I have unrealised losses of €40,000 on bank shares. I am going to inherit €450,000 from my father’s estate (he died in February and probate is being lodged).
If I sell my bank shares now or next month, will I be able to offset the CGT [capital gains tax] due on my inheritance? Or would I have needed to sell the shares before date of death? Also, if I sell other shares to realise the allowable €1,270 tax-free profit before I sell [the bank shares] – will this affect the overall position?
Ms M.G., email
You’re conflating two things here so the simple answer is no. You have unrealised losses on your shareholding. Whenever you sell those shares – unless they fully recover that fairly considerable ground – you will crystallise the loss. It can then be offset against any capital gains you make in that same year to reduce or eliminate your liability to capital gains tax (CGT).
If all the losses are not used in the year they are crystallised, they are carried forward to be used against capital gains in subsequent years until they are fully offset.
That’s fine.
However, capital losses are entirely irrelevant in relation to your father’s estate – at least at this stage. Inheritance tax liability is covered by an entirely different tax – capital acquisitions tax, or CAT. While the rates at which the tax is levied is currently the same, at 33 per cent, there is no crossover between them.
So you cannot offset any CGT losses on your shares against CAT liability on the estate.
Assuming your valuation of the estate is correct and that you have never previously inherited, or been gifted any sum greater than €3,000 in a given year from either parent, your tax bill on this estate will be €46,200 on the €140,000 by which it exceeds the €310,000 category A tax threshold exemption covering inheritances from a parent to a child.
Selling your shares this month, or next, will have no bearing on that tax liability – apart from possibly freeing up cash to pay it.
Now, if your inheritance comprises assets rather than simply cash – for instance shares or property – and you sell it at a gain after you have inherited it, you might then have a situation where you have a capital gain against which you could offset the loss on your shares should you sell them.
The gain would be calculated generally on the price the assets had on the date you received them – and that is normally the date of your father’s death, not the date you actually receive active control over them post-probate.
Oh, and finally, you cannot use the annual €1,270 exemption from capital gains tax to exacerbate a loss. CGT is assessed on an annual basis and, if you had claimed the exemption early in a given year on a profitable asset disposal and subsequently sold some or all of your shares, you would need to reconcile the figures over the full year for the tax authorities.
You only get to claim the exemption if, over the full tax year, after netting your gains and losses, you have made a gain. You could, of course, simply sell enough underwater shares to ensure that your annual gain is €1,270, and retain the rest of them for the following year.
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
