When the euro/sterling rate was 85p, I purchased shares in sterling. Now the rate is 73p. If I sell now and invest further in sterling without realising cash and perhaps spending it, do I have to take account of the exchange rates for purpose of CGT?
The amount in sterling remains the same but would be showing profit in euro.
Mr M.B., Galway
There have been certain reliefs for people who reinvest gains but these, as far as I know, relate exclusively to the sale of assets relating to a business or trade and the investment of those gains in the trade or business. I don’t think they are going to provide you with any relief in your current position.
I’m not aware of any provision under the Irish capital gains tax code that allows you to avoid liability to gains on personal investment just because you reinvest the sums in new assets. Each transaction is discrete and you are obliged to calculate the gain or loss on each as the relevant asset is sold.
You can’t simply ignore the gain as a result of currency movements because you are reinvesting the money in the same foreign currency. I can certainly see the attraction but the situation in which you find yourself is one of the major risks of investing across currency boundaries.
As you note, the value of sterling has risen strongly against the euro recently and that means the gain on the sale of your assets will be magnified in euro terms. As I understand it, as an Irish tax resident liable to capital gains tax here, you must calculate the euro gain or loss on any investment in assessing your liability to capital gains tax.
Your follow-on investment is then an entirely separate transaction, with the clock set back to zero, so to speak.
Of course, if you have a situation where the euro is strengthening, you would be deducting the “loss” on foreign exchange against any capital gain before assessing liability to capital gains tax. It would simply be another one of the “costs” incurred in the transactions around the investment that are allowable as an offset before calculating a taxable gain.
Trying to stretch the CAT threshold In a recent reply to Mr C.B. re CAT, you state in 5th para: "To be crystal clear, the CAT Act allows you as a child to receive up to €225,000 in total from December 5th, 1991, onwards from both parents without having any liability to CAT." Wishful thinking would lead me to hope that I can get up to €225,000 from each parent! But I take it that the €225,000 is the combined maximum I can get from my parents?.
Mr J. M., email
Wishful thinking indeed. The €225,000 is a category limit, not an individual one. There are three categories when it comes to capital acquisitions tax (inheritance or gift tax). Category 1, where the threshold is currently €225,000, refers to gifts from parents to a child, stepchild, adopted child and, in certain cases, foster child. And, yes, that €225,000 refers to all gifts and inheritances received cumulatively from either parent since the December 1991 date.
So, if you received an inheritance from one parent of, say, €200,000 and subsequently received gifts from the other parent of €30,000 – over and above the small gift exemption in any given year – then you will have exceeded the threshold and will be liable to capital acquisitions tax on €5,000 of that total sum, and on any future gifts and inheritances you receive from the remaining parent in excess of the annual small gift allowance unless the threshold is raised in future budgets.
Category 2 relates to gifts and inheritances from “linear relations” – a brother/ sister, uncle/aunt, niece/nephew, grandparent etc. Here, the threshold is currently €30,150 and again it is cumulative and dates back to December 1991, so you have to tot up gifts and inheritances received from anyone in this category over and above the small gift exemption to figure out whether you exceed the category threshold.
Note, you can receive up to €225,000 from parents and €30,150 from linear relations without facing a tax bill.
Finally, category 3 relates to gifts and inheritances from anyone else – known somewhat harshly as strangers, even though it includes people like parents-in- law. Here the threshold is €15,075 and the rules are otherwise the same as for the other two categories.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or emaildcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
