Your money - 22 March 2012
Q. My wife and I are jointly assessed for income tax.
My question is can we be taxed jointly for capital gains tax and hence can my wife’s capital gains be offset against my capital losses so she won’t have to pay any tax?
A second question, if the answer to the above is yes, if my wife were to die and I presume shares are then deemed to be sold, can the resultant capital gains tax on these shares be offset against my losses.
A. The chargeable gains of your wife are assessed on you unless separate assessment is claimed.
Any unallowed loss of one spouse is deductible in computing the chargeable gains of the other.
A transfer of assets between husband and wife does not give rise to a disposal for capital gains tax purposes. The spouse who receives the asset is deemed to have acquired it on the date and at the cost at which the other acquired it.
Chargeable gains of a year of assessment are aggregated with allowable losses of the year for the purpose of computing the net amount assessable to capital gains tax. Losses brought forward from earlier years are also deductible. Losses are set off against gains chargeable at the highest rate of capital tax and so on in order. Allowable losses which remain unrelieved may be carried forward indefinitely.
Finance Act 2010 provided anti-avoidance measures to target aggressive capital gains tax avoidance schemes where no real economic loss has occurred. With regard to disposals made on or after 4 February 2010, a loss will not be an allowable loss if:
(a) It accures to a person directly or indirectly in consequence of on in connection with any arrangements, and
(b) The main purpose or one of the main purposes of the arrangements is to secure a tax advantage.
Arrangements include any agreement, understanding, scheme, transaction, or series of transactions, whether or not legally enforceable.
A tax advantage means:
- Relief or increased relief from tax;
- Repayment or increased repayment of tax;
- The avoidance or reduction of a charge to tax or an assessment to tax; or
- The avoidance of a possible assessment to tax.
Gains on development land may only be offset by losses on development land. Losses on development land may be set off against gains on disposals of other assets.
A loss arising on the disposal of an asset to a connected person is only allowable insofar as it can be set against a chargeable gain arising on the disposal of some other asset to the same person.
Inflation relief (indexation) cannot convert a monetary gain to an allowable loss.
Death is not an occasion when disposal occurs. A person becoming entitled to an asset by reason of death is treated for capital gains tax purposes as having acquired the asset on the date of death and at its market value on that date.
Q. My friend has lived in the UK continuously for 44 years. She has a deposit account in an Irish bank over a long number of years. The dirt being paid is automatically sent by the bank to Revenue and my friend files with her accountant to get this refunded. She is over 65 years of age. This year her accountant has requested information of her worldwide income. He said it would be more in her favour if she was a permanent resident of Ireland. Is this correct?
A. Without having full details of your friend’s position, it would be impossible to comment on whether or not she would be better off as a tax resident of Ireland or the UK.
If your friend is not resident for tax purposes in Ireland then she can elect to have her Irish deposit interest paid free of deposit interest retention tax (DIRT) by making an appropriate written declaration to the bank in which the account is held. The bank will pay the interest without deduction of DIRT and there will be no need to make a repayment claim. As stated this is on the basis that your friend is not resident in Ireland for tax purposes.
I have set out below the current position with regard to liability to Irish tax depending on an individual’s residence, ordinarily resident and domicile position.
|Status||Extent of Liability to Irish Tax|
|1. Resident, ordinarily resident and domiciled||Taxable on worldwide income|
|2. Non-resident, ordinarily resident and domiciled||
Taxable on worldwide income – except:
(a) Income from trade/ profession/ employment, all duties exercised outside Ireland
(b) Other foreign income, provided that it does not exceed €3,810
|3. Resident, non-ordinarily resident and domiciled||Taxable on worldwide income|
|4. Resident, non-ordinarily, non-domiciled||Taxable on Irish source income and foreign source income only to the extent that it is remitted|
|5. Non-resident, non-ordinarily resident, irrespective of domicile||Taxable on Irish income in full (unless exempt) and taxable on income from trade/ profession/ employment exercised in Ireland|
Finally the reason your friend’s accountant would have requested details of her worldwide income would relate to the allowability of a portion of the personal tax credits and reliefs to her provided she fell within the following:
- is a citizen of Ireland; or
- resident outside Ireland because of her health or the health of a member of her family, and that before such residence outside Ireland she was resident in Ireland; or
- entitled under a double taxation agreement to the same personal allowances and reliefs as an Irish citizen not resident in Ireland; or
- an EU citizen
She will be entitled to that portion of the personal tax credits and reliefs which would have been available to her if she were resident in Ireland, that her income liable to Irish tax bears to her worldwide income (including income which is not subject to Irish tax)
For full information on residence and domicile rules go to www.revenue.ie.
If you have any queries on money or taxation matters which you would like answered, please send them to "Your Money", c/o Examiner Publications (Cork) Ltd., City Quarters, Lapps Quay, Cork