Capital Gains Tax - A Self Assessment Tax
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This document details the returns necessary for compliance with the Capital Gains Tax Legislation

Capital Gains Tax
A capital gains tax is chargeable on the gains arising on the disposals of assets other than that part of a gain, which arose in the period prior to 6 April 1974. Any form of property (other than Irish currency) including an interest in property (as, for example, a lease) is an asset for Capital Gains Tax.

Disposal of Assets
Disposal of an asset includes

• a transfer by sale, exchange, or gift;
• the settlement of an asset on trustees; or
• the receipt of a capital sum derived from assets such as compensation or insurance money in respect of the loss or destruction of an asset or for forfeiture or surrender of rights.

However, the death of an owner of assets is not an occasion of charge in respect of those assets.

Where a disposal is made other than by way of an arm's length sale, the consideration is deemed to be equal to the market value of the asset at the date of disposal.

Persons chargeable and the extent of the Charge
All persons who are resident or ordinarily resident in the State for a year of assessment are liable to the tax in respect of chargeable gains accruing in that year on the disposal of assets, wherever the assets are situated. The charge extends to individuals, companies, trustees and other bodies of persons.

Individuals resident or ordinarily resident, but not domiciled, in the State are chargeable to tax on gains on the disposal of chargeable assets located outside the State and the United Kingdom, only to the extent that such gains are remitted to this country.

Non-resident persons are chargeable to tax on gains made on the disposal of immovable property situated in the State, minerals or mineral rights in the State (including the Irish area of the Continental Shelf) and on the disposal of assets used for the purposes of a trade carried on in the State through a branch or agency.

Basis of Charge
The tax is charged for a year of assessment, that is, the year ending on 5 April.

Calculation of Gain
The chargeable gain is the amount of the consideration reduced by "deductible expenditure", that is the cost of acquisition and certain enhancement expenditure. Deductible expenditure is adjusted for inflation (indexation relief) by applying to it a multiplier (based on the All Items Consumer Price Index). This adjustment is not made in respect of any expenditure incurred within one year of the date of disposal of the asset.

Indexation relief is available to all taxpayers, including companies and non-residents.

In the case of development land, indexation relief applies only to the current use value (viz. agricultural value) at the date of acquisition (or 6 April 1974).

Rate of Tax
Gains realised on the disposal of most assets are charged at the rate of 20%.

Gains on the disposals of foreign life assurance policies and an interest in certain offshore funds are charged at the rate of 40%.

Exemptions and Reliefs
Various exemptions and reliefs from Capital Gains Tax are provided, the most important being the following:

The first €1,270 of net gains by an individual in a year of assessment is exempt. In the case of a married couple this exemption is available to each spouse but is not transferable.

Gains realised on the following are not chargeable gains:

• Irish government securities, including land bonds, prize bonds, savings certificates and bonuses payable under the National Instalment Savings Scheme;
• securities of local authorities, certain State-sponsored bodies and the European Union;
• futures contracts based on government and other securities that are not chargeable assets for the purposes of Capital Gains Tax;
• life assurance policies and contracts for deferred annuities, unless purchased from another person etc.;
• chattels sold for €2,540 or less;
• wasting chattels, such as private motor cars, animals;
• winnings from betting, lotteries and sweepstakes;
• gains accruing to superannuation funds, charities and certain bodies, such as local authorities and trade unions;
• works of art valued at not less than €31,740 where they have been loaned to an approved gallery for a period of not less than six years for display to the public;
• a gain on a dwelling-house (including grounds of up to one acre) where the house has been used as an individual's only or main residence (or, under certain conditions, as the sole residence of a dependent relative) during the individual's period of ownership. In certain circumstances there may be a restriction on the relief or partial relief may be due.

A gain on the disposal of a business or farm by an individual aged 55 years or older for a consideration not exceeding €476,250 is exempt from Capital Gains Tax.

Marginal relief applies where the consideration does not greatly exceed that amount. Where the disposal is made to a child of the individual (or, in certain circumstances, to a nephew or niece), the gain is exempt irrespective of the amount of the consideration.

This relief also applies to the disposal of a family business where the business consists of a group of companies having at their head a holding company.

There is provision for roll-over relief on the disposal of business assets where the proceeds of a disposal are reinvested in assets of the same kind for the purposes of the business.

Where an unincorporated business is transferred to a company in exchange for shares in the company, there is a deferral of the tax payable on the amount of the consideration taken in the form of shares in the company.

Roll-over relief also applies, subject to certain conditions, to an entrepreneur on any gains arising on the disposal of shares or securities in an unquoted company if the proceeds of the disposal are reinvested in ordinary shares in an unquoted company.

Clearance certificates (see Issue 35 of Tax Briefing) are required for certain disposals where the consideration exceeds €500,000.

Company Capital Gains
Chargeable gains of companies arising from disposals of assets, are, in general, charged to corporation tax and not to Capital Gains Tax. These chargeable gains will in effect be taxed at the equivalent of the standard rate of Capital Gains Tax of 20%. Gains by companies from disposals of development land, however, are chargeable to Capital Gains Tax and therefore are not included in profits chargeable to corporation tax.