# CGT - Huge impact of indexation multipliers



## rainyday (21 Nov 2004)

While preparing my CGT payment for 2004 & return for 2003 (albeit a few weeks late - roll on the howls of rightous indignation), I've just realised the huge impact of the [broken link removed]. In previous years, I assumed that the indexation would have a minor overall impact and just hadn't bothered to build it into my calculations. This year, I included the multipliers and found that last years taxable gain was cut in half (bringing it below the CGT threshold) and this year's overall gain of €2k approx has turned into an overall loss of €500!

Given that I overpaid CGT in 2003, am I safe in thinking that once I submit my full return for 2003, a balancing statement & refund will be issued to me?

The elimination of the multipliers from 2003 onwards will have a major impact on the profitibility of direct share investments. [I think I recall Brendan pointing this out at the time]


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## ClubMan (22 Nov 2004)

*In previous years, I assumed that the indexation would have a minor overall impact and just hadn't bothered to build it into my calculations.*

Seems odd to me to forego even small tax exemptions/reliefs. Where indexation is allowed even the smallest multiplier (other that 1.0) knocks c. 5% off the nominal acquisition price.

*Given that I overpaid CGT in 2003, am I safe in thinking that once I submit my full return for 2003, a balancing statement & refund will be issued to me?*

I would have assumed that you reduce your most recent liability by the calculated overpayment and then just pay what remains. Of course if no actual _CGT_ is due this year then I presume that you will get a refund instead.


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## puntingpot (22 Nov 2004)

*indexation*

Indexation cant increase a loss.Watch for this in your calc.


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## darag (23 Nov 2004)

*Re: indexation*

hi rainyday.  yes this was a massive change.  i cannot find the thread but i raised this issue back in 2002.  at the time, i did some calculations with some sample rates of return and sample investment periods and the effect of of the elimination of indexation was to raise the rate to the equivalent of the old 40% rate.  in real terms, you will lose money unless you're making a return of more than about 1.25 times the rate of inflation which makes it nearly impossible to protect the value of your savings.

actually the more i've thought about it, the more cynically i view the change.

fundamentally the 20% ctg rate (with indexation) provided a window for the already wealthy to realise their wealth.  getting rid of indexation has removed the window for those (like me) starting off trying to save/invest.  it was a sneaky trick by mcgreavy.

alternatively, mcgreavy may have been under pressure from the life insurance industry and banks.  it now hardly makes any sense to buy shares given the hassle and the trading costs.

as usual, the  personal finance commentators in the various papers ignored the issue completely at the time at the time.

i might repost this to the great financial debates or budget section; it's a significant issue in my opinion.


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## ClubMan (23 Nov 2004)

*Re: indexation*

Who's this _McGreavy_ character?


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## rainyday (23 Nov 2004)

*Re: indexation*

Thanks for your feedback.

Darag - Why would the life companies have been pushing for this move? What is the difference in CGT treatment for direct share purchases and unit-linked fund purchases?

Puntingpot- Yes, it took several attempts at reading the rules on the CGT forms to fully understand this.

The only think in favour of removal of indexation is that it actually simplifies a horrendously complex system. Of course, McGreedy could have done that by substantially raising the personal annual allowance to something close to the UK levels (about €10k) which would take the vast majority of small investors out of the CGT tax net.


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## ClubMan (23 Nov 2004)

*Re: indexation*

*What is the difference in CGT treatment for direct share purchases and unit-linked fund purchases?
*

 compares the tax treatment of direct and indirect (e.g. unit linked) share purchases.

*Of course, McGreedy could have done that by substantially raising the personal annual allowance to something close to the UK levels (about €10k) which would take the vast majority of small investors out of the CGT tax net.*

Whatever about indexation relief and what the _Brits_ do in terms of _CGT_ allowances, why should capital gains be exempt from taxation at all in the first place? I presume a pinko like yourself isn't actually saying that increased personal _CGT_ allowances would be a *GOOD THING™*?


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## rainyday (23 Nov 2004)

*Re: indexation*



> I presume a pinko like yourself isn't actually saying that increased personal CGT allowances would be a GOOD THING™?


Absolutely - It is the [broken link removed] - We have moved on from the cloth-cap-down-pit days, you know.


> We will increase the small gains allowance for a
> married couple to €5,000 per year, but thereafter
> capital gains will be taxed on the same basis as
> income. The existing full exemption for the family
> ...


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## ClubMan (23 Nov 2004)

*Re: indexation*

Well, there's only  to that!


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## darag (23 Nov 2004)

*Re: indexation*

rainyday, to illustrate why the life industry/banks might push for the change, consider for example investing 10k for ten years under the old system.  imagine buying 10k worth of shares which return 6% a year and compare with buying 10k worth of units in some life company's fund which delivers the exact same return.  we're ignoring trading costs, management fees, etc. for the sake of argument. assuming you cash in at the end of the period and assuming inflation was averaging 4% over the period.  your cgt bill for the shares would be about 440 quid while about 1580 quid would be retained on the unit fund.  in addition, you'd probably only have to pay about half of the 440 because of the cgt allowances.  so even before you factor in the often crappy management fees and bid/offer spreads, investing directly in shares would have made more sense.  this change has removed this advantage.

lowering the cgt rate to 20% but removing indexation has effectively given a massive tax break to those who have already accumulated massive gains in wealth but is denying the same benefits to future savers and investors.  it would have been far fairer to simply leave the rate at 40% but keep indexation.  the same figures as above work to illustrate this; someone who had earned 6% a year on an investment over ten years will pay about a quarter the amount of cgt if they accumulated the return before 2002 than they will pay if investing after that date.  basically the change constitutes a massive tax break for the wealthy over 40s.


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## N0elC (23 Nov 2004)

*Keep the red flag flying !*

Good one Clubman

:rupert 

I've often marvelled at how flexible Roger Rabbitte and his smoked salmon socialists are in their adoption of left wing values. One only has to look at the blatant cynical attempts to buy middle class votes in the so-called Rainbow Coalition, by removing RPT and giving the sons and daughters of the wealthiest people in the State free third level education whilst maintenance grants were barely raised at all. The electorate saw through this, and promptly threw them out at the first opportunity.

No wonder the Shinners are stealing so much of Labour's tradional voting base. 

Long may it continue !


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## darag (24 Nov 2004)

*Re: Keep the red flag flying !*

come on lads.  i'm trying to maintain my levels of indignation over the tax change.  the pinko bashing is almost too tempting a distraction.


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## rainyday (24 Nov 2004)

*Re: Keep the red flag flying !*

It would make sense to stick to the CGT issue in this thread. Feel free to open a new thread to trot out the usual tired oul cliches (again).


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## daltonr (2 Dec 2004)

*Re: Keep the red flag flying !*



> Well, there's only one response to that!



Rabbitte rolled out that quote this morning in regard to Bertie's new found socialist values.

Back to the Issue,  I'm inclined to agree with Rainday that a much higher threshold before CGT kicks in would be a good thing.

Removing Indexation was HUGE.  I don't understand why it slipped by so easily.  

There was talk yesterday that Fianna Fail are leaving a Gap in the market for other parties to focus on the Middle Class, working PAYE person with a few investments etc.  This person is not rich enough to really go to town on tax breaks, and not poor enough to get many of the benefits available.  They are hard hit by Stamp Duty, Child Care etc, etc, etc.

The Labout Policy mentioned by Rainday show's that Labour may be ahead of the game and already targeting this group.

Wouldn't it be ironic if Labour targeted this group and Fianna Fail targeted the Low Paid and those on Social Welfare?

Methinks the next election is going to be very interesting.

-Rd


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## ClubMan (2 Dec 2004)

*Re: Keep the red flag flying !*

*Rabbitte rolled out that quote this morning in regard to Bertie's new found socialist values.*

Before the vicious rumours start - I am not, and never have been, _Pat Rabbitte_! :lol


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## daltonr (2 Dec 2004)

*Re: Keep the red flag flying !*



> Before the vicious rumours start - I am not, and never have been, Pat Rabbitte!



That's OK, the Rabbitte wasn't as prepared as you, he wasn't even sure who said the quote in the first place.  I'd have thought he'd have been more familiar with Marx than he was, but there you go.

-Rd


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## ClubMan (2 Dec 2004)

*Re: Keep the red flag flying !*

He didn't mistakenly attribute it to _Willie O'Dea_ by any chance?

[broken link removed]


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