FIFO Rule for APSS & CGT

[Jiminy112233]

Hi,
Hoping someone might know the answer to this without having to consult a tax accountant! So the scenario here is :

I hold shares in my company acquired 5 years ago via RSU that would incur significant CGT if disposed of today (I didn't sell them when they vested).

In a few months more company shares acquired via an APSS scheme become 'available' under the 3 year rule i.e they are no longer subject to income tax and would incur a much smaller amount of CGT as the share price hasn't risen as much in the last 3 year period.

My question relates to the FIFO rule and disposal of the APSS shares. I understand in general that when you sell shares within 4 weeks of acquiring shares (e.g. a recent vesting), the CGT on that volume of shares is calculated from the price you received them at (less than 4 weeks ago) and today’s price. i.e. I can sell them immediately and essentially treat it like a cash bonus (which I've done for more recent RSU vestings).

What I'm wondering is how are the APSS shares treated? Since they were essentially purchased under 'trust' 3 years ago under that APSS scheme does that mean for CGT purposes they fall under the same FIFO umbrella as the shares acquired via RSUs and I would essentially have to sell the RSU shares and crystallize that gain first?

Or as soon as they become 'available' to dispose of tax-free could I sell them and only pay the CGT on the difference between the price 3 years ago (when first purchased under APSS scheme) and ignore the fact I have other shares in same company acquired earlier (via RSU)

Thanks

 

[AAAContributor]

Or as soon as they become 'available' to dispose of tax-free could I sell them and only pay the CGT on the difference between the price 3 years ago (when first purchased under APSS scheme) and ignore the fact I have other shares in same company acquired earlier (via RSU)

The date the shares become 'available' is known as the 'release date'. This is defined in legislation (Section 511(2) TCA) as the anniversary of the date of appropriation of the shares to the participant. No mention that the release date represents the 'date of acquisition' for the purposes of CGT.

The only relevant guidance I can find is from the Tax & Duty Manual on APSS paragraph 10.12.11 Capital Gains Tax

https://www.revenue.ie/en/tax-professionals/tdm/share-schemes/chapter-10.pdf

"The normal capital gains tax (CGT) rules apply to the disposal of shares acquired under an APSS. The base cost for CGT purposes is the initial market value of the shares at the date they are appropriated to the participant."

If the base cost for CGT is per the date of appropriation, it's probably reasonable to assume the same date represents the date of acquisition for CGT.

My guess would be any sale of APSS shares would trigger CGT based on the price of any 'block' of stock acquired prior to the appropriation date of the APSS shares. It's worth getting advice on it. If you are working for a firm that's running RSUs and APSSs then this is not the first time such an issue has come up and I'd ask HR to get advice on the matter from their tax advisers.

 

[Jiminy112233]

Thanks for the detailed reply @AAAContributor. I'll do as you suggest and see does my employer come back with any advice.

 

[ConorO]

I've a similar problem and come to similar conclusions - that neither Section 511 TCA nor Chapter 10 of the Tax manual doesn't shed a lot of light on the first-in-first-out rules for CGT, while the shares in APSS remain in the unavailable state.

My problem is the opposite - does any sale of any block of stock acquired after the APSS appropriation date trigger CGT based on the price of stock appropriated in the APSS, assuming no earlier acquisitions exist. I don't believe so on the basis that stock inside the APSS are not "marketable shares" until the release date. Section 580 TCA doesn't say that specifically but the Tax and Duty manual on Section 581 from Revenue does (I can't link to it). They use the term "Disposal of marketable shares".

They aren't marketable if I don't have access to the shares to sell them - under APSS rules they are held in a Trust account in the name of the Trustees. I still pay tax on the dividends but those are released to me explicitly.

As AAAContributor says, the base cost for CGT is that of the date of appropriation (the "Locked In" price) and that's definitely true given the linked article. However I think it's more reasonable to assume the release date is the date of acquisition for CGT.

Which implies all sorts of things, not least a sale of a block of shares within 4 weeks of the release date is considered to be a sale of the released shares, not that of an earlier acquisition.

I asked my HR department and they said "don't do tax advice". Thanks guys. I also asked the Trustee company and they said "CGT is calculated using the Locked Value (purchase value) and the Net Sale Value". Super. I assume that means they don't know.