Capital Gains Tax was introduced into Irish Law along with Capital Acquisitions Tax on the 6th of April, 1974. On the same date various other taxes known Death Duties were abolished.
There have been many changes to Capital Gains Tax since then but the basic idea of the tax is that it is a tax on a capital gain, i.e. the profit, made on the disposal of an asset. If no capital gain is made as a result of the disposal then no liability for the tax arises. The capital gain is calculated by subtracting the cost of the asset when it was acquired from it’s value when it is sold. If the asset was owned prior to the 6th April 1974 then it’s value at that date is taken as the acquisition cost. Expenditure called Capital Expenditure is allowable as a deduction when calculating the gain and so also are acquisition and disposal costs such as auctioneer’s and solicitor’s legal fees. Furthermore, if a loss, rather than a gain, is incurred as a result of a disposal that loss can be used as an offset against capital gains made in subsequent years
The tax can arise even if the asset is given away as a gift. For Capital Gains Tax purposes a gift is deemed to be a disposal of the asset at it’s market value. Therefore even a parent giving a site of a house to a child can incur a Capital Gains Tax liability. There was, until recently, an exemption for such gifts of sites but it was abolished in this year’s Finance Act.
The tax does not just apply to land and buildings but also to the disposal of stocks and shares and such items as antiques, paintings, jewellery, trade assets and includes an interest in property such as the granting of a right of way.
Capital Gains Tax does not arise as a result of a death. However if the value of an asset increases during the course of the administration of an estate the executors may incur a liability on the difference between the value as of the date of death and the value at which the asset is sold. If an asset is transferred by the executors to a beneficiary it’s then value is taken as the acquisition cost for calculating Capital Gains Tax should the beneficiary subsequently sell the asset.
There are a number of important relief’s. Disposals of assets between spouses are exempt from Capital Gains Tax. Also a person’s own principal private residence is not subject to Capital Gains Tax. A principal private residence can be sold without giving rise to any tax on any Capital Gain made. Another very important relief is Business Relief. This enables a person over 55 years of age to transfer or sell business assets provided these assets have been used for the purposes of the business for at least ten years. It is under this heading that most farmers are able to transfer their farms to their sons or daughters or other relatives without having to pay Capital Gains Tax. Each tax payer also has an annual Capital Gains Tax allowance of €1,270.00 per individual.
When Capital Gains Tax was introduced first the acquisition cost was indexed to allow for inflation. However, this was changed in 2002 and indexation is not allowed from 2002 on.
The tax must be paid as follows; for disposal between the 1st of January and the 30th of November the tax must be paid by the following 15th of December. For disposals between the 1st of December and the 31st of December the tax must be paid by the 31st of January in the following tax year. The tax is a self-assessment tax. There is a duty on each taxpayer to send it their Capital Gains Tax computation to the Inspector of Taxes and pay the tax due.