Accountants, business owners and now homeowners are all telling the Irish government the same thing. The country’s Capital Gains Tax (CGT) system is too complex and needs reform.
But is there any sign of the government listening?
Much of the attention focuses on how CGT for the sales of property is administered. Profits on the sale of any property other than a principal residence are subject to CGT at a rate of 33%, with a nil-rate allowance of €1,270.
But CGT on property sales has to be paid before it is declared in a tax return. Any tax due on a property sold between January 1st and November 30th must be paid by December 15th of the same year. Any tax arising from property sales in December must be paid by the end of the following January.
But CGT liabilities have to be reported by filing a tax return following the end of the current tax year. This creates an accounting lag which makes it tricky for people to keep on top of their true tax position.
In addition, anyone selling their main home still has to submit a tax return, even though any profit they make is exempt from CGT. Failing to do so is deemed to mean the exemption has not been officially authorised. That can lead to a CGT bill plus late payment penalties.
A recent survey carried by tax return service Taxback found that nine out of 10 taxpayers in Ireland wanted to see CGT rules on property changed or simplified. 57% said the issues were an example of a broader problem with Ireland’s “unnecessarily complicated tax system.” 31% specifically said they’d like to see payment of CGT on property sales brought into line with other tax payments.
This particular issue was the subject of a joint letter sent by accountancy trade body the CCAB-I to the Ministry of Finance last summer. The letter argued that having two separate payment dates plus later filing arrangements “unnecessarily complicates and overburdens” the administration of CGT on property.
There has been little sign of any movement from the ministry in terms of responding to these observations. And the CCAB-I’s letter may hold an important clue as to why. As the trade body concedes, CGT from property divestments is a ‘low-yielding tax’, benefitting Revenue to the tune of €1.7bn in 2022, or about 2.1% of total tax receipts. In other words, the government and Revenue have bigger fish to fry.
However, calls to remove the requirement to complete a tax return to claim exemption from CGT on sales of a principal private residence are justified. If you moved home in 2023, you have until October 31st this year to complete a return. If you have not already done so, you must first register for CGT.
All of this is unnecessary. As sales of principal homes make up the bulk of property transactions, the system should be set up so no payment of CGT on property sales is considered the default, with the requirement to register and file a return only coming into play on sales of other categories of property.