and the price you sold it for) is considered taxable income.
The rates of Capital Acquisitions Tax and Capital Gains Tax increased to 33% from 30% from 5 December 2012.
What is an asset?
An asset is not just something you own outright, it may be an intangible asset. For example, goodwill in a company or an option over assets are considered assets. It can also be something you have an interest in, for example, a leasehold interest in land.
How are assets disposed of?
Disposing of an asset doesn’t just refer to the sale of an asset for money. It includes any transfer of ownership by way of exchange, gift or settlement on trustees. Transfers of assets between spouses and civil partners are exempt from Capital Gains Tax.
Transfers of assets between spouses who are separated are exempt from Capital Gains Tax if they are made under a Separation Agreement or a court order.
The transfer of a site from parent to child for the purposes of constructing the child’s principal private residence, where the site’s market value does not exceed €500,000, is also exempt from Capital Gains Tax.There is no Capital Gains Tax on assets passed on death.
Capital gains exempt from Capital Gains Tax
Gains or profit on the disposal of some assets are specifically exempted from Capital Gains Tax, these include:
- Gains on the disposal of property owned by you (house or apartment) which was occupied by you or by a dependent relative as a sole or main residence. Restrictions may apply where the property was not fully occupied as a main residence throughout the period of ownership or where the sale price reflects development value.
- Gains from betting, Lotteries, sweepstakes, bonuses payable under the National Instalments Savings Scheme and Prize Bond winnings.
- Gains on Government Loans and Debenture issued by certain Semi-state bodies
- Gains on disposal of wasting chattels, that is movable goods, for example, animals and private motor cars
- Gains on Life Assurance policies (unless purchased from another person or taken out with certain foreign insurers on or after 20 May 1993)
- Gains made by individuals on tangible moveable property up to a certain value.
In Budget 2012, a new incentive relief from CGT was introduced for the first seven years of ownership for properties bought between Budget night and the end of 2013, where the property is held for more than seven years.
The relief applies to all property, whether residential or non-residential. The relief will not apply if a property is sold within 7 years of its acquisition. If it is sold more than 7 years after acquisition and a gain is made on the sale, relief will be given for the initial 7-year holding period. For example, if the property was bought in January 2012 and sold in January 2022, the property would have been held for 10 years, so 7/10 of any gain will be relieved from CGT and 3/10 is taxable.
Rate & payment of Capital Gains Tax
The standard rate of Capital Gains Tax is 33% in respect of disposals made on or after 7 December 2012. The rate was formerly 30%.
A rate of 40% however, can apply to the disposal of certain foreign life assurance policies and units in offshore funds..
Capital Gains Tax can be more complex than the examples above.
For this reason you should get the appropriate advice.
The first €1,270 of taxable gains in a tax year are exempt from CGT. If you are married or in a civil partnership this exemption is available to each spouse or civil partner but is not transferable.
Payment of CGT
For 2009 and subsequent years the tax year is divided into a revised set of two periods:
- An ‘initial period’ from 1 January to 30 November
- A ‘later period’ from 1 December to 31 December.
For disposals in the initial period CGT payments are due by 15 December in the same tax year. CGT for disposals in the later period are due by 31 January in the following tax year.
For example, if you dispose of an asset in the period January to November 2012 you must pay the Capital Gains Tax due to Revenue before mid December 2012. If you dispose of an asset in December 2012 the Capital Gains Tax will be due on 31 January 2013.
Payment of Capital Gains Tax
Send a cheque for amount of CGT due with a CGT payslip to the Collector General’s office in Limerick.
There are two different disposal periods for CGT, this will determine the date payment is due and also which CGT payslip is required. Payslip A is for disposals in the ‘initial period’ and payslip B is for the ‘later period’.
How to Submit a Return for Capital Gains
You must submit a tax return on all disposals.
You must file a return on or before 31 October in the year following the tax year in which you disposed of the asset. Though you may file your return the following year, you must pay the Capital Gains Tax in the same year as the disposal of the asset, unless you dispose of the asset in the ‘later period’ (see ‘Payment of Capital Gains Tax’ above).
- If you assess yourself for tax purposes (self-assessment) you should make a tax return on Form 11 (pdf).
- If you are a PAYE taxpayer should make a return on a Form 12 (pdf).
- Trusts and Estates should make the return on a Form 1 (pdf). If you are not required to make an income tax return you must send a CG1 form to Revenue.
Disposals to a Child
Provided the qualifying conditions are met, where a business owner disposes of qualifying assets to her child, full CGT retirement relief is available regardless of the consideration given or the market value of the shares.
However, there is a clawback of the relief if the child disposes of the assets within 6 years. The clawback is the CGT which would have been chargeable in the first place if CGT retirement relief had not been available. The clawback is payable by the child who received the assets and not the parent. If no monies were exchanged on the transfer, market value is imposed when calculating the CGT payable.
The definition of a “child” can include the child of a deceased child (i.e. a grandchild where the parent is deceased), or a niece / nephew who has worked substantially on a full time basis in the business for 5 years ending on the date of disposal.
Generally, an employee or director is liable to tax on expenses received from an employer. However, where an employee or director incurs motor or subsistence expenses in the performance of the duties of their employment/office then the reimbursement can be made tax free with certain conditions.
Employees or directors must be on a business journey from their normal place of work to claim tax free mileage and subsistence.
Update: Sole traders themselves cannot claim mileage and subsistence using the civil service rates but should instead keep receipts for business portion of motor running expenses (fuel, motor tax, motor insurance), hotels etc…