Farm Ireland

Thursday 18 January 2018

Advice: Offsetting tax on share gains

There are offsets available that can be applied to reduce tax.
There are offsets available that can be applied to reduce tax.

Martin O'Sullivan

The prospects for 2016 are not looking wonderful, particularly for dairy and tillage farmers whose milk and grain price woes are being compounded by a spring of poor weather and sparse growth.

It has all the hallmarks of a year where additional funding will be needed to keep many a boat afloat.

Fortunately, some farmers particularly those in the Glanbia and Kerry Co-op regions, have had the good fortune to have acquired shares through the various spin-outs arising from the co-op entities selling off part of their shareholdings in the plcs. The option of selling some of these shares to bolster cash flow may be very tempting.

However, many of the shares have little or no base cost and Capital Gains Tax arising on cashing them in can be up to 33pc of the sales proceeds.

I regularly get phone calls from people who are of the mistaken belief that there are special reliefs available for disposal of Co-op shares or where the proceeds are reinvested in the farm.

Roll-over relief may have existed in the dim and distant past but unfortunately it is long gone.

There are however a number of possible offsets that people should be aware of that can be applied to reduce the tax.

Offsetting share losses

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Many people may have acquired or inherited bank or other shares that have lost most of their value in the past eight years since the recession began. By disposing of these shares, you may realise a loss that can be offset against any gains made on shares you intend to sell.

The extent of the loss will depend on the base cost of the shares which will be their cost or value when you acquired them and not the value that they had when they were at their peak at the height of the boom. In cases where one spouse owns the Plc/Co-op shares and the other spouse owns the shares on which a loss can be realised, the loss can be transferred from one spouse to the other.

Frequently people who have seen their shares plummet in value may be anxious to buy back these shares in the hope that they might recover some of their lost value. This can be done but only after four weeks have elapsed to enable you offset the loss that was realised by selling them in the first place.

Milk Quota losses

All dairy farmers saw their quotas disappear on March 31, 2015.

Those who acquired the quota when quotas were introduced in 1983 are not entitled to claim any loss relief but those who acquired quota between 1983 and 2000 can claim loss relief on the amount that the quota cost or on the value of the quota if they acquired it by way of gift or inheritance during that period.

The significance of the year 2000 relates to the fact that tax relief in the form of capital allowance over a seven year period were introduced as and from April 1, 2000 on any purchases of milk quota.

While it is not directly related to the subject matter of this article, it should be noted that any residual tax value of quota purchased since 2009 can be fully offset against profits for income tax purposes in 2015.

Farm Entitlements Similar to milk quota, Single Farm Payment entitlements ceased to exist on the expiry of that scheme on December 31, 2014.

Farmers who had acquired such entitlements by way of purchase or gift/inheritance will be deemed to have incurred a loss amounting to the cost or valuation of such entitlements on the acquisition date. Unlike milk quota, entitlements were not allowable against income tax so any such losses are fully deductible against any capital gains in 2015 or subsequent years.

Use of Annual Tax Free Exemption

Everybody is entitled to an annual tax exemption of €1,270 which is available every year but cannot be carried forward from year to year. In other words it is not cumulative and can only be used to offset a gain realised in any given year.

There is a mechanism known as "Bed & Breakfast" where a person can make a disposal of a sufficient number of shares each tax year to give a gain of €1,270 which is equal to the annual tax free exemption.

This can save €419 per year for an individual or €838 where the shares are in joint names. The same shares can be re-purchased as part of the same transaction if you wish to retain ownership of them.

There will however be a cost for the transaction which will comprise the broker's commission in selling and re-purchasing the shares along with stamp duty on the re-purchase of 1pc.

While the entire cost can be significant in the context of such a small transaction the net savings nonetheless particularly in the case of jointly owned shares may be well worth the effort.

Capital Gains Tax Returns & Payment dates

Capital Gains Tax returns are filed as part of your annual Income Tax return on or before October 31 in the year following the year in which you made the gain.

However, Capital Gains tax, as set out in the table, has different payment dates to Income Tax and it is important that tax is paid on time as interest at the rate of 8pc per annum may be charged.

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