Calculating CGT

Q&A:I own shares in the company I worked for through an employee share ownership scheme. These shares are in my name only and can be cashed in or transferred after three years. As my spouse does not use her capital gains allowance, I have transferred some shares into her name after three years.

Do I calculate her capital gain from: the price I bought them at and her capital gain; the price at which they were transferred to her and her capital gain; or will Revenue just allow her to cash in shares to the value of her €1,300 capital gain?

Mr S.McG., Clare

There are a couple of points to note here. First, transfers of stock usually attract a capital gains assessment at that point. However, since the introduction of capital gains tax in 1975, a transfer of assets between husbands and wives is not considered to be a disposal for the purposes of capital gains tax.

In relation to the base price of the shares you are transferring to your wife, the base price for capital gains tax purposes is the market value of the stock at the time it was acquired by you under the employee share options scheme.

This must be so given that their is no CGT assessment on the transfer in this case. As a result, any ultimate capital gains liability must look back to the original price at which the shares were deemed to be purchased.

So, you are effectively looking at option 1 in the scenario laid out in your question.

Your wife will need to subtract the market price when the shares first entered your share option plan from the current market value. She can, of course, make provision for costs incurred in the purchase or, in this case, the disposal of the stock.

Finally, the annual capital gains tax free allowance is €1,270, not quite €1,300.

Investment rules

I recently disposed of an investment property after a period of ownership of 12 months. I am currently in the process of payment in regard to the tax due on the transaction.

I noticed recently in your column in The Irish Times that the last 12 months of ownership of a property is regarded as being owner occupied. This seems to be borne out by chapter 5, section 5 paragraph 3 of the Revenue document Guide to Capital Gains Tax.

Can you please advise if this applies in my situation as it could have a significant impact on the amount of tax due?

Ms H.K., e-mail

It is true that the final 12 months of ownership of a property are considered to be a period of owner occupation, regardless of whether you have actually occupied the building . . . but only if the building has at one time been your owner occupied.

In your case, it sounds as though you have only owned the property for a year or so and only as an investment property. It does not appear ever to have been your home.

In those circumstances, as I understand it, the relief from capital gains tax would not apply to you.

Dividend tax status

As my pension is below the annual exemption limit and I am over 70 years of age, I am exempt from income tax and, of late, also exempt from DIRT. Could you please tell me what is my position with regard to dividend withholding tax.

Mr P.M., Mayo

If you are exempt from paying income tax, you are entitled to apply for a refund of dividend withholding tax - as long as the dividends themselves do not bring your income over the exemption limit.

Dividend withholding tax is effectively an amount of your dividend withheld by the company in which you own shares and passed on to the State. It is levied at the standard rate of income tax. As such, any refund application should be made by way of your annual income tax return.

It would be worth contacting the Revenue because, under the new, more proactive approach to reliefs, you would like to think that you would not have to go after your refund on each dividend each year.