Capital Gains Tax of 52%?

greensheep777

Hi guys,
Hoping someone can help here. A friend was made redundant from a role in an American tech company. They made her sign an agreement that included a term that they were not liable for any mistakes made in her tax over the 2 years she worked there.

In conversation she mentioned that she was nervous about that part because she received shares in the company as part of her benefits and never understood how the tax worked.
For every, say, 100 shares that would vest, the company would sell 52 on her behalf to cover her for tax. This is all noted in her online brokerage account (which is with a well known US brokerage company).
It even says on the statements - "Shares withheld for tax. Locale = Ireland = 52%".

Surely 52% for capital gains tax is a bit excessive? Is there some sort of exceptionally high rate for American shares for non-American recipients? Does it depend on the value of the shares? I've tried Googling but no luck.
She's not great at this type of thing and doesn't want to ring Revenue as she's had nothing but poor experiences and doesn't understand their jargon.

Thanks!

barneystinson

greensheep777 wrote: »

Hi guys,
Hoping someone can help here. A friend was made redundant from a role in an American tech company. They made her sign an agreement that included a term that they were not liable for any mistakes made in her tax over the 2 years she worked there.

In conversation she mentioned that she was nervous about that part because she received shares in the company as part of her benefits and never understood how the tax worked.
For every, say, 100 shares that would vest, the company would sell 52 on her behalf to cover her for tax. This is all noted in her online brokerage account (which is with a well known US brokerage company).
It even says on the statements - "Shares withheld for tax. Locale = Ireland = 52%".

Surely 52% for capital gains tax is a bit excessive? Is there some sort of exceptionally high rate for American shares for non-American recipients? Does it depend on the value of the shares? I've tried Googling but no luck.
She's not great at this type of thing and doesn't want to ring Revenue as she's had nothing but poor experiences and doesn't understand their jargon.

Thanks!

It's not CGT, it's income tax.

41% tax + 7% USC + 4% PRSI = 52%

Why would something that's part of your remuneration package (i.e. your income) be subject to CGT.

jdmartinho

As mentioned above, this is not CGT, it's just regular income tax. Any shares you get in Ireland will be subject to income tax on the day of vesting (i.e. when they are actually given to you). After that your friend will still be liable for any capital gains on the 48 shares remaining (for your example of 100 vested). Say she got those 48 shares at $10 each and she doesn't sell immediately, later on, when she does sell, they're going at $20 each. She is making a profit of $480 (48 x ($20 - $10)) so she would be liable here for capital gains tax. Now, there is a threshold of exemption for CGT, which is 1270 euros per year. Because she is way under that, she wouldn't have to pay any CGT, if the profit would be above 1270 euros, all of that balance would be taxed at 33%. Form 12 would apply, as she is a PAYE employee I'm guessing.

spuddy

jdmartinho wrote: »

As mentioned above, this is not CGT, it's just regular income tax. Any shares you get in Ireland will be subject to income tax on the day of vesting (i.e. when they are actually given to you). After that your friend will still be liable for any capital gains on the 48 shares remaining (for your example of 100 vested). Say she got those 48 shares at $10 each and she doesn't sell immediately, later on, when she does sell, they're going at $20 each. She is making a profit of $480 (48 x ($20 - $10)) so she would be liable here for capital gains tax. Now, there is a threshold of exemption for CGT, which is 1270 euros per year. Because she is way under that, she wouldn't have to pay any CGT, if the profit would be above 1270 euros, all of that balance would be taxed at 33%. Form 12 would apply, as she is a PAYE employee I'm guessing.

Technically it's a withholding tax of 52%, rather than income tax (this is academic of course). Normally this type of income won't appear on her P45/P60.