Selling shares in Ireland means Capital Gains Tax (CGT) on any profit, and if you’ve never had to work this out yourself before, it can feel like a lot. A straightforward sale is usually simple maths. It’s only bonus issues, rights issues and takeovers that get more complicated, and we’ve flagged exactly where that happens below.
With the growth of online trading platforms more and more individuals are buying and selling shares themselves ignoring stockbrokers. Some deal in very large amounts and some in smaller amounts but either way a proper record of your sales and purchases must be retained for Revenue purposes and for declaring your sales and purchases in your annual tax return..
CGT comes under the self-assessment tax rules regardless of whether or not you are taxed under the income tax self-assessment system. A lot of PAYE earners get caught out by this due to late reporting and paying, and suffering interest and penalty charges as a result.
The basics
You calculate the gain the same way as for any other asset: deduct the allowable cost price from the net sale proceeds. What’s left is either a gain or a loss.
The original cost of shares bought before 31 December 2002 can be increased for inflation up to that date. This is called indexation relief. No inflation adjustment applies for anything after that, and there’s no indexation at all if you buy and sell shares within the same twelve months. Indexation also can’t turn a gain into an allowable loss.
If you’ve made a loss on other assets this year or in an earlier year, you can offset it against a gain on your share sale. If you sold shares in more than one company during the year, each one needs its own separate calculation.
The numbers that matter
- CGT rate: 33%
- Annual exemption: €1,270 per person, not transferable between spouses
- Payment deadline: 15 December for disposals between 1 January and 30 November within the same year; 31 January the following year for disposals in December so CGT due within a month or two of sale.
- Return deadline: your CGT details go on a Form 11 (or CG1 if you don’t already file a Form 11), due by end of October which often gets extended to mid-November the following year. Even if no tax is owed because of losses or reliefs you should make the return.
PAYE earners often miss this filing deadline which applies even if you have paid the CGT due in time. Miss the deadline and you will be penalised.
The FIFO rule and why bonus and rights issues confuse people
Ireland uses First In, First Out (FIFO) for share disposals: when you sell shares in a company, you’re treated as selling your oldest holding first.
The confusion usually starts when you’ve built up your shareholding in more than one way with some bought on the open market, others through a bonus issue or rights issue.
- Each open-market purchase is treated as a separate acquisition within your overall shareholding in that company.
- Shares from a bonus issue are treated as acquired at the same time as your original holding. Since a bonus issue doesn’t cost you anything, the original cost of your shares gets spread across the larger number of shares you now hold.
- Shares from a rights issue do involve a cost, and that cost is added to your existing shareholding as further expenditure.
Where you’ve got a mix of original purchases, bonus issues, rights issues and later top-up purchases in the same company, this is where it’s easy to get the calculation wrong and it’s worth double-checking before you file.
Company takeovers and amalgamations
Share for share: if Company B takes over Company A and you receive shares in B in exchange for your shares in A, you don’t have a disposal to calculate yet. Your new B shares simply carry over the same cost and acquisition date as your original A shares.
Shares plus cash: if you receive both shares and cash for your original holding, you’re treated as disposing of part of your shareholding, and you need to calculate the gain or loss on that portion now.
What about rights you don’t take up?
If you’re a shareholder and get the right to buy new shares at a discount, taking up that right simply adds the cost of the new shares to your existing holding. But if you sell your rights instead of buying the shares (receiving cash for giving up the right) that’s treated as a partial disposal of your original shareholding and needs to be calculated at that point.
Share options are one of the most common ways people end up with shares to sell in the first place. See our guide to how share options are taxed which covers what happens before you get to this stage.
If your share sales involve a mix of bonus issues, rights issues, or a takeover, and you’d rather not risk getting the sums wrong, FastTax.ie can arrange a consultation with our tax experts.
