If you are a share investor there is two types of tax you need to be concerned about:
- Capital gains tax
- Dividend withholding tax
Capital gains tax on shares
Capital gains arise on the sale of an asset for a profit and the tax is calculated on the gain.
The chargeable gain is, in broad terms, the difference between the price you paid and the sales price. However, there is some deductions that you are allowable in calculating your gain-for example, the costs associated with acquisition of the asset, capital expenditure spent on the asset (if any), and the costs of disposal. (Read this article about capital gains tax on real property).
Capital gains tax also arises on part disposals and gifts.
Certain gains are exempt from tax-for example betting winnings, lottery wins, prize bonds, animals, private motor cars, and more. And individuals have an annual personal exemption of €1,270.
When to pay CGT
For disposals between 1st January and 30th November you must pay your CGT by 15th December of the same year. For disposals between 1st December and 31st December you must pay by 31st January of the next year.
How to pay
You must register with Revenue for CGT and do an online return and payment.
How to file your CGT return
You complete the appropriate form which might be CG1 or Form 12 (PAYE earner) or Form 11 (self employed) or CT1 (for a company).
If you incur a loss on a disposal you can offset this against your gains. If you are unable to offset the loss because you have not made a gain you can carry forward to future years.
But you cannot carry forward losses on shares. They must be used in the same year that they arise.
Calculating gains on shares
This is a straightforward calculation if you bought the shares on the same date and they are of the same class.
Things get a bit more complicated when you bought shares on different dates or shares of a different class to the ones you hold-for example you may receive bonus shares or rights issue shares which are a different class from the ones you hold.
There are special rules to calculate your gain in respect of shares bought on different dates or acquired through a bonus or rights issue or shares of a different class.
Dividend withholding tax (DWT) on shares
If you buy shares and hold them, you will almost certainly receive dividend income. Irish resident companies must withhold tax on dividend payments. This is dividend withholding tax and the rate is 25%.
The company paying the dividend must pay the DWT to Revenue and file a return for any month they make a distribution. Certain excluded persons are entitled to an exemption from DWT-for example, pension schemes, companies, charities to name just three.
Certain non-residents can also claim an exemption from Dividend Withholding Tax. Their entitlement to an exemption will depend on where they are located, whether their country has a double taxation agreement with Ireland, and other factors.
Qualifying Intermediary (QI) and Authorised Withholding Agent (AWA)
An AWA is a type of intermediary through which a company can pay a dividend without deducting DWT. The AWA is responsible for deduction the DWT and paying it to Revenue.
Here is a list of Authorised Withholding Agents from the Revenue Commissioners website. This list includes, for example, Davy Stockbrokers and Davy Asset Management Limited along with major banks and services such as Computershare Investor Services (Ireland) limited.
If you own shares on the New York Stock Exchange, for example, your dividend income will be paid to your or your broker as a net payment-that is, after the withholding tax has been taken.
Here is a guide to the withholding tax in various countries.
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Double taxation and tax treaties
A tax treaty is an agreement between two countries stipulating which country has which levying rights in respect of a particular income. This prevents a person from being taxed twice (by two countries) on the same income.
If you use the DEGIRO share trading platform you will find that DEGIRO usually receives dividend income as a net amount, after the deduction of DWT.
However, the tax treaty between the UK and Ireland allows the payment of gross dividends with the obligation on the shareholder to self-assess/declare this income. So, you need to be careful about the source of the dividend as the tax treatment between Ireland and the country from which the dividend is being paid will determine the tax treatment and whether you receive the dividends net or gross.
US dividends will be subject to a treaty rate of deduction (15%) or non-treaty rate (30%). This will depend on whether you completed a W-8BEN form.
If you have a Davy Select account, you will be entitled to receive a Tax Pack document each year which sets out details of your dividend income and DWT paid.
With regard to dividend income and dividend withholding tax you need to enquire from the trading platform you use as to how the various dividends, and the tax treatment, are paid to you.
Capital gains tax will require a return to the Revenue Commissioners and this calculation can be quite complex if you bought shares on different dates, and different classes of shares. You may need to have an accountant submit this return for you.