I own shares in a company which, if sold today, would attract a large tax liability. In one of your articles, you state that “section 1028 of the Taxes Consolidation Act provides that no capital gains arises on assets that are given by one spouse to another”.
So if I transfer my shareholding into my wife’s name, I am no longer liable for capital gains tax (CGT) in that shareholding and my wife’s tax liability commences from the time she receives the shares until the time she eventually sells them. Is that correct? Is the transfer to my wife by way of a gift? Does gift tax arise?
Does the share transfer require new share certificates to be issued in my wife’s name? If so, is this a simple matter? Are there any fees involved in such a transfer?
In the event of my wife’s death, these shares would become part of her estate and would not attract CGT. Is that right?
I understand from your article that if my wife died before me and she left the shares to me, I would again be liable to large capital gains liability. Should my wife indicate in her will that these shares should pass to my daughter, would this resolve the above issue?
DS
Investing in individual stocks is clearly a high-risk game as all your eggs are in one basket rather than being diversified across a number of shares or other assets in an exchange trade fund (ETF). However, stock markets have enjoyed a very strong run in recent years and, for those who chose wisely (or fortunately), their investments have secured strong gains.
And that raises the issue of tax planning.
None of us wants to pay any more tax than we are required to and, as that recent letter to which you refer highlighted, there are potentially valuable exemptions that can help couples do this.
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Irish law determines that gifts (and inheritances) between spouses do not attract any capital acquisitions tax (CAT) liability. So anything your wife gives you or you give your wife is exempt from this tax, which is more commonly known as inheritance tax or gift tax.
You ask whether the transfer you are considering would be seen as a gift? It will, yes, but not one that is liable for gift tax.
At a practical level, you sensibly raise the issue of share certificates or, in more recent times, an electronic record of share ownership.
Registrars are companies that manage the share registers of listed companies. Most particularly, they keep track of who owns how many shares and record changes of ownership when shares are sold or otherwise transferred.
They also keep shareholders notified of company events, such as annual meetings, share placings, rights issues, consolidation, or special meetings to approve things like takeovers, etc.
There are a number of companies that specialise in this work. You do not identify which company’s shares we are talking about here so I cannot tell you which one you need to approach, but the information will be readily available in the investor relations section of the website of the company you’ve invested in.
You can also get the details from any email or letter they may have sent you.
They will send you a share transfer form to formalise the transfer of ownership of these shares to your wife. There will be a charge to do this. I cannot say precisely how much this will be but it tends to be fairly nominal.
If you do not have your share certificate, things can get a bit more costly as you may need to sign (and pay for) an indemnity letter.
The whole thing is a fairly straightforward process though it can be slightly bureaucratic and stressful for people unused to dealing with share registrars, a group which, by the nature of their work, tends to communicate in fairly formal legal terms.
Capital gains tax
But what about CGT? By your own admission, you have built up quite a CGT liability on these shares over time.
This was the gist of the previous question and, as I said then, the transfer to your wife does not trigger any CGT bill. However, that does not mean that the capital gain you have made disappears; it just transfers to your wife.
While neither of you has any tax bill to pay right now, your wife is deemed to have acquired the shares not on the date you transfer them to her and at their price on that day, but on the date and at the price you originally acquired them for.
If she sells them down the line, all you have really done is transfer your large CGT bill to her.
But what about if she holds them until she dies? Well then, as I said in response to the previous query, the capital gain will die with her. Any capital gain dies with the owner of an asset.
Whoever succeeds her in owning these shares will not have to worry about the legacy capital gain dating back to the time you originally acquired the shares. The only capital gain that will apply for new owners will be the difference in the price when your wife dies and the price at which they eventually sell the shares.
This, as another reader found recently, can create unexpected tax liability as probate generally takes a year and, in strong equity markets, people can find themselves unwittingly with an outstanding capital gain the moment they actually get access to shares. For the new owner, capital gains does not start with when they get control of the shares but when the previous owner dies.
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There is one area where you appear to have confused something I have mentioned previously. You understand that if your wife were to leave the shares to you when she dies, the clock goes back to when you originally bought these shares. That is not so.
If your wife were to subsequently transfer the shares back to you while alive, yes, that is the case. But not if she leaves them to you in her will or even in the absence of a will.
Whether your wife leaves these shares to you, her daughter, or anyone else, no CGT issue arises. She can mention them specifically in her will, she can simply leave them to be dealt with under a residuary clause – a clause all wills should have dealing with assets not otherwise allocated to a specific beneficiary – or they can be dealt with under intestacy. In none of those cases will capital gains arise, even if she leaves them to you.
What may arise is our old friend CAT.
Anything your wife leaves you in her will or anything you otherwise inherit from her is free of inheritance tax but that is not the case for her daughter or any other beneficiary.
The budget raised the amounts anyone can receive in inheritance without paying tax. For a child inheriting from a parent, this threshold is now €420,000. That will cover anything your daughter inherits from either parent and also any gift they may have received from you in your lifetimes over the value of €3,000 in any one year.
But at the end of all this, I have one question for you?
If the intention is not to sell the shares, why bother with this lifetime transfer? If you sell the shares or you transfer them to your wife and she sells them, the same CGT bill arises – and in most families will be paid from the common family financial pool.
And if either of you dies owning the shares, no CGT applies.
The only real financial benefit here is if your wife dies before you, having taken ownership of the shares, and then leaves them to you in her will. That would wipe out your CGT liability for sure.
But demographics suggest that a woman will live longer than a man in Ireland, even these days. And it would seem to benefit her more when considering tax exposure to receive these shares from you via your will when she does not have to worry about any tax bill – CGT or CAT.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice.