Making Cents: Filing a Capital Gains Tax return
I’VE received a lot of emails in the past couple of weeks from readers who are asking about how they go about paying capital gains tax on shares they’ve sold during the year.
They’re conscious that if they’ve disposed of an asset between the 1st of January and the 30th of November, the deadline to pay any liability is the 15th of December, so they haven’t long to pay anything that might be due.
With that in mind, in this article, I’m going to cover specifically how this particular tax is paid for someone who is a PAYE employee and doesn’t normally submit annual tax returns and uses the myAccount facility with Revenue.
What is a Capital Gain?
It’s the difference between the amount you received for something after its sale, minus the amount you paid for it, less any allowable expenses.
In its simplest form, if you bought something for €10,000, and sold it for €15,000, you’ve made a chargeable gain of €5,000 and you must pay CGT on this amount. So, you’re liable for CGT on the chargeable gain and not the full amount you receive.
When CGT has, to be Paid
Okay, when you make any capital gain, whether that is from the sale of shares, an investment property etc. the timing of your sale influences when the tax due has, to, be paid.
For example, if you dispose of an asset between:
- 1st January and 30th of November, you must pay CGT by 15th of December of the same year.
- 1st December and 31st of December, you must pay CGT by 31st of January of the following year.
And important to note, that it matters you stick to these dates, because if you don’t, and you end up making a late payment, you’ll incur an interest charge, or if you make a late return you can be charged a penalty, so be mindful of these dates.
How to pay CGT
If you wish to pay on-line using your myAccount facility, there are a number of steps you must first take if you wish to use this method and they are:
Step 1
If you have never registered to pay CGT before, you need to go to the myAccount homepage, and send a message through MyEnquiries (located at the top right-hand side of this page). And in this message you’re sending, you want to say that you wish to register for CGT in order to make a payment.
Step 2
Once Revenue have processed this request, the option to pay will become available in myAccount under the payment section.
Step 3
In the payment section, click on make a payment.
Step 4
You’ll then be asked, what type of payment are you making and from the drop-down list, select tax.
Step 5
You’ll then be brought to a screen that asks you to select a tax to pay, and from that you choose, add payment, opposite from where it says, Capital Gains Tax.
Step 6
You then proceed to making a payment and in order to do so, you’ll need either (a) a debit or a credit card or (b) a once off debit i.e. a ‘Single Debit Instruction’, using a bank account of your choice.
When to file your CGT return
You must file by 31st of October in the year after the date of disposal. You must do this even if no tax is due because of reliefs or allowable losses.
How to file your CGT return
There are a couple of ways you can do this:
-Complete Form CG1 and return to your local tax office. And you could also attach a copy to a My Enquiries message on myAccount, or
- Complete a Form 12 online on myAccount where there is a facility to add your CGT return on that form. You would use this particular form if you were claiming medical expense or doing other returns. But if you have none, and your only filing the capital gains return and nothing else, just use for CG1.
How to calculate CGT
Even if you dispose of an asset and you’ve made no gain, or there was a loss and therefore there’s no CGT liability, you still must file a return despite no tax being due.
And important to note when you’re making your calculation, you have a personal exemption of €1,270 each. So, if your gain is less than that amount, you have no CGT to pay.
A very quick note on this annual exemption. It can’t be carried forward from year to year. So, what some people do to reduce or avoid CGT, they make a disposal of a sufficient number of shares each tax year to give themselves a gain of €1,270. The shares disposed of, can be immediately re-acquired if you want to continue to hold them. These transactions are sometimes referred to as Bed & Breakfast sales, which you might have heard of before.
I digress a little, so back to calculating your CGT.
The rate for CGT in most instances is 33%.
And there are other allowable expenses you can deduct from the sale of your asset, that can be used to reduce your CGT liability. For example, if you were selling an investment property, you can reduce the liability by accounting for monies that were used to add value to the property, or other costs incurred when you sold the property i.e. solicitor and auctioneering fees.
A very quick and basic example of selling something that you’ve released a gain on is as follows:
Example:
Sale of asset €10,000
Purchased for €5,000
Capital Gain €5,000
Less:
Annual Exemption €1,270
Chargeable Gain €3,730
Tax Due (33%) €1,231
CGT when disposing of shares bought at different times
It’s pretty easy calculating your CGT liability when the shares you bought were acquired at the same time, but it’s likely you will have bought shares at different times and at different prices and in different amounts, and in instances like this, there are special rules for calculating CGT.
So, when you acquire shares at different dates, when you begin to sell some of them, regardless of what shares you choose, for CGT purposes, the oldest shares are treated as being sold first.
This is known as the First-in First-out (FIFO) rule.
Let me give you an example of how this works in practice.
Let’s assume, Liam bought 50 shares via his employers ESPP scheme in 2019 for €150 per share. In 2020 he bought a further 40 ESPP shares at €180 per share.
In October 2022, he sold 60 shares for €12,000.
Because Liam only sold some of his shares, he has to use the FIFO rule to calculate the purchase price, and by doing so, he treats the calculation as if 50 of the 60 shares sold, were those bought back in 2019 and 10 shares that he bought in 2020.
Calculation of CGT
50 shares bought in 2019 at €150 = €7,500
10 shares bought in 2020 at €180 = €1,800
Purchase Price = €9,300
Shares sold for =€12,000
Capital Gain =€2,700
Annual Allowance =€1,270
CGT Liability =€472
In this instance, Liam has to pay this amount by, 15th December 2022, and file a return by 31st October 2023.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at [email protected] or www.harmonics.ie