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REVENUE BRIEF ON CGT

Following last month’s budget, and the recently planned clamp down on suspected tax evasion there has been some lingering confusion regarding what is required for various taxes. The main culprit of causing confusion is Capital Gains Tax (CGT). As a result, the revenue have recently released a brief which should clear up these lingering confusions and confirm for all when this tax and the associated documentation will be required.

The Revenue have stated that there were a number of requests for clarification from both tax practitioners and legal offices. It is hoped that this brief will shed some light on these lingering issues.

Please see the revenue brief below:

Clarification of circumstances where CGT clearance certificate not required

Arising from a number of requests for clarification from tax practitioners and legal offices, the purpose of this Brief is to set out particular circumstances in which the provisions of section 980 Taxes Consolidation Act 1997 (TCA) will not be applicable to disposals/sales of assets that are referred to in subsection (2) of that section.

Disposals of assets by bodies which carry an exemption from capital gains tax (CGT)

The section will not apply to a disposal of an asset by a person where any gain accruing on the disposal would not be a chargeable gain. Examples of such disposals in the TCA are:

  1. A disposal by a pension fund or arrangement carrying an exemption from CGT under section 608(2) or (2A).
  2. A disposal by an investment undertaking within section 739C.
  3. A disposal by a charity to which section 609(1) would be applicable.
  4. A disposal by the National Asset Management Agency (NAMA) or by any other body specified in Schedule 15.

Sales by financial institutions of loans secured on land in the State

The section will not apply to the sale by a financial institution of loans secured on land in the State where the sale arises in the ordinary course of the carrying out of its trading activities. In other words, the section will not apply to the sale of such a loan by a financial institution in circumstances where any profit on the sale would be treated as a trading receipt of its trade.

However, in regard to loans secured on land in the State, Revenue wishes to make clear its view that:

  1. In general, such loans are interests in land for the purposes of section 980, and
  2. In general, such loans are securities for the purposes of that section.

It follows, therefore, that the provisions of section 980 will have application where the sale of such a loan would be a disposal for CGT purposes.We hope that this will illuminate any grey areas of concern regarding the current rules of taxation, but should you require any further assistance, please don’t hesitate to get in touch with us here at DCA

NO MORE LOOPING THE LOOPHOLES

As we have discussed previously, this year’s Finance Bill includes another massive clamp down on possible tax evasion by allowing the Revenue greater access to previously confidential information. In addition to this, there will now be greater measures in place to address current loopholes in Capital Gains Tax. These loopholes can result in major discrepancies which make it difficult to assess taxation in general and the consistent avoidance of payment creates larger financial issues.

 

Section 34 of this year’s Finance Bill is designed to tighten the definition of shares deriving their value from specified Irish assets for non-residents. The current loophole allows avoidance of Capital Gains Tax when cash is transferred to a company prior to disposal of shares. This means that when the time comes for shares to be disposed of, their value is derived mainly from cash rather than assets. In cases where the greater value lies in shares than assets, the company can avoid paying this tax.

 

Section 35 of the bill also limits the avoidance of paying Capital Gains Tax as it closes an existing loophole which allows for non-payment of this tax where a non-complete clause has been signed. Similarly, in section 36 of the bill, a provision has been made which prevents avoidance of the tax through transferring property to non-resident companies.

Another loophole which has previously resulted in the avoidance of paying Capital Gains Tax is a provision which defers the tax if companies are sold within a larger group. The new bill includes a section which puts an end to the misuse of this particular provision (section 38 of the Finance Bill).

 

These measures are designed to counter avoidance of this tax and others, and as our technology advances we are sure to see further measures put in place in future Finance Bills as the Government ramps up its efforts to counter tax evasion. Since the onset of the financial crisis, there has been a consistent effort to put an end to tax evasion, occasionally to the detriment of other seemingly more crucial issues such as the housing crisis. It is hoped that creating preventative measures such as these will be enough to stem the flow of current tax evasion and prevent future efforts at avoidance, rather than creating further loopholes which will need to be closed off. This will, in turn allow the financial focus to shift elsewhere.

 

If you are concerned about your status in paying Capital Gains Tax, or indeed any form of taxation and require some professional advice regarding your financial matters please don’t hesitate to drop us a line here at DCA Accountants

NEW MORTGAGE RULES

The Central Bank’s much debated and often bemoaned stricter mortgage rules were finally officially announced last month and officially put into place only last week.

 

Under these new tighter guidelines first time buyers appear to have business as usual as they can continue to apply for a 90% mortgage up to a limit of  €220,000. Anything above this limit will be subjected to the new 20% deposit requirement. Given that the average house price in Dublin is approximately €269,000 (according to latest published results from myhome.ie) it would seem unlikely that many buyers will escape the clutches of this requirement entirely.

Those looking to trade up on their existing homes will be entirely subjected to the 20% requirement for the entire sum of their loan which has caused concerns that many young couples and families may find themselves ‘locked out’ of the property market or, having already taken a step onto the first rung of the property ladder in easier financial climates, may find it impossible to take the next step, or fall off completely.

 

There will also now be a cap on the amount that can be loaned, something that banks and mortgage lenders previously had left to their own discretion. This sees lenders being restricted to only borrowing 3.5 times their income. Given that there is massive disparity between wage scales across various sectors, this rule would seem to leave those in lower earning sectors out in the cold.

 

It was reported last week that banks have been urging mortgage defaulters to seek a familial ‘dig out’ to help them meet their mortgage repayments.  These new tightened mortgage rules could now see buyers returning to the ‘bank of Mum and Dad’ model of purchasing in order to meet the deposit demand. It was recently reported that the Credit Union will be willing to allow parents to borrow significant amounts to assist with their children’s deposit as the prospective buyer themselves would be unable to take out a loan.

 

As the Capital Acquisitions Tax on gifts currently allows an un-taxed amount up to €225,000 we may well expect to see these rules also tightened. As it stands, without the addition of a parental gift the average couple can expect to be saving for at least four years to meet their deposit requirements for first time buying, whilst those trading up may well be reliant on these so-called ‘dig outs’ when they have outgrown their current dwelling.