Capital Gains Tax Comparison – UK and Ireland
Most countries in the world tax capital gains made by individuals and companies. Like all taxes the rules and the rates charged by national revenue authorities and are different between countries. CGT calculations can vary depending on the assets being sold and even the person selling the asset. Rules will often include a complicated system of credits and exemptions all of which can make international comparisons difficult.
This very useful map, produced by Tax Foundation, compares the top marginal capital gains tax rates, taking account of imputations, credits, or offsets across Europe. Although an example of CGT complexities, the map does not include a higher rate for disposals of residential property in the UK.
This post compares capital gains tax levied on the sale of capital items in the UK and Ireland. The comparison is not straight forward as both countries take a different approach to CGT. Also, for the purpose of this post, we will not consider all exemptions and reliefs available on capital gains, please get in touch if you would more information on these.
The approach in Ireland is relatively straight forward as it uses one rate (33%) to tax capital gains across all asset classes and is not impacted by other earnings. The system in the UK is more complicated as it is impacted by an individual’s income tax rate band and can also vary depending on the asset class. Rates in the UK are 10% on gains within the basic rate band and 20% on gains in high rate bands. Also, the higher rate for residential property disposals in 28%.
To allow for different rates we will compare tax paid on 100,000 gains made on 2 separate classes of capital items sold in the UK and Ireland – 1. Residential property 2. Other assets e.g. shares, commercial property. Also, we will assume that any UK gains are in the higher rate band and the disposal in question is the only disposal in the year.
1. Residential Property
In our residential property example, on 100,000 of capital gains, disposals in Ireland will attract 33% more CGT. This percentage will fall as the size of the gain increases, on gains of 200,000 for example the CGT on Irish disposals will be 25%. UK disposals attract more CGT because the rate is 5% lower and the annual exemption on UK assets is 12,300 compared to 1,250 in Ireland.
It is worth mentioning that both jurisdictions have a similar relief on the disposal of a person’s home which means you should not pay CGT on gains on the disposal of your principal private residence.
2. All Other Assets
For gains on the disposal of other items, e.g. shares or commercial properties an individual will pay an additional 86% on 100,000 of capital gains in Ireland. This percentage will fall as the size of the gain increases, on gains of 200,000 for example the CGT on Irish disposals will be 75%.
This analysis excludes business relief and entrepreneur’s relief which can be used in both countries to shield gains on the disposal of certain business assets including private limited company share capital.
Asset Location and Residency
Most countries insist that CGT is due on property located in that country and also on foreign gains made by residents. UK and the Republic of Ireland have agreements that will allow individuals to offset capital gains tax paid in one country and against CGT due in the other. This is a complicated area so non-resident landlords and other investors please get in touch if you would like to discuss the implications of asset disposals between both countries.
Capital Gains for Limited Companies
The above examples are for assets disposed of by individuals only. The situation will change as CGT treatment will differ somewhat if the assets are owned through limited companies. If you would like to explore the possibilities of holding and disposing of capital assets through limited companies in either country and its implication on corporation tax then please get in touch.
Gains of £100,000 on the disposal of plc shares or commercial properties would incur 86% or £15,000 more tax in Ireland than the UK. Tax on capital gains is less in the UK than in most other countries. As CGT is closer to a tax on wealth than income tax, I find it interesting to hear commentators in the UK talking about a wealth tax. This type of tax seems pretty far away from what actually happens in the UK. If a wealth tax is something that HMRC is considering they could start by increasing capital gains tax to bring it closer in line with their European neighbours.