Category: Capital Gains Tax Ireland

Share Options Tax Treatment – RTSO1 Form

March 5, 2022

How Share Options are Taxed?

What are share options?

Share options are generally granted by Public Companies to employees. There are a variety of employee share option schemes and the tax treatment depends on the terms of same and if the scheme has been approved by the Revenue Commissioners. The RTSO1 form is used to make tax payments on share options.

An employee will normally receive an option to buy a certain number of shares in his/her employer company at a fixed price. If the share price goes up then the employee could make a significant gain when the option is exercised.

For 2011 onwards there has been a major change to the tax treatment of employee share option schemes and how the share options are taxed. The benefits of Share Award Schemes, Unapproved share Option schemes and Revenue Approved plans are now liable for PRSI and the Universal Social Charge (USC).

What is the RTSO1 Form?

The RTSO1 form is to be used for the purpose of making a Relevant Tax payment, on a Share Option and associated Universal Social Charge and PRSI, to the Collector-General.

What Happens If I Make a Gain on Share Options?

How the tax rules operate is best explained by the following example:

  1. Mr. Smart receives a share option whereby he can buy 10,000 shares in his employer company. The share option plan has not been approved by the Revenue Commissioners. The price per share is €1 which is the market value of the shares when he receives the option.
  2. After one year the shares are worth €3 each. Mr. Smart buys the shares at this point.
  3. Six months later the shares are worth €4 each and Mr. Smart sells them all.

What tax does he have to pay on the share options?

A. Sale Proceeds: 10,000 shares @ €4 €40,000
B. Cost Price: 10,000 shares @€1 €10,000
Gain made by Mr. Smart €30,000

For tax purposes this gain is divided into two parts. The first part applies when the share option was exercised. He made a paper profit of €20,000 at this point. This is calculated as follows:

Cost of Shares;10,000 shares @€1 = €10,000
Value of Shares;10,000 shares @€3 = €30,000
Paper Profit: €20,000

 

How to Calculate your RTSO1 Share Option Tax

This paper profit is immediately liable for income tax and must be paid over to the Revenue within 30 days of exercising the option. Assuming the 40% tax rate applies the tax on the share options is €8,000. From 2011 onwards PRSI (4%) and the USC (8%) charges also apply. This gives the total tax bill of €10,400. The Revenue form RTSO1 is used for the purpose of making a Relevant Tax on a Share Option payment.

Click Here to download your RTSO1 Form from Revenue.  This form is used for making payments for the Relevant Tax on a Share Option to Revenue.  The RTSO1 form Must be completed and submitted to Revenue within within 30 days of the  exercised date.  When calculating the Tax liability on your share options  income tax , PRSI and USC at the highest rate should be included.

Where an employee benefits from an Unapproved Share Option Scheme a Self Assessment Tax Return Form 11 for the relevent year MUST be made.

 

Capital Gains Tax (CGT) on Share Options

The  second part of the tax charge arises when the shares are sold. Mr. Smart made an overall gain of €30,000. He has already paid income tax on €20,000 and then pays capital gains tax on the remaining €10,000 gain. Using the current 33% capital gains tax rate and ignoring the annual exemption the tax charge amounts to €3,300.

In summary Mr. Smart made a total gain of €30,000 on which he paid tax of €13,700.

See Also  Capital gains tax calculator

The tax rules for dealing with share options are complex and depend on the type and terms of the scheme involved. There are many different types of share option schemes. Broadly speaking, the different schemes are divided into Unapproved Share Option Schemes (means not approved by the Revenue Commissioners) and Approved Share Option Schemes (means the scheme has Revenue Approval).

For unapproved schemes there are strict deadlines for when the tax is due and for the declaration of details regarding share options to the Revenue. If these dates are missed, interest and penalties can arise. Independent professional advice should be obtained when dealing with share options to ensure all matters are properly dealt with.

Where an employee benefits from an Unapproved Share Option Scheme they are obliged to make tax returns under our Self Assessment Tax System.
Apart from Unapproved Share Option Schemes the other type of schemes generally fall within the following categories;

  • Revenue Approved Share Option Schemes
  • Share Subscription Schemes
  • Approved Profit Sharing Scheme
  • Employee Share Ownership Trusts
  • Save As You Earn Schemes

The rules and regulations for these schemes will normally be explained by your employer.

Sale of Shares – Tax Saving Tips

March 5, 2022

 How the Capital Gains Tax Free Exemption of €1,270 works?

The annual tax free exemption must be used up every year. It cannot be carried forward from year to year.

If you have shares that have increased in value you could make a disposal of a sufficient number of shares each tax year to give a gain of €1,270 which is equal to the annual tax free exemption. The cash value benefit of using the annual exemption is €419 per person. If a married couple own shares in joint names and they jointly make the disposal the cash value increases to €838. The shares disposed of can be immediately re-acquired if you wish to retain ownership of them.

These transactions are referred to as “Bed & Breakfast” sales/repurchase. You need to check the charges e.g. Stockbrokers and Stamp Duty costs, for dealing in such transactions and compare it to the tax saving.

Bed & Breakfast. How to reduce the capital gains tax on shares?

If you have shares which have gone down in value and you wish to use the loss incurred on the shares against other gains then you must dispose of the shares in the same tax year as other shares sales upon which you have made a gain.

Sometimes you may want to keep the shares which have gone down in value in the hope of them increasing in value in the future. To get the tax benefit of the reduction in value you must dispose of the shares. You can, if you wish, re-acquire the shares but you must wait for a period of four weeks before doing so to ensure that the loss realised can be offset against other gains. This is one of the so-called Bed & Breakfast anti-avoidance rules.

Can I claim a capital gains loss on a worthless investment?

On occasions share investments may become worthless because the company in which the investment was made ceases trading or has traded very badly. There may not be a way to dispose of the shares as nobody will want to buy them.

To cater for such situations a written claim must be made to the Revenue during the tax year for which you want to offset the loss against other gains to claim a tax allowance for the loss incurred. You must be able to demonstrate to the Tax Office that the shares are of little or no value.

Can I claim a capital gains loss on Anglo Irish Bank?

Anglo Irish Bank is an example of public company shares being deemed worthless. The Revenue accept that the cost price of the shares may be treated as a loss for tax year 2009. If any compensation is paid in the future for the shares the amount received will be treated as a gain at that time. You do not have to give written notice of this to the Revenue but simply include the claim for the loss in your Capital Gains Tax computation.

Capital Gains Tax – Sale of Shares

March 5, 2022

The Capital Gains Tax rules and regulations for dealing with the sales of shares are very complicated. However in the majority of circumstances where there is a simple purchase or sale of the same number of shares the calculations are relatively simple.

How do I calculate the gain on partial disposals, rights issues or bonus issues?

Special rules apply for partial disposals, rights issues and bonus issues and where a share is taken over by way of a share for share swap in the case of company amalgamations and reorganizations.

The gain on a sale of shares is calculated in the same way as for any other asset. You deduct the allowable cost price from the net sale proceeds. The answer will be either a gain or a loss.
The original cost price of the shares may be increased for inflation during the period of ownership up to the 31 December 2002 – known as indexation relief. Thereafter no inflation increase is allowed. However the application of the inflation relief to the original cost price cannot create a tax allowable loss. There is no inflation relief allowed where shares are purchased and sold within the same twelve month period.

Any losses incurred on the disposal of other assets in earlier years or during the year of sale of the shares can be offset against any gain arising on a disposal in the current year.
If you have disposed of a number of different shares during the year you must complete a separate calculation for each transaction.

FIFO Rule how do I treat Bonus issues and Rights issues ?
This area causes a lot of confusion. The First In First Out (FIFO) rule applies to the total number of shares you own in any particular company. However within that shareholding you may have acquired some shares on the open market and others through Bonus or Rights issues.

Each acquisition of shares on the open market is treated as a separate asset within the overall asset which is your total shareholding in that particular company.

Any shares acquired by way of a bonus issue or rights issues are treated as acquired at the same time as the original shareholding.

A bonus issue does not involve a cost so the original cost of the shares is then spread over the total number of shares owned after the bonus issue.

A rights issue will involve a cost and this cost price is treated as additional expenditure on the original shareholding. These rules can be hard to follow when for one company you have a mixture of original purchases, bonus issues, rights issues and further purchases of shares on the market.

Company Amalgamations and Takeovers
There are special rules and regulations here to deal with company takeovers and amalgamations covering what are known as share for share swap and shares plus cash for share swaps.

Shares for Shares
Share for share swaps are relatively straightforward. Assume you own shares in company A. Company B takes over company A. You receive shares in company B in return for all of you shareholding in company A. The result is you are now a shareholder in company B. The cost of your shares in company B is deemed to carry the same cost history as your shares in company A. This means that you treat the new shares you own in company B as having been purchased at the same time and for the same cost price as your original shareholding in company A.

Shares for Shares plus Cash
When you receive both shares and cash in return for your original shareholding in company A you are treated as disposing of part of your shareholding in company A and you have to calculate the gain or loss arising thereon at that point in time.

Do I have to pay capital gains tax on the of a share Rights Issues?
When you are a shareholder in a public company you may obtain rights to subscribe for new shares in that company sometimes at a discount to the market price. Generally speaking the extent of your rights for additional shares will depend on the number of shares you hold in the company. If you purchase shares through a rights issue you will have a cost price for the number of shares acquired and this is added to your existing portfolio of shares in that particular company. Alternatively you may be entitled to dispose of your rights to acquire shares. If you receive consideration for the disposal of your rights without acquiring shares then this is treated as a partial sale of your original shareholding.

Capital Gains Tax Ireland – Sale of Property & Shares

September 14, 2021

Capital Gains Tax Ireland General Introduction

The tax definition of ‘assets’ is very wide ranging and covers many different items. If you make a gain on the disposal of an asset you may have to pay Capital Gains Tax on the gain. The current rate of Capital Gains Tax is 33%.

This article explains how Capital Gains Tax can arise on the disposal of properties and shares and the rules applying in the calculation of the gain or loss on a sale of an asset. Our Capital Gains Tax calculators will do the calculations for you.

There are a number of special exemptions available from Capital Gains Tax which we also explain. One of the most important is the exemption from CGT on the sale of your principal private residence. We explain in detail how this relief works here.

Before you can be liable for Capital Gains Tax you must Sell or Dispose of an Asset. The meaning of these words is very important for understanding how you can be liable for Capital Gains Tax and are briefly explained as follows:

Sell
Takes its ordinary meaning and generally means selling an asset for an agreed sum of money or in exchange for something else.

Dispose
This has a wider meaning and includes giving assets away for no consideration e.g. gifts.

Assets
This covers a multitude of items and in respect of property includes options or contracts for property, which could be sold on without you ever acquiring the property involved.

Gains
You have to make a gain on the sale or deemed sale of an asset before you have to pay tax. There are special rules for determining whether or not a gain is made. We will explain these rules as regards the following situations:
The sale or gift of a property.
The sale of shares.
These are the most common areas where capital gains tax arises for most people.

Losses
If you make a loss on the sale of any asset that loss can be offset against any gain you have made in the same or future tax years on the sale/disposal of other assets. You need to report the loss to Revenue or else it could be disallowed.

The rules for calculating how a loss arises are much the same as for calculating if a gain arises with one major difference. When a loss arises you cannot create or increase your real loss by the relief for inflation, which applied up to 31 December 2002.

For married couples dealt with under joint assessment the losses of one spouse can be used to offset a gain of the other spouse.

See Also Free Capital Gains Tax Calculator

When is Capital Gains Tax Payable?

March 23, 2020

These rules are particularly important for PAYE earners who are not already in our self-assessment tax system. It is very easy to overlook the key tax dates involved. The Capital Gains Tax Self Assessment System of Taxation applies to all individuals regardless of whether you are a PAYE earner or self-employed.

 

If you sell or otherwise dispose of an asset and owe Capital Gains Tax thereon it is payable under our self-assessment tax rules. This means the responsibility is yours to ensure that tax is paid on time and details of the disposal made in your tax return form to your Tax Inspector. If you do not comply with these rules you will have to pay interest and penalties to the Revenue in addition to the tax owed.

Tax Payment Dates

The tax due is payable on the following dates –

15 December – Each year for assets sold/disposed during the preceding 1 January to 30 November (Initial Period).

Click Here to down your CGT Payslip A for the Initial Period  (1 January to 30 November)

31 January – Each year for assets sold/disposed during the preceding December (Later Period).

Click Here to down your CGT Payslip B for the Later Period (December)

As you can see from above dates you do not have much time between selling/disposing of an asset and having to pay the tax due on the gain.

 

 

Tax Return Date

Your tax return for the tax year in which an asset was sold must be sent to the Revenue by 31 October following the end of the tax year.

If you miss this date you will be charged a penalty along with the tax due.This applies even if you actually paid the tax on time but were late sending in your tax form.

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Examples

A. Property sold in August 2017

Capital Gains Tax due say €40,000. This must be paid to Revenue by 15 December 2017.

 

B. Property sold in December 2017

Capital Gains Tax due say €40,000. This must be paid by 31 January 2018.

In both of the above examples the tax return giving details of the disposal must be sent to the Revenue by the 31 October 2018.

 

We can provide specific advice on any of these matter by way of consultation.

Disposal of your Principal Private Residence

March 20, 2020

General

The disposal of your principal private residence plus surrounding gardens up to a maximum of one acre is exempt from capital gains tax. However if the price you receive for the property reflects development value then part of the gain is liable for tax. This frequently arises where part of a garden is sold off. While this sounds relatively straightforward there are in fact many different situations that arise in practice that require a more detailed consideration of the relief.

To qualify for this exemption you must buy and occupy the property as your private residence. There have been many court cases on this point over the years. An intention to use a property as a residence is not sufficient and if you occupy the property for a very short period you may not qualify for the relief. For the majority of cases no difficulty will arise in this particular area. The exemption covers your house plus gardens up to a maximum of one acre.
If the garden or part thereof is sold without the house the sale will not qualify for full relief if the area of the garden sold is to be developed. This tends to be the norm in this type of situation. If the garden area exceeds one acre then the gain applicable to the excess area will be liable for tax.

Sometimes parents will transfer part of their garden to a child to build a house on the site. If the value of the site does not exceed €500,000, for transfers from the 5th December 2007, no tax will arise on the disposal to the child provided all the other conditions for this relief are satisfied. The area of the site cannot exceed one acre.

2.1 What happens if I sell my residence at a Loss
Unfortunately if your house is sold at a loss you cannot use the loss for offsetting against other taxable gains.

If the house was let out for a number of years during your period of ownership then a proportion of the loss on its sale could be used for offsetting against other gains.

2.2 How Many Residences Can I Have?
Only one property can qualify as your principal private residence and if you have more than one you have to notify the Revenue which one is your principal private residence for Capital Gains Tax purposes. This notification must be made within two years of the beginning of the period of acquisition of the second residence. Assuming the facts of your circumstances support the property nominated by you no difficulties will arise. If the facts do not support your case you may have to negotiate the matter with the Revenue to reach agreement.

A common situation these days is where one spouse works in Dublin Monday to Friday and lives in an apartment they own in Dublin. The family live down the country in a house owned by them. Which property is the principal private residence? More likely than not the house down the country. However an argument could perhaps be made that the apartment is the principal private residence but might be difficult to sustain.

Couples are getting married later in life these days and quite often each of the couple will already own a private residence prior to marriage. As a married couple they are only entitled to have one principal private residence for capital gains tax purposes. Let’s assume that they live in one of the properties and let out the other one for a few years and then decide to sell one of the properties. If they sell the property that was let at a gain then part of the gain will be taxable. However if they sell the property that they lived in this should be exempt from tax as it was always used as a principal private residence. They could then move into the property that was let and continue to use it as their private residence. On any subsequent sale of this property full Principal Private Residence relief will not be allowed as it was not always used as a private residence.

TAX SAVING TIP
Like a lot of tax rules there is one exception to the rule that you can only have one principal private residence. A property provided rent free to a Dependent Relative can also qualify for the principal private residence exemption. The property must be the sole residence of the dependent relative. For married couples each spouse may have a property qualifying for the dependent relative relief rule.

Trustees of a settlement can also qualify for the principal private residence relief where a property owned by the Trustees is used by a beneficiary of the Trust as their principal private residence.

 

2.3 How Often Can I Qualify for this Relief?
The simple answer is as often as you like. However, tax matters are not always simple. Consider the position of a builder developing a new residence, then moving into it and selling his old residence. After a while he builds another new house and moves into it, then sells the second one and so on and on for a few years. The Revenue might argue that the motivation for continually moving was to make a quick profit and the relief might not be allowed. Tax advisors would not necessarily agree with the Revenue approach. Situations like this fall or stand on their own individual merits. We can provide detailed advice for this type of situation by consultation for which a charge will arise. Based on past experience the Revenue consider that the minimum period of actual residence in the property should be twelve months in order to qualify for the relief. There is no specific rule governing this matter and each case will depend on its own circumstances.

2.4 What Happens if I Have to Work Away from Home?
If you are employed abroad and during that period your private residence is let out this will not affect the tax exemption provided you occupy the property on your return as your principal private residence.
The same rule applies subject to a maximum period of four years absence if you are prevented from occupying your residence due to local employment conditions.

2.5 How Does the Tax Relief Work?
If you sell your private residence you must calculate the gain in the normal way. If your property has always been occupied as your private residence and no development value reflected in the sale proceeds then the gain is not liable for tax.

However, if you did not always use the property as your private residence then part of the gain may be liable for tax. In these circumstances and assuming you do not qualify for relief on the working away from home rule explained above then a fraction of the gain will be taxable. This is calculated as the period of non-occupation over the total period of ownership. If you brought the property prior to 6/4/1974 you ignore any period of ownership prior to this date.

If you owned the property for say 10 years and initially occupied it as your residence for 5 years and let it out for 5 years then four-tenths of the gain is liable for tax. The first 5 years and the last year are treated as your period of private residence use and that part of the gain is not taxable.
When you have used a property as your private residence you are entitled to treat the last 12 months of ownership as being part of your private residence period of use.

Example
House purchased 2003
Sold in 2013
Used as residence for 5 years

The time apportionment rule for the period of ownership as explained above may be changed where the calculation proves unjust and/or unreasonable. This is allowed where there is a significant change in the house or its use.

The rules can also be applied in a different way where a site is acquired and a residence built on it. If the residence is not complete and occupied within a year of acquiring the site then on a sale of the completed property part of the gain may be taxable.
We can provide further advice on this matter by way of consultation.

2.6 Do I Have to Tell the Revenue about the Sale of my Residence?
Yes you must disclose the sale on your tax return form and claim the benefit of the private residence exemption. If part of the gain is liable for tax you must ensure you pay the tax due on time and complete your tax return within 10 months from the end of the year during which the property was sold. This is very important for PAYE earners as they might not be aware of the rules regarding our self-assessment tax system. Capital gains tax is payable under our self-assessment rules and the onus is on everybody to ensure that they comply with them.

2.7 What is Development Value?
This can be a complex matter. What it really means is that somebody is prepared to pay you more for your property than it is worth as a normal residence. A typical situation is a builder buying your house with the intention of redeveloping the property e.g. conversion to apartments or replace existing house with two or more houses. In effect the extra premium paid over the normal residential value is liable for tax. This is different to a situation where a private individual buys an old house and completely redevelops the property into a new private residence for own use. Its possible that in this type of situation it could be argued that the price paid for the old property reflected the redevelopment opportunity. However in our experience this does not arise in practice.

In cases where development value applies you have to make two calculations. First you calculate the gain in the normal manner. Second you calculate the gain substituting the normal residential value for the actual sale proceeds. You pay tax on the difference between these two figures. See example 2 below for reference.

If the purchase price you paid for the property or its market value at 6/4/1974 whichever is later reflected development value you cannot increase this element of the cost price/value at 6/4/1974 for inflation. The incidental costs for disposing of the property e.g. legal fees, auctioneer etc are apportioned between the two methods of calculation.

Tax Free Thresholds

August 19, 2015

Everybody is entitled to a certain amount free of any capital acquisitions tax. This is known as your tax-free threshold. The amount of tax-free threshold depends on your relationship with the person from whom you receive the gift or inheritance.

The most common threshold relates to assets transferring from parents to children and the current tax-free threshold for same is €310,000. No liability to tax will arise unless the value of the benefits exceeds this amount.

The second tax-free threshold which amounts to €32,500 applies where benefits are received from other close family relations apart from your parents e.g. grandparents, brothers/sisters & uncles/aunts.

Finally the third tax-free threshold which amounts to €16,250 applies in all other circumstances.

These tax-fee thresholds cover all transfers to you within your lifetime. However any benefits received prior to the 5 December 1991 are ignored. Transfers of assets between spouses are exempt from both gift and inheritance tax.

Where assets are being transferred in or out of Trusts, or limited interests are being acquired, the rules and regulations applying to same are very complicated. Because of the complexity of these matters and the fact that everybody’s circumstances are somewhat different we deal with this type of situation by way of consultation and a separate charge will arise for advice on such matters.

For Further Details Please Email Your Queries to barry.maxwell@paylesstax.ie or Contact Us On 01 524 2332

Gift and Inheritance Tax

August 19, 2015

Overview of Gift & Inheritance Tax

We provide information on the following:

This is the last opportunity for the Revenue to take some of your hard earned assets accumulated during your lifetime. After you pass on, the Revenue hand is out looking for payment of Inheritance Tax.

With increasing personal wealth many individuals find that the values of their estates leave their beneficiaries liable for this tax. It is important to plan for this tax well in advance both from a tax point of view and also to ensure that your assets pass to your beneficiaries in the way you would like them to.

Generally speaking we are dealing here with the transfer of assets within families and more often than not from parents to children or from other close relations.

While the tax has two names, i.e. inheritance tax and also gift tax, it is essentially the one tax. As the name implies inheritance tax arises where you inherit a benefit from a deceased person. Gift tax applies where somebody makes a gift to you during their lifetime.

When somebody makes a gift to you during their lifetime it may also involve other taxes such as capital gains tax and stamp duty in the case of property transfers.

There are special exemptions from the tax in respect of the following assets:

  • Residential property
  • Agricultural property
  • Business assets

A liability to Irish tax can arise regardless of where the assets are situated e.g. receiving a foreign property can give rise to tax in Ireland as well as any tax that might be payable in the foreign country.

TAX TREATMENT OF ETF, UCITS AND OTHER FUND INVESTMENTS

July 4, 2013

Exchange Traded Funds (ETFs) & Other Fund Investment Products – Offshore Fund Tax Regime

Our online system caters for the tax reporting required for ETF, UCITS and other fund investments. Through our traditional tax practice we have extensive knowledge and experience in this area and assist a large number of clients who hold these types of investments to meet their tax reporting requirements each year.

A particular set of rules, known as the offshore fund tax regime, can apply to these types of investments depending on the nature and location of the fund investment. Where they apply, the rules can give rise to a number of tax implications –

  1. 41% income tax on any income or gains
  2. Deemed disposal of units on 8th year anniversary of purchase
  3. No relief for losses made on sale of units
  4. Purchases of units to be reported even where no income or gains
  5. Non-domiciled individuals cannot claim the remittance basis of taxation on these investments

If you acquire units in an investment product that is subject to the offshore fund rules then you must file a Form 11 income tax return for the year via the self-assessment system.  Payments from and gains from such investments must also be reported on your Form 11.

The financial advisor arranging your investment will often explain the tax rules involved which can be complex. However if you are purchasing units in an ETF, UCITS or other fund investment directly yourself using an online brokerage or online trading platform then the appropriate tax treatment can be more difficult to ascertain but we can assist you with this – please see here for further details.

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Disposal of a Business upon Retirement – Retirement Relief

July 4, 2013

This relief is available to individuals who have reached the ripe old age of fifty-five and are disposing of all or part of their business assets. The business may have been carried on either in their sole name, in partnership or through the medium of a limited company.

While the relief from capital gains tax is called retirement relief you do not have to actually retire to avail of the relief. This means that the relief could be used by somebody trading in their own name or in partnership and deciding to trade through a limited company. The sole trader or partnership business could be sold to the limited company and provided all qualifying conditions are satisfied exemption from tax claimed under these rules.

Needless to say there are various rules and regulations attaching to the operation of the relief and we can provide advice on these for your own specific circumstances for which a separate charge will arise.

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