Making use of your CGT personal exemption every year ?

ZoZoZo

Hi,

The first €1270 of CGT is tax-free each year and I'm wondering if there are any rules about how this can be used for long term investments. A simple example:
Suppose I intend to hold shares for 10 years and they increase in value by 1k a year.
=> when I cash them in at year 10 I have a CG of 10k, only 1.27k is tax free and I pay ~4.5k in tax.
=> overall profit = ~5.77k

If, on the other hand, at the end of each year I sell my shares, record a gain of ~1k and pay no tax and then promptly buy back the same shares
=> when I cash them in at year 10 I have a CG of 1k, pay no tax

=> overall profit = 10k

Now, obviously this is an idealized case, eg shares wont grow uniformly every year and in particular each time I sell them there's no guarantee I can buy them back later for a similar price no matter how quickly I try to buy them back. But in general it seems on average you could make much more overall profit by making strategic use of your annual CGT TFA every year. So, my question is, are there any rules against this, or is this just what smart investors do ?

Thanks,

Zozo.

elgriff

Google "wash sale" of shares in Ireland. You cant rebuy within 30 days, I believe, without foregoing the tax benefit

ZoZoZo

elgriff wrote: »

Google "wash sale" of shares in Ireland. You cant rebuy within 30 days, I believe, without foregoing the tax benefit

Thanks elgriff "wash sale" seems to be similar to what I describe but not quite the same thing as all references I can find to "wash sales" talk about deliberately making a loss one year to offset against a future gain, what I'm thinking about doesn't involve offsetting losses just making best use of the TFA every year.

Even more interesting this source (http://www.financedirectory.ie/articles/minimizing-capital-gains-taxes--six-tips-show-you-how-972/) says that even "wash sale" rules don't apply when selling at a profit, see points 4 and 5 (paste as 1 & 2 here):
'

1. Replacing the losers: If your client takes a taxable loss on a depressed stock or mutual fund and feels it has the potential to rebound, they will want to wait more than 30 days after the date of sale before buying it back. That’s because if they buy identical securities within a period of 30 days before or after the date of sale, the so-called “wash-sale” rule comes into effect. Essentially, the wash-sale rule prevents an investor from claiming a loss on a sale of stock if they buy replacement stock within the 30 days before or after the sale.
2. Replacing the winners: The wash-sale rule doesn’t apply when an investor realizes a profit on the sale of a stock or mutual fund: Investors can sell a winner to balance a loss and then buy it back immediately. An added benefit: your clients will also have the added tax bonus of a higher cost basis for their new shares. It might help to explain that cost basis is the original cost of an investment: investors may want their cost basis to be as high as possible because their investment will have appreciated less, and they’ll then likely pay fewer taxes when they sell it.

See the 'Added benefit' which I have highlighted myself, essentially by selling the shares each year I would be increasing the cost basis for the next time I sell them.

I have no idea how reliable that site is though it would be nice if there were definitive rules spelled out on an official site like www.revenue.ie, does anyone know if there is any definitive authority on this subject ?

Thanks,

ZoZo.

LaQuica

Hey, just a couple of things.

Firstly, your original calculation is wrong anyway. A capital gain of €10,000 on the shares would be taxed as follows:

Gain - €10,000
Less Annual Exemption - (€1,270)
Chargeable Gain - €8,730
CGT @33% - €2,881.

Secondly, there is a rule regarding repurchasing shares within four weeks of disposal where any losses on the sale are ringfenced against future gains on the sale of the same shares only. However, I don't really see any problem with you selling your shares at a profit and making use of your annual exemption each year.