Charge to tax

Capital gains tax is charged on the disposal of assets (s 28). An asset means property in any form including intangible property, such as an option or debt (s 532)). A disposal includes a part disposal (s 534)) and the deriving of a capital sum from an asset (s 535)).

Capital gains tax applies to an individual’s chargeable gains accruing in each tax year after deducting allowable losses (s 31)). Capital gains accruing to a partnership are separately assessed on the individual partners (s 30)).

Residence

Every person who is resident or ordinarily resident in the State for a tax year is chargeable to capital gains tax in respect of any chargeable gains accruing to him in that tax year.

A person who is neither resident nor ordinarily resident in the State is only chargeable to capital gains tax on the disposal of:

(a) land in the State,

(b) minerals in the State or mining exploration rights,

(c) assets in the State that were used for a trade carried on by that person through a branch or agency in the State.

A person who is not domiciled in the State is not chargeable to capital gains tax on the disposal of assets situated outside the State and the UK, unless the gains are remitted into the State. Where such gains are remitted into the State, they are treated as accruing when received in the State (s 29)).

Capital gains tax rates

Capital gains tax is charged at 20% on disposals (including development land) made on or after 1 December 1999.

A 40% rate applies to:

(a) gains on disposals of foreign life assurance policies or foreign deferred annuity contracts (s 594)(2) (f)), and

(b) gains on the disposal of a material interest in an offshore fund (s 747A)).

Exemptions

The main exemptions from capital gains tax are:

(a) Annual exempt amount. The first €1,270 of an individual’s chargeable gains for a tax year is not chargeable to tax, i.e., is exempt (s 601)).

(b) Chattel exemption. If the disposal proceeds for a durable chattel (“tangible movable property” other than wasting assets) do not exceed €2,540, a gain arising on the disposal is exempt (s 602)).

(c) Gains on government and certain other securities (s 607)).

(d) Gains realised by pension funds (s 608)) and charities (s 609)).

(e) The following gains are also exempt (s 613)):

(i) instalment savings scheme bonuses,

(ii) prize bond winnings,

(iii) compensation for damages or personal injury,

(iv) lottery and betting winnings, and

(v) a gain on the disposal of pension rights.

(f) Transfer of residential site from parent to child, provided the site is for the construction of the child’s principal private residence, and the market value does not exceed €254,000 (s 603A)).

Reliefs

The main reliefs from capital gains tax are:

(a) Retirement relief: Disposal of business or farm by individual aged 55 or more. This applies to a disposal of qualifying assets, i.e., chargeable business assets – including shares in a family company that have been held for 10 years or more.

Where the disposal is within the family (s 599)), i.e., to a child of the person making the disposal, the gain is exempt.

Where the disposal is outside the family (s 598)) the potential capital gains tax is reduced to nil provided the disposal proceeds do not exceed €500,000. If the disposal proceeds exceed €500,000, marginal relief ensures the potential capital gains tax may not exceed half the difference between the proceeds and €500,000.

Assets held by personally by the owners of the family company can also qualify for relief provided they are disposed of at the same time and to the same person as the family company shares.

(b) Transfer of business to company (s 600)). Where an individual transfers a business and all its (non-cash) assets as a going concern to a company in exchange for shares in that company, the base cost of the shares is reduced to match the cost of the assets.

(c) Disposal of principal private residence (s 604)). A gain accruing to an individual on the disposal of his main residence dwelling is exempt, provided the individual occupied or is deemed to have occupied the residence throughout his period of ownership, with the exception of the last 12 months of ownership.

Indexation

Sources

Capital Gains Tax (Multipliers) (2003) Regulations 2003 (SI 12/2003).

Capital Gains Tax (Multipliers) (2002) Regulations 2002 (SI 1/2002).

Capital Gains Tax (Multipliers) (2001) Regulations 2001 (SI 125/2001).

Capital Gains Tax (Multipliers) (2000-2001) Regulations 2000 (SI 76/2000).

Capital Gains Tax (Multipliers) (1999-2000) Regulations 1999 (SI 111/1999).

Capital Gains Tax (Multipliers) (1998-99) Regulations 1998 (SI 110/1998).

Losses

If a transaction results in a gain being chargeable, a loss, if it had arisen on the same transaction, is allowable (s 546)).

Self assessment

A person who has incurred a chargeable gain in a tax year must pay preliminary tax (s 952)):

(a) in respect of gains made up to 30 September in that year on or before 31 October in that year, and

(b) in respect of tax on gains made from 1 October to 31 December in the tax year on or before 31 January following the end of the tax year.

Such a person must also file a return on or before the “pay and file” date, i.e., 31 October in the tax year following the year in which the gain was made (s 958)(2)).

Revenue powers

See Administration, Anti-avoidance, Information, Audit and Collection under INCOME TAX: Revenue powers.

Withholding tax

A 15% withholding tax applies to purchasers of the following assets:

(a) land in the State,

(b) minerals in the State or mining exploration rights,

(c) exploration or exploitation rights in a designated area,

(d) shares deriving their value from (a), (b) or (c).

It does not apply if the value of the assets disposed of is less than €500,000 (s 980)).

Appeals

See INCOME TAX: Appeals.