What is Capital Gains Tax (CGT)?
In Ireland, Capital Gains Tax (CGT) is a tax on individuals who sell, transfer, or dispose of their personally-held assets, including property, shares, and valuable items like art. It is crucial to be aware of the implications of CGT when engaging in transactions involving these assets.
In this guide, we expertly break down what Capital Gains Tax is in Ireland and help you to identify any reliefs you may be eligible for.
For advice tailored to your specific situation, we highly recommend consulting with a qualified tax professional or advisor who can provide up-to-date information and help you navigate the complexities of Capital Gains Tax in Ireland.
Who is subject to CGT in Ireland?
- Irish-resident individuals are liable to pay CGT in Ireland on gains made worldwide
- Non-Irish-resident individuals face CGT exposure solely on gains from assets tied to Ireland, including
- Assets used in businesses conducted in Ireland
- Property located in Ireland
- Businesses containing rights to or profits from the exploitation of natural resources in Ireland or shares in private companies deriving their value from such assets
How to calculate Capital Gains Tax in Ireland?
To calculate gains, one must determine the difference between the sale price and the asset’s purchase price, considering allowances for acquisition/disposal costs in specific situations. The current rate of CGT in Ireland is 33%.
It is essential to be mindful of the potential tax liabilities associated with transferring assets to others at a value below the market price, as this may trigger Capital Acquisitions Tax (CAT) for the recipients. Careful consideration of these factors, in collaboration with your trusted advisor, is key to effective tax planning.
Because every situation may be different, we recommend that you speak to a professional about your circumstance. Reach out to our team if you need support.
What are exemptions from Capital Gains Tax?
Regardless of residency status, all individuals liable to CGT in Ireland receive a Personal Exemption each tax year. This exemption applies to the first €1,270 of gains in each tax year.
Gains from betting or other games of chance, government stocks, life assurance policies in some circumstances, animals, and private cars.
Moveable properties (e.g. furniture) are exempt from CGT, where the total gain is €2,540 or less.
Spouses and civil partners
Spouses and civil partners (including separated spouses or civil partners under a Separation Agreement or court order) typically receive an exemption. However, this exemption does not apply if the recipient is a non-resident without CGT liability or if the asset transferred is trading stock of a business conducted by the transferor to their spouse or civil partner.
Indexation Relief or Inflation Relief
Individuals can also consider the effects of inflation on the asset if the asset was held before 1 January 2003. This adjustment is made by utilising Central Statistics Office Calculations, known as Indexation Relief or Inflation Relief.
Losses from sales or disposals
Taxpayers can utilise losses from sales or disposals to actively reduce the taxable gain on other disposals within the same year or subsequent disposals, subject to certain restrictions. This approach effectively reduces the overall tax payable amount.
When you need to submit a Capital Gains Tax Return
Capital Gains Tax payable on disposals is due to be paid to Revenue by either 15 December in the same year (for gains between January and November) or 31 January in the following year (for gains in December).
Details of disposals must be included in a tax return for all years in which a sale or other disposal of a chargeable asset occurs, even if no CGT is due.
These returns are to be filed with the Revenue Commissioners by 31 October in the year following the disposal, separate from the payment of any tax due as detailed above.
A taxpayer who already files a Form 11, or a PAYE taxpayer who is required to file a paper / PDF Form 12 to return their income, may include details of capital gains in these forms. Otherwise, personal taxpayers (including those filing the online version of Form 12) must use the CG1 Form, and trusts or estates must use Form 1.
Capital gains relief in business
There are certain circumstances that allow individuals to claim relief on the amount of CGT they pay.
It is important that these reliefs are claimed correctly and you meet the conditions of the relief.
For more information on your specific situation, please reach out to our Client Services Team, and we are happy to help you with our services.
Revised Entrepreneur Relief - business asset disposal relief
If the appropriate conditions are met, individuals can qualify for a special 10% rate of CGT on the disposal of certain business assets, which include shares held by an individual in a trading company or assets held by a sole trader and used in that trade. This is called Entrepreneur Relief.
A lifetime limit of gains up to €1 million applies for disposals on 1 January 2016 or after. For disposals in 2016, the CGT rate applicable was 20%, changing to 10% on 1 January 2017.
How to qualify for Revised Entrepreneur Relief
To be eligible for Entrepreneurs Relief, the individual must have owned the business assets continuously for three years within the five years immediately before the sale of the assets. For shares, the 3-year period can be at any time before the disposal of the shares.
In the case of a company, the individual must own at least 5% of the company (either directly or through a holding company), and must be a director or employee of the company for a continuous period of three years within the five years immediately before the sale of the shares.
Note that the business should be operating as a going concern up to the point of disposal of the shares to qualify for this relief. If the individual disposing of the shares remains connected with the company, the exemption will not apply.
Businesses involved in the holding of investments, development or letting of land, or the holding of development land will not qualify for this exemption.
Despite the name of this exemption, retiring from the business is unnecessary. Instead, this relief refers to disposing of business assets from age 55 or older (with some allowances if close to that age or if illness causes the early disposal of the assets).
When disposing of assets to family members, the relief is significantly more generous than disposing of assets to individuals outside the family. In this context, family members are limited to a son, daughter, stepchildren, adopted children, the children of a deceased child, a niece or nephew who has been working full-time in the business for five years or longer, or a foster child in certain circumstances.
What are the restrictions to Retirement Relief?
- For disposals to family, complete relief is allowable if the disposal is made between the ages of 55 and 65 and is restricted to €3 million if 66 or older.
- For disposals outside of the family, only disposals when 66 or older qualify, and the relief is restricted to a market value of the disposed assets of €500,000.
You should note that the €500,000 threshold is a lifetime limit, covering multiple disposals. Where disposals are above the stated thresholds, marginal relief is available. In the case of a sale to family, a clawback of tax payable may occur if the assets are subsequently disposed of within six years of the initial transaction.
Farm Restructuring Relief
Where a sale and purchase of farmland, or an exchange of farmland, takes place to make the farm more viable or efficient, then the gain may qualify for CGT exemption.
The relief granted depends on the relative values of the transferred land, and Teagasc must have cleared the transfers for genuine restructuring purposes. Additionally, the purchase or sale of land must have occurred between 1 January 2013 and 31 December 2022, with the corresponding sale or purchase occurring within 24 months of the initial transaction.
Relief on the transfer of privately-held business assets to a company
When an individual changes from Sole Trader to Limited Company and receives shares in return, relief from CGT is available either fully or partially, depending on whether the shares constitute the entirety or a portion of what is received for the business assets.
The relief is, in effect, a deferral of the CGT that would otherwise be payable on the sale of the assets, as the amount exempted by this relief will increase any gain made on the sale of the shares in the future. However, this relief can be used with other reliefs so that the tax that would otherwise be due does not become payable in the future (see Revised Entrepreneurs Relief or Retirement Relief above, for example).
Personal Capital Gains
There are certain capital gains reliefs that are associated with personal assets, including shares and property.
To determine if we can support your specific needs and requirements for your business, please reach out to us today. We’ll be glad to help you.
Principal Private Residence Relief
Individuals can dispose of a property they own and use as their primary or only residence without incurring any CGT charge. This relief may be subject to restrictions, including periods when the property was not the principal private residence, utilisation of a portion of the property for business or other purposes, or if the sale price includes potential development value for a change in usage after the date of sale.
This exemption may also be available if the property being disposed of was provided for free to an incapacitated relative or a widowed parent to use as their sole residence.
Transfer of a site from parent to child
Transfer of a site to a child is exempt if the child intends to build their principal private residence on the condition that the land is less than one acre in size and has a value of €500,000 or less. In this case, a child refers to a son or daughter, including stepchildren, civil partner’s child and foster children in some circumstances.
If no house is built on the land or the home is not used as their only or primary residence for at least three years, then CGT may become payable on subsequent disposal.
How can I reduce my CGT Bill?
Advanced planning with a professional advisor is the best way to reduce a CGT bill. The rules and restrictions around capital gains and their regulations are varied and complicated. In some cases, conditions should be put in place years in advance to avail of the potentially significant tax savings.
Suppose you consider selling your property or passing your business to the next generation. In that case, our team will be happy to assist you in calculating your liabilities, submitting your tax filings and dealing with Revenue on your behalf.
Tom is a Fellow Chartered Certified Accountant (FCCA) and Chartered Tax Advisor (CTA) and is Accounting Team Manager at Accountant Online. Areas of expertise include Accounting, Compliance, Taxation relating to small business and company directors.