Selling off shares - taxation

seamus

Right, I have a couple of thousand shares in this company. More accurately, I received shares in Vodafone when eircell was sold off. There were three allocations. To be eligible for each one, you had to have a year's service at the time of the allocation. I qualified for the last one (last March).

The shares are now mine, whether I stay in Vodafone or not. The only thing is that I can sell them off, 3 years from when I was allocated them (March 2005) at the price they were then, tax-free. Afaik, I can sell them now, but only at their current price, and not tax-free.

So, my question is purely curiosity. Say I badly needed some cash before March 2005, and decided to sell off these shares. My current income is way below my TFA (I'm a student) - i.e. I always have plenty of tax credits left at the end of the year - if the amount I received for selling the shares, didn't put me over my TFA, would I still have to pay tax on them? Do they come under a different branch of tax? (Capital Gains tax?)

thanks all

RainyDay

Hi Seamus - Did you pay for these shares (possibly by deductions from your salary and/or bonus) at the time, or were they allocated to you free of charge?

This would affect the tax treatment.

seamus

They were allocated free of charge. So all money mode on the sale of them will be pure profit

RainyDay

In normal circumstances, gains made from share sales are subject to Capital Gains Tax, which is seperate to income tax. You have a personal Capital Gains Tax allowance of €1270 per annum, and any gains over this would be subject to CGT at 20%. Normally, given that you were allocated the shares free of charge, the full selling price would be seen as being the capital gain.

So if you can 'stagger' your sales over a few tax years, ensuring that you make no more than €1270 in any one year, you'll avoid any tax liability altogether.

However, it's possible that because the shares were allocated to you from work, there are some 'special' rules for your scheme. I'd guess your HR department can advise you on this.

l3rian

RainyDay, where did you get the €1,270 figure?

I was told in work it is €12,700 a year

RainyDay

Hi l3rian

Nope - it's definitely €1,270 - See the Revenue Commissioners guide to CGT

l3rian

ok, I was positive that that it was definitely €12,700 a year, so I did a little search:

Share ownership schemes have their own legislation

from: http://www.revenue.ie/services/foi/s16_2001/pt_17.pdf

3.7 The market value of shares appropriated to any one participant in any one tax year is limited by paragraph 3(4), Schedule 11, TCA 1997 (formerly par.1(4), Third Schedule, F.A. 1982) to

£ 1,000 for 1982/83 and 1983/84
£ 5,000 for 1984/85 to 1990/91
£ 2,000 for 1991/92 to 1994/95, and
£10,000 for 1995/96 and subsequent years.

3.8 Qualifying shares appropriated to participants in the scheme do not attract any charge to tax under Schedule E in respect of the right to receive them (Section 510(4) TCA 1997)[formerly S. 51(3) F.A. 1982]. A charge to income tax will arise only in the
circumstances outlined in paragraphs 5 and 6.

So this means that in 2 years time you can cash in €12,700 worth of your shares, tax free, and if you have any left (or if the share price has risen enough) you can cash the rest in up to €12,700 tax free

Also seamus, I know that you can cash in all your shares in right away but you will have to pay tax on all the income

Victor

Originally posted by l3rian
RainyDay, where did you get the €1,270 figure? I was told in work it is €12,700 a year

Different scheme the €1,270 is the allowance everyone gets every year. The €12,700 applies to a certain profit-sharing scheme where you have to hang onto the shares for something like 5 years. I think Tesco do one.

RainyDay

Hi l3rian

I think you're getting a little confused. The €12,700 limit applies at the time that shares are allocated to you under a Revenue-approved Profit Sharing scheme, and refers to income tax. However, I don't think this is relevant to Seamus's original question. Under such Revenue schemes, you actually buy the shares from the company (usually by deduction from your pre-tax salary). However, Seamus told us the shares were allocated to him free of charge.

Capital Gains Tax applies when the shares are sold. Even if the shares are acquired through a Revenue approved scheme, CGT still applies. See section 5.4 of the Revenue document you linked to above.

5.4 The disposal of shares may also give rise to a chargeable gain, or an allowable capital
loss, in the hands of a participant. As a participant is treated as if the shares were his
from the moment of appropriation the cost of the shares for Capital Gains Tax purposes
is their market value at the date they were appropriated to him.

Regards - RainyDay