Capital Gains Tax issues to consider - Business Plus

Before you look to sell an asset, are you aware of the tax consequences of same? This tax takes the form of Capital Gains Tax (CGT), and is broadly payable on gains that are made on the sale of assets.

For this article, I have outlined a couple of useful points to consider.

Postpone payment of the tax

If you have to pay tax on the sale of an asset between 1 January and 30 November in any given tax year, the deadline for payment of the tax is 15 December. If the sale is in December, the deadline is 31 January. For example, if you sell an asset on, say 20 December 2016, CGT is payable by 31 January 2017. However, if you defer that sale until the beginning of January 2017 (subject to commercial issues), the deadline becomes the following 15 December 2017. This provides more time to put the necessary funds in place, but the rate of tax could increase.

Selling your home

If you sell your main home and lived in the property for all or part of the period that you owned it, you may be entitled to Principal Private Residence relief (PPR relief), and therefore reduce or even eliminate the CGT payable. There are a range of conditions attaching to the relief, but the following are a couple of points to bear in mind:

  • Self-employed people who work from a home office may jeopardise their entitlement to full PPR relief if they claim a deduction for a portion of the mortgage interest to reduce their income tax liability. The office may not come within the definition of a private residence. However, Revenue have clarified that where an e-working employee uses any part of his or her home for work purposes, PPR entitlement should not be affected.
  • PPR relief may also apply to the garden up to a maximum of one acre. The house and the garden do not have to be sold together to qualify for the relief. However, the timing of this is important.

You may be entitled to Entrepreneur relief

Subject to various conditions, if you sell business assets or shares in certain companies, you may be entitled to a reduced rate of CGT. A tax rate of 20% could apply in respect of gains made on or after 1 January 2016 up to a lifetime limit of €1 million. This could result in a maximum potential relief from CGT of up to €130,000 in your lifetime.

Maximising Retirement Relief

You may be entitled to retirement relief if you sell or transfer your business or farm. The quantum of the relief may be capped depending on your age and to whom you are selling or transferring to. For example if aged 66 or over, and transferring your business to your child, the maximum relief is capped at €3m. A key point is that these limits are per person. Therefore, if it is a family business, to maximise the retirement relief available you could ensure that each individual e.g. husband and wife has sufficient shareholding in the business so that each owner benefits from their tax-free limits. It may not be tax efficient for one spouse/civil partner to own 100% of the shares.

Conclusion

These are just a couple of factors to consider if you have a potential Capital Gains Tax liability. I hope you find this useful.

For more contact: Adrian Farragher, private client tax division Tel: 01 4496411 Email: afarragher@mazars.ie

This article first appeared in the September edition of Business Plus magazine.

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