Martin O’Sullivan: How to Calculate Tax When Selling Stocks
Hardly a month goes by that I don’t have a question about the tax implications of a share sale.
All farmers, particularly those in the co-op regions of Glanbia and Kerry, have been fortunate to acquire stakes through the various patronage schemes and spin-outs resulting from the co-ops selling off a portion of their holdings in the co-ops.
The option to sell some of these stocks to bolster cash flow can be very tempting. However, many of the shares have little or no upfront costs, and capital gains tax due upon redemption can be as high as 33 percent of the sale proceeds.
I regularly get calls from people who mistakenly believe that there are concessions to selling cooperative shares or where the proceeds are reinvested back into the farm.
Roll-over relief existed in the murky and distant past, but sadly, it’s long gone.
However, there are a number of possible offsets that can be applied to reduce the tax.
compensate for stock losses
Many people may have bought or inherited bank or other stocks that have declined significantly in value.
By selling these shares you may realize a loss which can be offset against any gains on shares you wish to sell.
The extent of the loss depends on the base cost of the stocks — their cost or value when you bought them, rather than the value they had when they peaked at the height of the boom.
Where one spouse owns the plc/Coop shares and the other spouse owns the shares from which a loss can be realised, the loss can be transferred from one spouse to the other.
Selling shares to realize a loss and then buying them back in the hope that they will recover some of their lost value is possible provided four weeks have elapsed between the sale and the buyback if you wish to recoup the loss incurred only by the sale realized.
loss of milk quota
Milk quotas are long gone, but those who bought a quota between 1983 and 2000 can claim loss compensation on the amount the quota cost or the value of the quota if they bought it by gift during that period or have acquired an inheritance.
The importance of the year 2000 is due to the fact that from 1 April 2000 tax relief in the form of capital allowances came into effect on the purchase of milk quotas – people who had previously bought milk quotas did not enjoy tax relief.
Loss of agricultural claims
Similar to the milk quota, the single farm payment entitlements expired when this scheme expired on 31 December 2014, when it was replaced by the basic payment scheme.
Farmers who acquired such entitlements by purchase or gift/inheritance before that date are deemed to have suffered a loss equal to the cost or value of those entitlements at the acquisition date.
Unlike the milk quota, entitlements were not creditable against income tax, so such losses are fully deductible against capital gains in 2015 or subsequent years.
A similar situation does not apply in relation to the termination of the base payment system on December 31, 2022, as the same entitlements will be transferred to the new BISS system.
Taking advantage of the annual tax exemption
Everyone is entitled to an annual tax credit of €1,270 which is available each year but cannot be carried over from year to year.
In other words, it is not cumulative and can only be used to offset a profit realized in a given year.
There is a mechanism known as ‘bed and breakfast’ whereby a person can dispose of a sufficient number of shares each tax year to make a profit of €1,270.
This can save €419 per year for an individual or €838 if the shares are in common names. The same shares can be bought again in the same transaction if you wish to retain ownership.
However, there are costs associated with the transaction which include brokerage commission for the sale and repurchase of the shares along with stamp duty on the 1 share repurchase.
While the total costs associated with such a small transaction can be significant, the net savings, especially with shares held jointly, can be well worth the effort.
give away shares
Some people mistakenly believe that giving shares to family members is similar to giving land and may not have any tax implications.
This is not the case: giving away shares will be treated the same as if you had sold them and the same tax charge applies.
The only exceptions to this rule are transfers between spouses, which are entirely tax-free.
Capital gains tax returns and payment dates
Capital gains tax returns are filed as part of your annual income tax return on or before October 31 of the year following the year in which you earned the profit.
However, capital gains tax has different payment dates than income tax – and it’s important that the tax is paid on time, as interest can be charged at 8 percent per year.
If a taxable gain is derived from Shares sold before November 30th, tax is payable by December 15th of the same year.
If the shares are sold in December, the tax is due before 31 January of the following year.
Martin O’Sullivan is the author of the ACA Farmers’ Handbook and is an agricultural business and accountant based in Carrick-on-Suir; www.som.ie
https://www.independent.ie/business/farming/agri-business/finance/martin-osullivan-how-to-offset-tax-when-you-sell-shares-42136038.html Martin O’Sullivan: How to Calculate Tax When Selling Stocks
