Capital Gains Tax - Date of Disposal

loremolis

Does anyone know what the official "date of disposal" is for the payment of Capital Gains Tax on a property sale?

The Revenue website says that it is the date of the contract but it doesn't clarify whether it is the date the contract is signed and exchanged or the date the sale is closed.

It doesn't seem to make sense if it based on the date that the contract is signed. For example, if there is a large CGT liability and the sale doesn't close for a few months after the contract is signed then the Vendor would have to fund the CGT themselves while waiting for the sale to close.

It would appear to me that the "date of disposal" is exactly that, the date on which the property is disposed of. Until that date money does not change hands and so there is no actual Capital Gain to the Vendor until that time.

Can anyone clarify, thanks.

fergald24

If an asset is disposed of and acquired under a contract, the time of disposal and acquisition is the time the contract is made and not the date the property is actually conveyed or transaferred. If however, the contract is conditional, the disposal is treated as being made at the time the condition is satisified.

There are slightly different rules for disposals by way of
- CPO (COMPULSORY PURCHASE ORDER) (earlier of date of entry of land or payment of compensation)
- Disposal of Farmland under CPO for road widening/building (date compensation is paid)
- Capital Sum derived from an Asset, (date capital sum is received)


Hope that helps

loremolis

fergald24 wrote: »

If an asset is disposed of and acquired under a contract, the time of disposal and acquisition is the time the contract is made and not the date the property is actually conveyed or transaferred. If however, the contract is conditional, the disposal is treated as being made at the time the condition is satisified.

There are slightly different rules for disposals by way of
- CPO (COMPULSORY PURCHASE ORDER) (earlier of date of entry of land or payment of compensation)
- Disposal of Farmland under CPO for road widening/building (date compensation is paid)
- Capital Sum derived from an Asset, (date capital sum is received)


Hope that helps

Thanks,

Of the 3 rules, is the "Capital Sum derived from an Asset (date capital sum is received)" the one which deals with property?

Surely every contract for the sale of property is conditional. i.e. conditional on the payment of the full consdieration at the time of closing?

If the date that contracts are signed and exchanged is treated as the date of disposal then that creates a liability for the vendor if, for example, the sale does not close for a number of months after the contract is signed.

For example, a property is bought for €1 million euro and subsequently sold for €20 million euro and the contract is signed and exchanged in October but for various reasons the sale does not close until January of the following year.

In that case there is a CGT liability of millions of euro arising for the Vendor before any funds are available to pay the CGT.

How does the Vendor fund the millions of euro in CGT payment before actually receiving the full consideration for the sale?

This is the part I can't understand.

barneystinson

loremolis wrote: »

Surely every contract for the sale of property is conditional. i.e. conditional on the payment of the full consdieration at the time of closing?

If the date that contracts are signed and exchanged is treated as the date of disposal then that creates a liability for the vendor if, for example, the sale does not close for a number of months after the contract is signed.

For example, a property is bought for €1 million euro and subsequently sold for €20 million euro and the contract is signed and exchanged in October but for various reasons the sale does not close until January of the following year.

In that case there is a CGT liability of millions of euro arising for the Vendor before any funds are available to pay the CGT.

How does the Vendor fund the millions of euro in CGT payment before actually receiving the full consideration for the sale?

This is the part I can't understand.

Well it's the vendor's responsibility to make sure they can pay it as it falls due, or pay the interest that will arise if they can't.

If they're properly advised they'll make sure that the sale is structured in such a way as to guarantee that the sale closes in time to have funds available to discharge the tax liability.

I'd imagine if the legislation was set up any other way, then it would facilitate avoidance. You've asked why is it not the date the vendor gets paid. Do you mean paid in full, or in part? If paid in full, then everyone would just make sure they only got paid 99% of the consideration, and thereby avoid a CGT liability indefinitely...

If anything other than paid in full, how do you nail it down?

loremolis

barneystinson wrote: »

Well it's the vendor's responsibility to make sure they can pay it as it falls due, or pay the interest that will arise if they can't.

If they're properly advised they'll make sure that the sale is structured in such a way as to guarantee that the sale closes in time to have funds available to discharge the tax liability.

I'd imagine if the legislation was set up any other way, then it would facilitate avoidance. You've asked why is it not the date the vendor gets paid. Do you mean paid in full, or in part? If paid in full, then everyone would just make sure they only got paid 99% of the consideration, and thereby avoid a CGT liability indefinitely...

If anything other than paid in full, how do you nail it down?

Seems quite draconian.

It could be nailed down when the Capital Gain is realised i.e. when the vendor receives the capital gain. If 99% is paid then the CGT is paid on that 99%.

In reality a contract only concludes when payment is made. Up to that it is an agreement to do something and therefore no actual Capital Gain accrues to the Vendor until that capital is in their possession

If CGT is 25% of the Capital Gain then on a large sale the payment could be millions of euro, all paid to revenue before the contract completes.
Not many people could manage that these days.

What happens if a contract for sale doesn't complete for some reason, for example, the purchaser is liquidated? Is the CGT refunded to the Vendor (with interest)?

nompere

loremolis wrote: »

Seems quite draconian.

It could be nailed down when the Capital Gain is realised i.e. when the vendor receives the capital gain. If 99% is paid then the CGT is paid on that 99%.

In reality a contract only concludes when payment is made. Up to that it is an agreement to do something and therefore no actual Capital Gain accrues to the Vendor until that capital is in their possession

If CGT is 25% of the Capital Gain then on a large sale the payment could be millions of euro, all paid to revenue before the contract completes.
Not many people could manage that these days.

What happens if a contract for sale doesn't complete for some reason, for example, the purchaser is liquidated? Is the CGT refunded to the Vendor (with interest)?

You don't have to like it, but the legislation is quite clear that it is the date of the contract that determines the date of payment of the tax, not the date the sale is completed. Revenue have some very technical guidance on conditional contracts - you can find it on their website.

It is because the rules are the way they are that good professional advice will often pay for itself.

If a sale never completes then the tax will be refunded. Interest? Not a chance! Revenue have that set up so that interest is hardly ever payable on repayments of tax.