I am contemplating writing a will. I make tax returns yearly, and I am carrying forward capital losses from the sale of a house. I own some shares in publicly-owned companied that I purchased/acquired over a long period of time, all of which are showing gains. Which of these propositions would be most advantageous to me – sell the shares now or hold on to them. And what happens to capital losses if I was to hold on to the shares.
Mr T.L., Dublin
First up, writing a will is always a good idea. You’d be amazed at how few people do it. International surveys show that well over half of adults do not have one and, even among people over the age of 55 – where you’d assume some sense of pragmatism would kick in – more than one in three people have still made no provision for what should happen if they died. You are clearly an organised person with an understanding of your financial position.
Capital losses, as a rule, are offset against any capital gains arising in the same year. If that is not sufficient to offset them fully, they are set against any gains in future years.
There is one oddity, and that comes in relation to what happens if you die. The situation is straightforward for capital gains – they die with you. So if you have shares that you bought at €5 and they are worth €7 when you die no capital gains charge is made against your estate, and whomever receives the shares in a will (or under intestacy) is deemed to have received an asset worth €7 apiece.
It’s not so simple with losses. Yes, in general, they do also die with you, but if you have capital losses that crystallised in the year you die because you sold some asset as a loss and they cannot be offset against gains made in that year for tax calculation purposes, you can offset them against gains made in the previous three years.
That could lead to a CGT tax rebate for your estate. However, it would not apply to your currently situation where you have an outstanding capital loss dating back a while.
So what should you do with the shares you currently hold and which are profitable currently in terms of capital gains?
In terms of accommodating the writing of your will, nothing. Whether you sell the shares now or not should be down simply to your own investment assessment of their current and future value.
If you sell now any gains will be crystallised. These obviously can be offset against your existing capital losses – at least until those losses are exhausted – and you will have the proceeds to spend or otherwise invest again.
If you hold on to them nothing changes, the losses are outstanding and even if you do die no tax liability for the gains will be passed on whoever inherits the shares.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
