Ireland Fact-File Part 2:
Individual Business Domestic Taxation
2.11 Ireland Individual Business Capital Gains Tax (CGT)
Capital Gains Tax
Capital gains tax applies to the individual owners or operators
of a small business, although the situation varies according
to whether the person in question is resident, non-resident
(and a foreign national), or non-resident (and an Irish national).
Generally, the capital gains tax rate for resident individuals
(from April 7 2009), is 25%, although the first EUR1,270 each
year is exempt. A 40% rate applies with regard to some foreign
disposals, however (mainly relating to investment products
or life assurance disposals).
Disposals of land, shares, non-Irish governmental stocks
and securities, antiques, jewellery and paintings, certain
sums derived from assets, goodwill (and other incorporeal
property, such as options), trade assets, and currency (other
than Irish currency) are, inter alia, subject to capital gains
tax.
Disposals that are not subject to CGT include: gains from
the disposal of Irish Governmental Stocks and Securities,
gains from disposals of tangible movable property (below a
EUR2,540 threshold), gains from the disposal of ‘wasting assets'
(those with a predicted lifespan of less than 50 years, such
as private cars and livestock), gains from the disposal of
a principal residence, and certain types of of gambling proceeds.
The rate and exemption threshold are the same for non-resident
foreign taxpayers; in addition, the majority of disposals
are also exempt, with the exception, inter alia, of : Irish
land and buildings, minerals and mineral exploitation rights
in Ireland; shares (except shares listed on a Stock Exchange)
relating to the aforementioned assets; and assets employed
in the Republic in the course of operating a business there.
For expatriate Irish, the situation is slightly different,
and a rate of 18% generally applies, with temporary non-residents
facing CGT on deemed disposals of certain assets on the final
day of their last year of assessment in Ireland, before they
are covered by the other country's tax regime. However, this
charge will only take place if the individual is not taxable
in Ireland for a period of five years or less before again
becoming in the Republic, and only where the individual disposes
of those assets during the period in question.
In terms of filing, the Capital Gains Tax return is part
of the Income Tax return, and should be filed by October 31
for the previous tax year, with the payment date varying according
to when in the year the gain arose. CGT payments should be
made to the Collector-General's Division in Limerick; the
payslips which should accompany these payments are available
from Revenue district offices.
In terms of corporate disposals of assets subject to CGT,
generally capital gains tax at the standard rate of 25% (as
opposed to the higher rate of 40% that applies to certain
types of investment and foreign insurance products) is imposed
on disposals of assets as described above.
Expenditure which is not required to be taken into account
for CGT purposes when calculating the gain on the disposal
of an asset includes the cost of acquiring and enhancing it,
and costs related to disposal.
Updated in December 2010
For 2009 and 2010, small start-up businesses (under the conditions
outlined in the 2008 Finance Act) were exempted from capital
gains tax (and income tax) on disposals that would otherwise
be taxable for the first 3 years of trading, up to a limit
of EUR40,000 annually.
In the austerity budget, delivered
in December 2010, it was announced that the scheme would be
extended to 2011, but would be limited to the equivalent of
EUR5,000 employer PRSI liability.
Irish accountancy firm Russell Brennan Keane, commenting
in May 2010, revealed that 2009 saw a marked increase in intra-family
business transfers, with family businesses bringing forward
transfers to mitigate future tax bills in light of possible
changes to inheritance tax, gift tax and capital gains tax
relief in Ireland recommended in the Commission on Taxation’s
report, published in September 2009.
Among other measures, the Commission suggested that generous
tax breaks on family transfers of businesses should be phased
out by the Irish government.
The firm’s Director of Tax, Derek Andrews observed that:
“The transfer of a business to family members may give rise
to capital gains tax (CGT) for the disposer and/or gift or
inheritance tax (CAT) for the acquirer. The rate of both taxes
is 25% although, circumstances permitting, tax reliefs may
be available to reduce the cost of any transfer.”
He added that:
“Business owners are concerned that the Minister for Finance
will implement the Commission on Taxation recommendations
and restrict the existing generous suite of tax reliefs available
for transferring family businesses."
Traditionally, full exemption from CGT has been available
on the transfer of assets to children provided that the current
owners qualify for "retirement relief" (a pretty
significant relief afforded to retiring shareholder directors,
whereby up to EUR500,000 can be paid tax free from company
funds (including shares in family companies) to said shareholder,
provided he/she is over 55 years of age on the disposal of
business assets, that the assets have been owned for a period
of 10 years or more prior to disposal, and the individual
in question was a working director in the business during
this period, and a full-time working director for at least
5 of those years).
Children can take a lifetime gift totaling EUR414,799 from
a parent tax-free. If the gift comprises shares in a family
trading company or trading assets, and the children qualify
for “business property relief”, the value of those assets
may be reduced by up to 90% for CAT purposes.
Combining business property relief and the lifetime gift
exemption, qualifying business assets totalling EUR4m may
be transferred without exposure to CGT or CAT. The transfer
of business assets would trigger stamp duty at 1% (on the
transfer of shares) or at an effective rate of 3% on the transfer
of assets other than shares to family members.
The Commission on Taxation recommended in its report that
CGT retirement relief should apply only to asset values up
to EUR3m and that CGT should be payable on the excess over
this amount. It also recommended that CAT business property
relief be reduced to 75% of the value of the business subject
to an overall monetary limit of EUR3m.
“If implemented, these provisions would significantly increase
the tax cost of transferring family businesses to the next
generation,” Andrews observed.
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