Credit for Capital Gains Tax
Where both Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) are chargeable on the same asset, in connection with the same event, the Capital Gains Tax payable is allowed as a credit against the CAT. The credit, however, cannot exceed the amount of CAT attributable to the same asset.
The circumstances where the credit can apply are as follows:
- on gifts of real or leasehold property, stocks and shares etc;
- on the death of a life tenant where a further life interest arises;
- on the appointment by discretionary trustees of property out of a discretionary trust whether the trust arose under a will or a settlement during the lifetime of the settlor;
- on the early break up of a trust.
Example
John gives a gift of shares and cash to Seamus.
Assume -
Total Gift Tax payable by Seamus €900 (€500 attributable to shares)
Capital Gains Tax payable by John €600 (only the shares are liable to CGT)
The credit to be allowed in respect of CGT cannot exceed the amount of CAT on the shares i.e. €500.
Therefore the credit for CGT is €500 and not €600 and this is the amount of credit that should be claimed.
The CAT payable will be €400.
Capital Gains Tax arising on the disposal of assets in the course of administration of an estate does not arise on the actual inheritance, which is the event that gives rise to Capital Acquisitions Tax. Therefore, a credit for Capital Gains Tax is not given. The amount of Capital Gains tax paid may however be deducted as a liability in arriving at the taxable value of the inheritance.
In respect of gifts or inheritances taken on or after 21 February 2006, the credit for Capital Gains Tax is withdrawn where the asset is disposed of within 2 years of the gift or inheritance.