Capital Gains Tax

Capital Gains Tax is imposed upon a person when they dispose of an asset that has increased in value during their period of ownership. This of course applies in the case of land and buildings; it will however also apply to shares. Capital Gains Tax arises at a rate of 33% in Ireland.

Traditionally an indexation factor was utilised to take into account inflation in relation to the gain made in relation to the sale of an asset, this will apply to all assets purchased prior to 2002. This was abolished in 2002 and any purchases made after 2002 will not receive the benefit of this indexation factor.

If expenditure is incurred in improvement of an asset, “enhancement expenditure” a deduction for Capital Gains Tax purposes may be allowable. Only capital expenditure is allowed as a deduction and any other expenditure will be treated as an income tax deduction. It is often difficult to determine if a particular cost if purely capital expenditure, in fact it may be a mixture of both capital and revenue expenditure.

In Ireland there are a number of relief’s available in relation to Capital Gains Tax which may lead to a reduced, or indeed no, liability to Capital Gains Tax.
The main relief’s would include:

  1. Principle Private Residence Relief, this applies in the case of a house in which a person has resided during the period of ownership.
  2. Retirement Relief, this applies in relation to active businesses and farms.
  3. Site to a Child Relief, this will apply in the case of a parent providing a child with a site on which to build a home to live in.
  4. There is also a provision that where a gain arising on a person in any one tax year does not exceed €1,270 the person will not be liable to pay any Capital Gains Tax.

The above relief’s are examples of the most common relief’s available to people. All of these are subject to strict requirements and the above merely outline situations in which they may become available if all requirements are satisfied.

In Ireland there are special rules and regulations in relation to the disposal of Development Land. This is land which has a value in excess of normal agricultural value. This is indeed a minefield and any sale of Development Land must be examined on its individual facts.

The Capital Gains Tax year is now split into two periods. Where the relevant disposal takes place between 1 January 2009 and 30 November 2009 then the date for payment of tax is 15 December 2009. Where the disposal takes place between 1 December 2009 and 31 December 2009 then the relevant payment date is 31 October 2010.

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