Cashing out – what are the main tax consequences of disposing of shares?

Whether by way of sale or gift, the disposal of shares can be painful when it comes to CGT, but you may also offset shares and past losses

Many farmers are in the lucky position to possess shares, whether that be shares in their co-op, shares in a public limited company (PLC) that sprang from their co-op, shares in FBD, or simply shares that they inherited.

It’s seldom a week goes by that I don’t have a query about the tax implications of selling or transferring such shares.

Many farmers, particularly those in the Glanbia and Kerry co-op regions, may have accumulated a substantial shareholding over the years in the form of patronage shares received from trading with their co-op.

Many have received free shares in the PLCs that arose from various spin-outs where the coops disposed of part of their shareholdings in the PLCs.

In all such cases, the shares were acquired at little or no cost, and the tax consequences of disposing of them can be painful, regardless of whether the disposal is by way of sale or gift.

Selling shares

The option of selling some or all of your shares to bolster cash flow may be very tempting.

However, bear in mind many of the shares have little or no base cost, and Capital Gains Tax arising on cashing them will be 33pc of the sales proceeds.

Many people are of the mistaken belief that there are special reliefs available for disposal of co-op shares or that they can avoid tax by re-investing the proceeds on the farm.

Unfortunately, no such reliefs exist and unless you have made a loss on share disposals in the past, you will pay 33pc on the entire sale proceeds after the first €1,270 in gain.

Gifting shares

Some people also wrongly believe that gifting shares to family members is similar to gifting land and may have no tax implications. Unfortunately, this is not the case, as gifting shares is treated the same as if you sold them, and the same tax exposure applies.

The only exception to this rule is transfers between spouses, which are totally tax-free.

Offsetting shares or losses

Some people may have acquired or inherited shares that have decreased substantially in value. By disposing of such shares, you realise a loss that can be offset against any gains made on shares you intend to sell.

The extent of the loss will be the difference between what you sold them for and the base cost or value when you acquired them.

In cases where one spouse owns shares and the other spouse owns the shares on which a loss can be realised, the loss can be transferred from one spouse to the other.

Selling shares in order to realise a loss and then buying them back again in the hope that they might recover some of their lost value can be done, provided that four weeks have elapsed between sale and repurchase if you wish to offset the loss that was realised by selling them in the first place.

Offsetting other losses

Losses incurred on property in the past can be offset against gains made on shares, and there is no time limit on such claims.

So, losses made, say 20 years ago, can still be offset against present-day gains once there is some evidence of the loss.

While milk quotas may be long gone, those who bought or inherited quota between 1983 and 2000 can claim loss relief on the amount that the quota cost or on the value of the quota if they acquired it by way of gift or inheritance during that period.

Similar to milk quota, Single Farm Payment entitlements ceased to exist on the expiry of that scheme on December 31, 2014, when it was replaced by the Basic Payment Scheme.

Farmers who had acquired such entitlements by way of purchase or gift/inheritance prior to December 31, 2014, are deemed to have incurred a loss amounting to the cost or valuation of such entitlements on the acquisition date.

If you bought or inherited milk quota or entitlements during the relevant periods, it might be well worth your while to head for the attic and dig out the old farm accounts where such information might be found.

Use of annual tax-free exemption

Everybody is entitled to an annual tax exemption of €1,270, which is available every year but cannot be carried forward from year to year.

In other words, it is not cumulative and can only be used to offset a gain realised in any given year.

There is a mechanism known as “Bed & Breakfast” where a person can make a disposal of a sufficient number of shares each tax year to give a gain of €1,270, which is equal to the annual tax-free exemption.

This can save €419 per year for an individual or €838 where the shares are in joint names.

The same shares can be repurchased as part of the same transaction if you wish to retain ownership of them.

There will, however, be a cost for the transaction, which will comprise the broker’s commission in selling and repurchasing the shares along with stamp duty on the repurchase of 1pc.

While the entire cost can be significant in the context of such a small transaction, the net savings, particularly in the case of jointly owned shares, may be well worth the effort.

Capital Gains Tax returns and payment dates

Capital Gains Tax returns are filed as part of your annual Income Tax return on or before October 31 in the year following the year in which you made the gain.

However, Capital Gains Tax has different payment dates to Income Tax and it is important that tax is paid on time, because interest at the rate of 8pc per annum may be charged.

If a taxable gain is earned on shares sold before November 30, the tax is payable by December 15 in that same year.

If the shares are sold between December 1 and December 31, the tax is payable before January 31 in the following year.