In its simplest terms, Capital Gains Tax is a tax that arises on the realised profits from the sale of assets (Selling Price – Purchase Price = Profit Taxable for CGT).
The rule applies to individuals, companies, trusts, partnerships, and essentially any other entity type that disposes of an asset.
If you are currently contracting through an umbrella solution, it is extremely unlikely that you will come across CGT, at least not because of your contract work. There are other individual activities that can also create a CGT liability which we will examine in more detail
There is also a growing trend of independent professionals making the switch to their own Private Limited Company in line with the signs of positivity that we are seeing from the sector, if you are considering making the switch, you should have an understanding of how Capital Gains Tax works, when you are likely to come across it and moreover, how it can work in your favour when it comes to Entrepreneurial Relief and Retirement Relief.
What assets does it apply to?
‘Chargeable assets’ is the official Revenue term used to distinguish the assets that Capital Gains Tax applies to. The most common chargeable assets include company stocks, shares, cryptocurrencies, land, and property.
There are less common chargeable assets that you may come across including antiques, jewellery, foreign currencies, and intangible assets such as patents, trademarks, and copyrights.
Rules & Exemptions
There are also numerous rules and exemptions that have been introduced to Capital Gains Tax.
‘Non-chargeable assets’ being the most common CGT rule which states that an asset cannot be applicable to CGT if it has a lifespan of less than 50 years.
For example, CGT does not apply to the sale of private motor vehicles or livestock, both of which are considered assets.
There are also other assets that are excluded from CGT including but not limited to prize bonds, government stocks and lottery wins.
Furthermore, there are also reliefs and exemptions provided by Revenue on certain transactions which are explored below:
- Annual Exemption of €1,270
Each tax year, the first €1,270 of your gain or gains (after deducting losses) are exempt from CGT. You are entitled to this exemption whether you are resident or non-resident. You cannot transfer this exemption to your spouse or civil partner.
- Spouse/Civil Partner exemption
A gain on an asset that is transferred between spouses or civil partners is usually exempt from CGT. This exemption includes divorced spouses, separated or former civil partners.
The exemption does not apply where you transfer trading stock of a business carried on by you, to your spouse or civil partner.
- Principle Private Residence
A Principal Private Residence (PPR) is a house or apartment which you own and occupy as your only, or main, residence.
You will be exempt from CGT if you dispose of a property that, for the entire period of ownership, you lived in it as your main residence or used all the property as your home.
This exemption also applies to land, up to one acre around a house.
- Entrepreneurial Relief
This is a relief that should pay particular attention to if you are working as an independent professional, particularly if you feel that you will contract for 3 years or more, this relief is something you need to consider when weighing up the advantages of contracting through a Private Limited Company.
Entrepreneurial gives a CGT rate of 10% on gains from the disposal of qualifying business assets. This is reduced from the normal rate of 33%. You can find out more about Entrepreneurial Relief in our explainer video here.
- Retirement Relief
If you are 55 or older, you might be able to claim Retirement Relief.
This is a relief on Capital Gains Tax (CGT) when disposing of any part of your business. There are two types of Retirement Relief, depending on if you dispose of your business to your child or separately, to someone outside your family. You can find out more about Retirement Relief in our explainer video here.
It is also important to mention that Income Tax and Capital Gains Tax are two separate tax rules and as a result, any matters associated with Capital Gains Tax will not affect an individuals’ Income Tax position and vice-versa.
If you have sold an asset between January and November 2021, and there has been a gain as a result of said sale, the payment date for the Capital Gains Tax is due before the 15th of December 2021. Alternatively, if you sell a chargeable asset that results in a gain in December, the payment date for the CGT due is the 31st of January 2022.
If you have any queries on Capital Gains Tax and whether it applies to the sale of your assets, or perhaps you want to investigate the potential benefits associated with Entrepreneurial Relief, please get in touch with our team of advisors who will be delighted to assist you with any queries that you may have surrounding Capital Gains Tax. You can contact the team by emailing email@example.com or by calling 01-8077106.