Capital Gains Tax (CGT) is a tax charged on the capital gain (profit) you get from the disposal of any asset. It is payable by the person making the disposal. The difference between the price you paid for the asset and the price you sold it for, is considered taxable income.
What is an asset?
An asset is not just something you own outright, it may be an intangible asset. For example, goodwill in a company or an option over assets are considered assets. It can also be something you have an interest in, for example, a leasehold interest in land.
How are assets disposed of?
Disposing of an asset doesn't just refer to the sale of an asset for money. It includes any transfer of ownership by way of exchange, gift or settlement on trustees. Transfers of assets between spouses are exempt from Capital Gains Tax. Transfers of assets between spouses who are separated are exempt from Capital Gains Tax if they are made under a separation agreement or a court order. The transfer of a site from parent to child for the purposes of constructing the child's principal private residence, where the site's market value does not exceed €500,000, is also exempt from Capital Gains Tax. (This exemption applies to disposals made on or after 5 December 2007. The exemption limit before this date was €254,000.) There is no Capital Gains Tax on assets passed on death.
Capital gains exempt from Capital Gains Tax
Gains or profit on the disposal of some assets are specifically exempted from Capital Gains Tax, these include:
- Gains on the disposal of property owned by you (house or apartment) which was occupied by you or by a dependent relative as a sole or main residence. Restrictions may apply where the property was not fully occupied as a main residence throughout the period of ownership or where the sale price reflects development value.
- Gains from betting, Lotteries, sweepstakes bonuses payable under the National Instalments Savings Scheme and Prize Bond winnings.
- Gains on government loans and Debenture issued by certain Semi-state bodies
- Gains on disposal of movable goods, for example, animals and private motor cars
- Gains on life assurance policies (unless purchased from another person or taken out with certain foreign insurers on or after 20 May 1993)
- Gains made by individuals on tangible moveable property up-to a certain value.
Rate and payment of Capital Gains Tax
The tax year in Ireland normally runs from January to December. For Capital Gains Tax purposes however, the tax year is divided into two periods:
- Initial period - 1 January to 30 September
- Later period - 1 October to 31 December.
The tax on gains in the initial period must be paid on or before 31 October in the year the tax is due. Tax on gains in the later period is payable on or before 31 January following the end of the year the tax is due or before 31 October in the year following the tax year in which you disposed of the asset. For example, if you dispose of an asset between 1 January and 30 September 2007 you must pay the Capital Gains Tax due to Revenue on or before 31 October 2007. If you dispose of an asset in the later period, that is, between 1 October 2007 and 31 of December 2007 you must pay the Capital Gains Tax due on or before 31 January 2008.
If you assess yourself for tax purposes (self-assessment) you will find a Pay and File payslip attached to your tax return form. If you are not self-assessed (for example, PAYE) you must send a Capital Gains Tax pay slip with your payment.
A separate Capital Gains Tax payslip is required for the assets disposed of in the later period.
The standard rate of Capital Gains Tax is 20%. A rate of 40% however, can apply to the disposal of certain foreign life assurance policies and units in offshore funds. Revenue provide a computation sheet for simple situations, to help you find out how much Capital Gains Tax you may have to pay.
Capital Gains Tax can be more complex than the examples above. For this reason you should get advice from Revenue. Revenue also publishes a Guide to Capital Gains Tax.
How to submit a return for capital gains
Capital Gains Tax is a self-assessment tax. You must file a return on or before 31 October in the year following the tax year in which you disposed of the asset. For example, capital gains from the sale of an asset in 2006 should be returned to Revenue on or before 31 October 2007. Though you may file your return the following year, you must pay the Capital Gains Tax in the same year as the disposal of the asset (see 'Rate and payment of Capital Gains Tax' above).
Capital gains are normally returned on your income tax return form. If you are a PAYE taxpayer should make a return on a Form 12. If you are self-assessed you should make the return on a Form 11.
Trusts and Estates should make the return on a Form 1. If you are not required to make an income tax return (this includes non-residents), you must make your Capital Gains Tax return on Form CG1.