Paying 20% CGT without any income

S

stylite

Guest
While trying to start a business, I lived off a few
thousand a year made from selling shares I bought
while I had an income. The business has been
unsuccessful which means this is all I'm living off
now - yet, apart from the miserable EUR1270 allowance
I'm still paying 20% capital gains tax on my share
sales.
It seems to me the ordinary tax free allowance should
apply for CGT! Is there anything I can do about this
anomalous situation?
Regards
Michael
 
stylite said:
It seems to me the ordinary tax free allowance should
apply for CGT! Is there anything I can do about this
anomalous situation?
Regards
Michael
Click to expand...

Michael, I sympathise with your business problem but why should income tax allowances be available against capital gains? Does that mean that the reverse should also apply, that persons with income and no gains would be able to use the €1,270 CGT allowance each year against their income? That'd be great, we'd all save €254 income tax a year since I would expect that there would be more people in that category than in yours.

Income Tax is tax on income and allowances apply there. CGT is tax on gains and allowances are granted there. You made your gains, you pay your tax accordingly.The two are not interchangeable.Its not anomalous and the same rules apply in many other jurisdictions.
 
Hi Stylite

There isn't much you can do. You won't pay any income tax on the dividends you receive on the shares.

From a planning point of view, you could have bought shares with higher dividends and lower expected capital gains.

Did you make any losses when you closed the business? Could these be classified as losses of capital and so set off against the gains?

Brendan
 
Brendan said:
Hi Stylite

There isn't much you can do. You won't pay any income tax on the dividends you receive on the shares.

From a planning point of view, you could have bought shares with higher dividends and lower expected capital gains.

Did you make any losses when you closed the business? Could these be classified as losses of capital and so set off against the gains?

Brendan
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Thanks Brendan. You're right about planning - but the shares
were not bought with failure - or even business - in mind.
And the losses were mainly time rather than money.

Clubman: unfortunately (or not), I'm not married. But thanks
for the suggestion.

Graham: I don't find your post helpful. The idea of an allowance
is that a person can get a certain amount of money before
paying tax on it. What I was saying was that someone should
be able to use the same allowance towards either income or cgt.
I don't mind paying tax; I do mind paying tax on everything I
get about a paltry EUR1270, especially when I'm not claiming
anything from the state.
 
stylite said:
The idea of an allowance
is that a person can get a certain amount of money before
paying tax on it. What I was saying was that someone should
be able to use the same allowance towards either income or cgt.
I don't mind paying tax; I do mind paying tax on everything I
get about a paltry EUR1270, especially when I'm not claiming
anything from the state.
Click to expand...
I agree with you. Income should be income regardless of where it comes from.
The guy who turns half a million by buying and rezoning land should not be paying 20% while the guy earning 100K is paying 40%.
Unfortunatly that is the law and we can not do anything about it.
 
stylite said:
What I was saying was that someone should
be able to use the same allowance towards either income or cgt.
Click to expand...

If harmonised income and capital gains tax rates were set with one unified rate then this may be a possibility. Unfortunately (a) we have had the differential between Income from the use/investment of an asset and Gains from the disposal of an asset for over 30 years and it's not likely to change and (b) since Charlie McCreevey halved the CGT rate from 40% to 20% the returns from CGT have soared ( even before the property boom) They are two different sets of tracks and unfortunately someone will always be on the wrong side of one or other of them.
 
I have heard of such things as high yield shares or a high yield fund which would distribute a lot of capital as a dividend. maybe something like this is the solution? However transferring your wealth to these would entail cashing in your present assets which would have tax implications.

I'm writing as a non expert regarding tax matters so someone please correct me if the following is wrong.
Within the CAT/gift tax scenario,
As you cant change the system but instead need to work around it , is it possible you can make gifts of shares within the gift threshold to a relative(s) who could sell them, and gift back his profit to you (within the gift threshhold) ? I think you could do this with a number of relatives and its perfectly legal.
 
Gifts: this wasn't something I thought of or
was aware of - I will look into it.
Thank you very much.
 
Just remember that dividends of Irish companies will be distributed after the deduction of Dividend Withholding tax (DWT) of 20%. There are only a very limited amount of individuals who can claim tax exemption on these - having a low, or even no income will not qualify for DWT exemption.

Not sure what the tax laws on foreign dividends are though.
 
pajoe said:
Just remember that dividends of Irish companies will be distributed after the deduction of Dividend Withholding tax (DWT) of 20%. There are only a very limited amount of individuals who can claim tax exemption on these - having a low, or even no income will not qualify for DWT exemption.
Click to expand...
Really? I always assumed that somebody who was exempt from income tax would remain so as long as their dividend income did not push them into the tax net and they could also reclaim DWT.
 
That was my understanding - However, I have had another look at the Revenue's website and think I picked this up incorrectly. Although most Irish individuals cannot claim tax exmeption at source, the website states that you may be able to request a reclaim of DWT 'if you are not not liable to Income tax'.​

Sorry for not checking properly before posting.​
 
Yes, I've claimed back the DWT I was charged last year.
Though I haven't found it possible to reclaim tax withheld
on foreign shares I have.
Thanks.
 
sign said:
As you cant change the system but instead need to work around it , is it possible you can make gifts of shares within the gift threshold to a relative(s) who could sell them, and gift back his profit to you (within the gift threshhold) ? I think you could do this with a number of relatives and its perfectly legal.
Click to expand...

If you gift shares to a person, you are treated as if you have sold them for their market value on that date and subject to CGT on the deemed gain.
 
Not if they are gifted/transferred to a spouse although that's of academic interest in this specific situation.
 
Nige said:
If you gift shares to a person, you are treated as if you have sold them for their market value on that date and subject to CGT on the deemed gain.
Click to expand...

Ouch . Then a Plan B needs to be found. In any case I did say I was speaking as a non tax expert.

Maybe its possible for stylite to transfer the shares into his own newly created company of which he owns 100% of its capital and then take the shares in dividend form as income or get the company to take a secured loan on the shares and pay that captal out to himself ?

The effort necessary might depend on how much the shares are worth. There are also other possibilities such as changing residency to somewhere with zero capital gains (think Portugal , Malta, Slovakia), realising the gains and then returning. But its speculative without any additional information from stylite.

But no matter what the advice of a qualified tax expert might save a lot of grief and answer open questions with some certainty.
 
Thank you everyone for the points you made.
Actually, the gift route was starting to look a little
impractical anyway.
Unfortunately, the amount of money involved doesn't
warrant doing anything so complicated or exotic as
changing residence, etc. - if it did then I'd be very happy
to be paying the lower 20% CGT rate rather than being
annoyed at the very low tax free allowance on it. :)
 
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