Capital Gains Tax (CGT) is a tax on gains that arise on the disposal of capital assets such as land, buildings, shares, as well as some items that would not at first sight seem to be taxable assets. The sale of chattels (moveable property), some intangible assets such as goodwill, patents and copyrights can result in a CGT liability too.

The gain to be taxed for CGT purposes is arrived at by taking the sales proceeds and deducting the cost of the assets. The appropriate tax rate is then applied (currently 33%). There are many reliefs and exemptions available from CGT, which we’ll discuss in this article, but firstly it’s important to determine whether a disposal is subject to Irish CGT.

Whether Irish CGT applies to a particular disposal depends on the tax residence and domicile status of the individuals who are party to the transaction, and the nature of the asset being disposed. The following table outlines the gains liable to CGT depending on the individual’s status:

Individual Status	Liable to CGT
Resident/ordinary resident and domiciled	On worldwide gains
Resident/ordinary resident but not domiciled	On all Irish and foreign gains to the extent remitted/transferred to Ireland
Not resident/not ordinary resident but domiciled	On Irish specified assets
Not resident/not ordinary resident/not domiciled	On Irish specified assets

The following three factors must be present in order for a charge to CGT to arise:

• a disposal of an asset,
• by a chargeable person,
• resulting in a chargeable gain.

Once it is determined that the disposal of an asset is subject to capital gains tax the next step is to check if any reliefs are available, and to apply the annual exemption.

Annual exemption

Every individual that is chargeable to CGT for a given tax year is entitled to an annual exemption for chargeable gains less or equal to €1,270. It is not necessary for a person to be resident in Ireland to qualify for the annual exemption, so persons disposing of specified Irish assets will also be entitled to this relief. The annual exempt amount is deducted from the chargeable gain itself and not the tax calculated as many might assume.

Spouses and civil partners exemption

As a general rule, no CGT will arise on a transfer of assets between spouses and civil partners.

Indexation relief

Indexation relief operates by adjusting the acquisition cost of a chargeable asset for inflation and applies to the disposal of assets purchased prior to 1st January 2003.

Retirement relief

Retirement relief provides for a complete exemption or a reduction in CGT payable on the disposal of certain qualifying assets by individuals who are 55 years or older on the date of disposal. There is no actual requirement that the taxpayer retire. Qualifying assets are business assets which an individual has owned for at least 10 years, shares in a family company, land and machinery owned by the individual for at least 10 years and used for his family company or for the purposes of farming carried on by the individual.

Revised entrepreneur relief

Entrepreneur relief was introduced for the entrepreneurs disposing of certain business assets. It provides that a 10% rate of CGT applies in respect of a chargeable gain or chargeable gains on a disposal or disposals of qualifying business assets on or after 1 January 2017 up to a lifetime limit of €1m. A qualifying business is a business other than the holding of securities or other assets as investments, the holding of development land or the development or letting of land. The relief applies to individuals only. The qualifying business assets must have been owned by that individual for a continuous period of 3 years in the 5 years immediately prior to the disposal of those assets.

Principal private residence exemption

When you transfer or sell a property you will be exempt from CGT if that property was your main residence while you owned it. This exemption also applies to land, up to one acre around a house. If you let your home at any point that you owned it, you can claim a partial exemption.

You may sell your home and the land up to one acre around it for its development value. In this case, the exemption will only apply to the value of the house or land without its development value. You may have to pay CGT on the value of the house or land over that amount.

Transfer of a site from a parent to a child

If you transfer land to your child to build a house which is your child’s only or main residence, you will not have to pay CGT on the transfer. For this purpose, a transfer includes a joint transfer by you, and your spouse or civil partner, to your child. To qualify for relief, the land must:

• be one acre or less
• have a value of €500,000 or less.

Allowable expenditure

The main types of allowable expenditure which are deductable when calculating the taxable value of a gain are acquisition costs, incidental costs (such as stamp duty, auctioneers and legal fees) and enhancement expenditure (cost of any improvement or extension to an asset which enhances the value of that asset).

Gains exempt from CGT

• Betting
• Lottery wins
• Prize bonds
• Government stocks
• Certain life assurance policies
• Moveable property where the gain does not exceed €2,540
• Animals
• Private motor cars

If you need help in calculating your CGT liability and filing a capital gains tax return get in touch and we’ll be happy to help.

References used in this article: Revenue website and Irish Tax Institute Capital Taxes Manual 2018.