Tax planning: claiming a credit against CAT for CGT paid

[Brendan Burgess]

This has come up in another post, but I think it's worth teasing it out to see what tax planing opportunities there are around it. Revenue has a short piece on it here.

http://www.revenue.ie/en/gains-gift...nst-cat/credit-for-capital-gains-tax-cgt.aspx

To simplify Revenue's example:

John gives a gift of shares to Séamus
There is €500 of gift tax (CAT) due on the shares to be paid by Séamus
However, John is liable to CGT of €400 on disposal of the shares.

Séamus's liability is calculated as follows:

CAT on gift: €500
Less CGT from same transaction: €400
Net CAT liability: €100

Clawback
If you sell the gift or inheritance within two years, the credit will be clawed back.

Is this a full claw back?

Notes
If John sells the shares on the open market and gifts the cash to Séamus, there is no CGT credit as they are two separate transactions.

 

[Brendan Burgess]

Tax planning issues

Disposals on death are not subject to Capital Gains Tax, so it's irrelevant from this CGT/CAT point of view.

However, if you want to give a gift in excess of the CAT threshold, and you have to sell shares to do so, then give them the shares instead. They have to hold onto the shares for two years. So if you are planning to give someone a gift, then maybe give them the gift well in advance of when they need it.

If you have a few properties and you are planning to gift one of them, gift one on which CGT is payable. You will pay the CGT and they will get a credit for it in calculating their CAT.

It's better to hold shares or other assets subject to CGT rather than a unit linked fund subject to exit tax. If you want to gift the unit-linked fund, you will have to cash it and pay exit tax. Then the recipient will pay CAT on the net amount received.
Edit: Maybe not. There is something called "Taxes equivalent to CGT" which includes Irish life assurance products.

 

[Brendan Burgess]

How does this apply to gifts to children? The first €310k of gifts in a child's lifetime are exempt from CAT anyway.

If I gift my son €200k worth of shares, on which I pay €50k CGT, he has no liability against which to claim the CGT paid as a credit.

But let's say I want to gift my son €510k.

I should first gift him €310k of some asset which is not subject to CGT. Maybe a property which is worth the same as the price I paid for it.

The following year, I gift him €200k worth of shares on which I pay CGT.

Brendan