An ever more popular topic in this era of low interest rates. Here is a list of some interesting enough tax points for client share investments. Relevant for Irish tax resident individuals only and a basic Irish tax knowledge (especially Capital Gains Tax) is assumed. Have kept it at 10 and as ever with tax commentary, this is general and non exhaustive. List is in no particular order, apart from the last point…which is peripheral.
Trading - Are the activity levels significant enough for you to be regarded as dealing, carrying on a trade for tax purposes? If so, then you are into a different Irish tax regime with income taxes applicable to gains, even unrealized ones. This "dealing" categorization can be an unusual one for an Irish individual – but the question still needs to be asked if there is relatively formal level of activity around the investments. In this scenario, you may even consider doing the business via a company.
Share losses - can be restricted if you repurchase shares within 4 weeks. Example – in early September this year there was a mini-tech share slump and some investors sold, realizing capital losses. Some of these individuals may have bought back the same shares a few days later. Yet due to a specific Irish tax rule, the realized losses in September can only be set against gains on the new shares acquired. These losses cannot be used against any other gains. If the new shares never realize a gain, then loss relief will never be available here ☹. This rule is colloquially known as the ‘4week rule’ or ‘Bed & Breakfast rule’ and only applies to share/securities disposals.
Funds – usually shares, property and foreign currency are subject to default Irish CGT rules. However, a special Irish tax regime can apply to certain funds or wrapper products. For Irish investments, this status should be confirmed by the promotor. For foreign funds, it is up to the investor themselves to determine the Irish tax status. This can be tricky and there is some limited Irish Revenue guidance available for determining status – so for example, they confirm EU ETFs should be subject to the special regime. Key tax aspects to the regime are a blanket rate of 41% tax for distributions & gains, a deemed tax-point if held for 8 years and a restriction on the use of losses. Sometimes a fund may well suit commercial objectives (diversification, liquidity, gross roll up etc.) but an investor needs to consider their own direct tax elements in conjunction. More info here
Foreign exchange – the basic rule here is that CGT is calculated using euro (equivalent) values at the time of acquisition & disposal. This means that if there is a fx movement, then it will be included in the Irish tax computation. Say you buy a property in the US for $1m, sell it for the same amount, then you may still have a gain or loss for Irish CGT - resulting from euro/dollar fluctuation. This can be a minefield area. Be wary of hedging the fx on an asset with loan finance, as the tax may not be hedged (liabilities are disregarded for CGT). Foreign currency cash proceeds left in an investment account can also have tax impacts. At the very least, this area can result in significant admin to ensure tax compliance correct.
Your structure – a company? Operating via a company should be considered if investment activities are significant. A common scenario here is a holding company investing sale proceeds from a trading subsidiary. More info here.
Your structure – maybe a pension? Types of pension funds vary but they can be set up to give the owner some control over the investment strategy (subject to certain restrictions). The key pension tax efficiencies are well known – tax free growth in a pension fund and tax relief on contributions. Individuals with employer contributions, including from their own company, can potential build up a significant pension fund – and should evaluate the commercials of this option in the same way as any other (personal or corporate) investment.
Domicile status - Different Irish rules apply for non domiciled individuals. For those not Irish domiciled, then foreign (incl UK) assets are only subject to Irish tax once profits are remitted to Ireland. There are lots of rules on this regime; including quirks & avoidance provisions. For example, investment in foreign funds (point 3) could be automatically within the Irish tax system. This can be the case even if the proceeds are never remitted to Ireland.
Moving to/from Ireland – even if Irish domiciled, you need to plan to manage Irish tax. This is important if you have foreign investments, especially those which qualify for special tax treatment abroad. There may be unplanned Irish tax on their disposal and timing here will be crucial.
Shares with large pregnant gains? Already thinking of a gift or donation? Consider giving the shares away. As a default, Irish CGT applies - and Irish gift tax (Capital Acquisitions Tax) may also arise for the recipient. But the recipient could be able to offset your Irish CGT paid against their tax which can result in a tax saving compared to a gift of cash proceeds. Shares donated to charity also qualify for Irish CGT exemption; and these should be CAT exempt too by default. For charity donations, an individual should run the numbers as there may be an option to claim the donation against income tax. The relief goes to the charity here, but this should not matter to the overall economics.
Grey area items – some investors may prefer less conventional approaches, and these can have their own tax treatment. Betting or spread betting, is exempt from CGT (losses not available either). Investment in precious metals can also be outside CGT where the value of the individual units is relatively small. Cryptocurrency is subject to Irish CGT in the normal manner. However, the question of whether it is located in Ireland (for tax) is moot – a point very relevant for the non-Irish domiciled individual. Caution is always required here and these areas have their own non-tax complications.
