Deadline is looming for Capital Gains tax
Capital gains tax can also apply in lesser-known circumstances such as where an owner receives compensation for the granting of rights such as granting wayleaves, rights of way, rights to install cables, water or gas pipelines.
If you sold, gifted or transferred an asset between 1 January and 30 November 2020, or received capital payments from such assets, the deadline for payment of any Capital Gains Tax due is next Tuesday 15 December 2020.
For disposals between 1 December and 31 December 2020, the payment deadline is 31 January 2021. Persons who have made a taxable gain will need to follow up next year with a capital gains tax return either as part of their income tax return where self-employed or income tax registered or via a separate capital gains tax return.
Capital gains tax applies on the disposal of assets. This can include examples such as the sale of residential or commercial property, holiday homes, the sale of land or sites and the sale of shares. These instances which give rise to capital gains tax are widely known, however capital gains tax can also apply in lesser-known circumstances such as where an owner receives compensation for the granting of rights such as granting wayleaves, rights of way, rights to install cables, water or gas pipelines.
Capital Gains Tax can also apply where insurance proceeds are received where an asset is lost or destroyed but certain other tax rules override the capital gains provisions where for instance the proceeds are used in replacing the asset.
Capital gains tax can also apply on the sale of goodwill, or where machinery which qualified for capital allowances used by a business owner is sold above its original cost. Capital gains tax can apply where property is transferred to children or other relatives even where the property is given to the recipient free gratis. In such circumstances, the legislation requires that a calculation is performed as if the property had been sold at market value.
For Irish resident persons, who are domiciled and ordinarily resident in Ireland capital gains tax can also apply on the disposal of worldwide assets. For instance, an Irish person who owns a holiday home in Spain decides to sell up having made little use of the property due to Covid-19 travel restrictions. The person is expecting to make a €70,000 gain on the property having bought it at good value 20 years ago. The capital gains tax rate in Spain is expected to be approximately 23%. The Irish capital gains tax rate is 33%.
The individual will be firstly taxed in Spain as they will have primary taxing rights under the Ireland-Spain double tax treaty. The individual will also need to file an Irish capital gains tax return but will be able to claim a credit for the Spanish tax paid, effectively reducing the amount of additional tax payable in Ireland to a rate of 10% of the gain.
A variety of reliefs may be available to mitigate the capital gain such as principal private residence relief, retirement relief, revised entrepreneur relief and capital losses forward from other capital transactions. As can be seen from the above capital gains tax can be complicated but for now, the most important thing to remember is that preliminary tax is due next Tuesday if you have made a taxable gain between 1 January 2020 and 30 November 2020. Persons should obtain professional advice relevant to their own specific circumstances.
