Capital Gains question

virginmediapls

Hi,

I bought a few grand of shares this year, a few weeks back. They are up a good bit.

I see there's a 1,240 EUR pa dispensation for profits taken on shares.

Can I sell €1,240 of my shares, take it as profit, and reinvest it next year? Could I do this every year so I eventually don't need to pay tax on the profit?

I know this is probably not the case, just trying to understand it.

Browney7

virginmediapls wrote: »

Hi,

I bought a few grand of shares this year, a few weeks back. They are up a good bit.

I see there's a 1,240 EUR pa dispensation for profits taken on shares.

Can I sell €1,240 of my shares, take it as profit, and reinvest it next year? Could I do this every year so I eventually don't need to pay tax on the profit?

I know this is probably not the case, just trying to understand it.

You'd need to realise 1240 of profit so will need to sell more than 1240 of shares unless you got the shares for free!

namloc1980

The annual CGT allowance is €1,270 of chargeable gain so, assuming you have no other CGT chargeable gains this year, you can realise a profit on the shares of up to €1,270 before the end of the year without incurring any CGT liability and can do this each year. You can reinvest that gain as soon as you want. Remember though that even if you don't have a CGT liability you are still obliged to make a CGT return to the Revenue.

https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/when-and-how-do-you-pay-and-file-cgt.aspx

When to file your CGT return?
You must file by 31 October in the year after the date of disposal. You must do this even if no tax is due because of reliefs or allowable losses.

3DataModem

As above posters, here's a simple worked example.

Let's say hypothetically you purchased 10k shares at 1 euro each, and they are now worth 2 euro each i.e. 20k, and they never go up again.

2020: Sell 3,720 worth (1,860 shares), profit is 1,240, zero tax due - you have 3,720 in cash and 16,280 worth of shares
2021: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 7,440 worth of shares: you have 20k worth of shares
2022: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2023: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2024: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2025: sell 1,400 worth (700 shares), profit 462, zero tax due, buy 1,400 worth of shares: you have 20k worth of shares

You end up with 20k worth of shares.

The purchase price for ALL the shares is deemed to be 2 euro (you don't have any 1 euro shares left), so if you sell them you pay no tax.

Of course, share prices are not that simple.

donnaille

3DataModem wrote: »

As above posters, here's a simple worked example.

Let's say hypothetically you purchased 10k shares at 1 euro each, and they are now worth 2 euro each i.e. 20k, and they never go up again.

2020: Sell 3,720 worth (1,860 shares), profit is 1,240, zero tax due - you have 3,720 in cash and 16,280 worth of shares
2021: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 7,440 worth of shares: you have 20k worth of shares
2022: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2023: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2024: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2025: sell 1,400 worth (700 shares), profit 462, zero tax due, buy 1,400 worth of shares: you have 20k worth of shares

You end up with 20k worth of shares.

The purchase price for ALL the shares is deemed to be 2 euro (you don't have any 1 euro shares left), so if you sell them you pay no tax.

Of course, share prices are not that simple.

I know this is a simplified example, and I'm not fully aware of the Irish system having been abroad a number of years but I'd hazard a guess that you would need to wait 28/30? days between selling and buying to avoid falling foul of 'bed & breakfasting' rules.

3DataModem

donnaille wrote: »

I know this is a simplified example, and I'm not fully aware of the Irish system having been abroad a number of years but I'd hazard a guess that you would need to wait 28/30? days between selling and buying to avoid falling foul of 'bed & breakfasting' rules.

Not sure what the rules are but that sounds like it makes sense.

donnaille

3DataModem wrote: »

Not sure what the rules are but that sounds like it makes sense.

Apologies, I'd misread your post first time around, so it's not relevant to the example you posted in any case.

JackieChang

3DataModem wrote: »

As above posters, here's a simple worked example.

Let's say hypothetically you purchased 10k shares at 1 euro each, and they are now worth 2 euro each i.e. 20k, and they never go up again.

2020: Sell 3,720 worth (1,860 shares), profit is 1,240, zero tax due - you have 3,720 in cash and 16,280 worth of shares
2021: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 7,440 worth of shares: you have 20k worth of shares
2022: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2023: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2024: sell 3,720 worth (1,860 shares), profit 1,240, zero tax due, buy 3,720 worth of shares: you have 20k worth of shares
2025: sell 1,400 worth (700 shares), profit 462, zero tax due, buy 1,400 worth of shares: you have 20k worth of shares

You end up with 20k worth of shares.

The purchase price for ALL the shares is deemed to be 2 euro (you don't have any 1 euro shares left), so if you sell them you pay no tax.

Of course, share prices are not that simple.

Why sell exactly 3,720 worth of shares?

cronos

JackieChang wrote: »

Why sell exactly 3,720 worth of shares?

You need to sell this year and declare it before October 31st of next year.

JackieChang

cronos wrote: »

You need to sell this year and declare it before October 31st of next year.

Yes but why exactly €3,720 worth? What's the maths behind this? I thought you just need to sell enough to get €1,240.

If the shares are worth €2 each, sell 620 shares and you have your tax free €1,240.

You're selling 1,860 shares to get €3,720. Why?

Timmaay

The other cgt rules to be careful of, you can use losses to offset gains, but not if you buy back that same share within 28days, also efts bonds etc are treated alot differently to shares and usually are liable to dirt or income tax rather than cgt. Whole thing is abit of a mindfield and everyone should definitely do their homework before they buy and sell.

3DataModem

JackieChang wrote: »

Yes but why exactly €3,720 worth? What's the maths behind this? I thought you just need to sell enough to get €1,240.

If the shares are worth €2 each, sell 620 shares and you have your tax free €1,240.

You're selling 1,860 shares to get €3,720. Why?

You are taxed on the profit, not the amount realised from sales.