Windfall issues have certainly brought the matter of capital gains tax into the orbit of a far wider range of people than heretofore judging by the postbag in recent weeks. Hopefully, the answers below will clarify this tax for those unused to share dealings and the capital gains liability arising.
Mr P.W. takes me to task by email over the calculations used in assessing the tax-free allowances used in the capital gains computation on windfall issues recently. Given that the shares in question were held for more than two full years before being sold, Mr P.W. asks should the allowance for the vendor not be twice the £1,000 limit as a single person or double that for married couples?
Capital gains tax and, indeed, allowances are only relevant in the tax year in which the shares are sold. The Revenue Commissioners confirms that the fact they were held for two years does not entitle the vendor to two years' capital gains allowance, unfortunately. On the plus side, the tax is only payable once the gain has been realised i.e. upon sale. The fact that the shares gain in each year does not raise any issue of tax liability prior to sale.
Mr P.W. also asks about the future situation where windfall or, indeed, other shares are jointly held with a spouse but only one partner returns a personal taxation form.
Capital gains tax is unrelated to income tax and whether or not someone returns a personal tax form has no bearing on his or her entitlements to a capital gains allowance. From April of this year, when the rules change to lower the tax free allowance to £500 per person and end the transferability of allowances between spouses, shares jointly held will still create a tax-free allowance for each named shareholder upon their sale.
This is one way for partners to overcome the lack of transferability of allowances following the Minister's budgetary changes. By ensuring the shares are held in both names, the annual allowance of both partners is used, maximising the tax advantage.
When calculating the capital gains tax due on the sale of shares, is it not the case that stockbroking fees and other associated expenses are deductible?
Mr M.C., Dublin
This question arises from the calculations of the tax due on the sale of windfall shares which this column covered a fortnight ago. Mr M.C. is, of course, correct. Having calculated the pecuniary gain between the purchase and sale price of the relevant stock and allowing for the tax free allowance, the Revenue Commissioners permits investors to deduct the stockbroking fees and other expenses necessarily involved in the transactions before ascertaining the amount subject to capital gains tax. The Revenue Commissioners runs an information service on 01-8780000.
The Irish Permanent shares I bought a couple of years ago have appreciated greatly. Can I avoid paying capital gains tax by selling the shares at their current price and then buying them back again at the same price in effect ensuring there is no capital gain?
Mr L.W., Dublin
I'm afraid not. For the purposes of assessing a capital gain, the Revenue Commissioners will consider each purchase and sale as a separate transaction and calculate the tax accordingly. In this case, that means you are liable to capital gains tax (again, only in the year the shares are sold) on the difference between the original purchase price and the price at which you subsequently sold the shares, provided this exceeds your £1,000 tax free allowance (£2,000 for a married couple). If you subsequently buy back the shares at the original sale price apart from the fact that you lose out by paying stockbroking fees twice over you will only face a potential capital gain liability when you sell them once again.
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