Churning investment to realize capital gains allowance

PaMcD

Asking here as the revenue documents I've read are unclear as to how the cgt allowance works across multiple years.

My understanding is that the tax only applies on disposal (when your selling).

If in year 1, the unrealized gain is 2000 over the year, and in the 2nd year it's another 2000. If i sell at the end of the year 2, will only 1270 of allowance apply? I.e I have to pay tax on 1730 of the gain.

If so, should I sell and rebuy at the end of year 1 to crystallize the tax and the benefit? And hence only pay tax on 730 gain in year 1 and 730 gain in year 2.

So have I picked that up right? Seems stupid as it encourages investment churning.

daheff

PaMcD wrote: »

Asking here as the revenue documents I've read are unclear as to how the cgt allowance works across multiple years.

My understanding is that the tax only applies on disposal (when your selling).

If in year 1, the unrealized gain is 2000 over the year, and in the 2nd year it's another 2000. If i sell at the end of the year 2, will only 1270 of allowance apply? I.e I have to pay tax on 1730 of the gain.

If so, should I sell and rebuy at the end of year 1 to crystallize the tax and the benefit? And hence only pay tax on 730 gain in year 1 and 730 gain in year 2.

So have I picked that up right? Seems stupid as it encourages investment churning.

From the sounds of what you are saying, this is called 'Bed & Breakfasting'...revenue can disregard this if they wish.

AFAIK there needs to be 6 weeks between buy/sell for them to ignore it

PaMcD

daheff wrote: »

From the sounds of what you are saying, this is called 'Bed & Breakfasting'...revenue can disregard this if they wish.

AFAIK there needs to be 6 weeks between buy/sell for them to ignore it

Do you have any revenue documents where it outlines theae rules by any chance? 6 weeks would be fine with me if that is the case, want to do it by the books.

I also read some comments that the allowance isnt allowed for ETFs but couldn't find any official documents to back that up.

Browney7

PaMcD wrote: »

Do you have any revenue documents where it outlines theae rules by any chance? 6 weeks would be fine with me if that is the case, want to do it by the books.

I also read some comments that the allowance isnt allowed for ETFs but couldn't find any official documents to back that up.

Depends on the ETF - pretty sure they have to be US domiciled to not be subject to the gross roll up regime that applies to life insurance with 8 year deemed disposals and the likes

PaMcD

Browney7 wrote: »

Depends on the ETF - pretty sure they have to be US domiciled to not be subject to the gross roll up regime that applies to life insurance with 8 year deemed disposals and the likes

It's a eu-domisciled UCITS ETF, but im not worried about the deemed disposal at this stage, just the annual 1270 allowance on chargeable gains from a disposal.

I'm gonna submit an enquiry to the Revenue anyways, the available documents aren't clear so hopefully they are helpful.

Bob Harris

Some info here about buying ETF's.
https://www.matheson.com/news-and-insights/article/tax-treatment-of-exchange-traded-funds

PaMcD

Bob Harris wrote: »

Some info here about buying ETF's.
https://www.matheson.com/news-and-insights/article/tax-treatment-of-exchange-traded-funds

I've read this revenue guidance note already (original source below) but it doesn't mention what I'm specifically asking about above unfortunately.

https://www.revenue.ie/en/companies-and-charities/documents/exchange-traded-funds-guidance-note.pdf

Gruffalo22

Disposal of shares - note 4 week rule when same shares are bought again

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-04-06a.pdf

tomfoolery60

There's no annual allowance for investments taxed under the gross roll up regime. Annual allowance applies to CGT, roll up is a different tax than CGT.


https://www.bluewaterfp.ie/investments/deemed-disposal/

PaMcD

tomfoolery60 wrote: »

There's no annual allowance for investments taxed under the gross roll up regime. Annual allowance applies to CGT, roll up is a different tax than CGT.


https://www.bluewaterfp.ie/investments/deemed-disposal/

Apologies if I'm blind, but where in that article does it say that the allowance doesn't apply for ETF investments?

Deemed disposal is just an exception to the conditions of when CGT must be paid, from what I read. I haven't seen any revenue documents that explicitly say that any investments that fall under the deemed disposals are not subject to the allowance. They do say they aren't eligible for loss offsetting, which is annoying in itself.

FernandoTorres

PaMcD wrote: »

Apologies if I'm blind, but where in that article does it say that the allowance doesn't apply for ETF investments?

Deemed disposal is just an exception to the conditions of when CGT must be paid, from what I read. I haven't seen any revenue documents that explicitly say that any investments that fall under the deemed disposals are not subject to the allowance. They do say they aren't eligible for loss offsetting, which is annoying in itself.

CGT allowance can only apply to assets that are chargeable for CGT. As Irish or EU ETFs are not charged CGT, you can't claim the allowance. They're chargeable at the same tax rate as gross roll up funds i.e. 41%. Gains on US ETFs are chargeable for CGT and therefore you could claim the allowance on them. I've no idea why any of this is the case but I'm sure some genius in Revenue has an idea.

tomfoolery60

PaMcD wrote: »

Apologies if I'm blind, but where in that article does it say that the allowance doesn't apply for ETF investments?

Deemed disposal is just an exception to the conditions of when CGT must be paid, from what I read. I haven't seen any revenue documents that explicitly say that any investments that fall under the deemed disposals are not subject to the allowance. They do say they aren't eligible for loss offsetting, which is annoying in itself.

Deemed disposal and CGT are fundamentally different ways of taxing investments. The CGT allowance applied to.... investments taxed under CGT.