Losses on asset sales can help to save on profit tax liabilities
Taxpayers have a little more time when it comes to submitting their Capital Gains Tax (CGT) assessments for 2012. By calculating any gains made in the current year, there is still time to reduce your tax bill by availing of valuable CGT reliefs or even selling assets which, if their sale were to generate tax losses, could also reduce your CGT liability.
This article is specifically considering the upcoming CGT reporting deadline for 2011 capital gains and CGT payment deadline for 2012 capital gains.
CGT Payment dates
For disposals made in the first period, January 1, 2012, to November 30, 2012, the CGT liability will be payable on December 15 and for any disposal made in the second period, December 1, 2012, to December 31, 2012, the CGT will be payable on January 31, 2013. Penalties may apply to late payments.
Even if you've made an overall loss for 2012, if you make a gain in the first period and a loss in the second, you are still obliged to pay CGT in relation to the first period upfront. You can make a refund claim in January but from a cash flow perspective it might make more sense to plan the timing of your disposals, so gains and losses can be offset concurrently.
Although income tax and CGT have different payment dates, there is still an overlap when it comes to reporting. Details of acquisitions and disposals made in 2011 will be included on your 2011 income tax return, which is due today, or November 15, if filing online.
In particular, where losses were crystallised in 2011 it is very important to ensure that these are disclosed on your tax return so that they are available to carry forward for relief in 2012. You will not be required to report details of your 2012 disposals until you file your 2012 tax return in October/November 2013.
Since many individuals have either crystallised losses in prior years or are still holding assets which are standing at a significant loss, there may be opportunities to offset recent gains against the losses on these assets.
Timing is important as losses can be used against gains in the current year or, if unused, they may be carried forward but cannot be carried back (except on death).
Importantly, before disposing of a property in order to generate a CGT loss, you should consider the income tax position to ensure that there is no clawback of reliefs previously claimed.
In addition, if assets are disposed of to a "connected person" and a loss is generated, that loss may only be utilised against gains made on disposals of assets to the same person.
Losses on Shares
Under normal rules, where a person holds shares which have been acquired at different dates, the shares acquired at the earlier time are deemed to be disposed of first. However, before planning to create a loss you should be mindful that the rules are modified where shares are bought and sold within any four-week period.
CGT Property Incentive
It is worth bearing in mind that properties purchased between December 7, 2011, and December 31, 2013, can benefit from full CGT relief if sold after seven years from purchase.
Those held for more than seven years will be allowed a proportion of the relief. Some may be able to avail of the CGT relief by selling existing properties and buying others. However, you should be aware that the property must be acquired for market value or for not less than 75pc of the market value if acquired from a relative.
Principle Private Residence
If you sold your main residence (PPR) during the year, relief is likely to be available on 100pc of any gain.
However, CGT may be payable on a profit in certain circumstances, for example where part of it was used for a trade or if it was not used as your PPR for a period of time during your ownership.
If a portion of the disposal is "chargeable" and a loss is made on the disposal of the property, this may provide potential for claiming part of the loss for offset against other gains or to carry forward.
Each individual is entitled to exemption from CGT on €1,270 a year. For married couples (or civil partners), each spouse/partner may claim the exemption but it is non-transferable.
However, there may be scope to transfer assets between spouses before disposal to ensure both annual exemptions are utilised.
Marie Flynn is director at PwC