I work for a company in which I bought £500 worth of shares about 30 years ago.
The business was taken over by a US company and the shares never moved much until the last two years, where they have jumped 30 times.
I want to sell, but I cannot get the original paperwork for the transaction. I have tried every avenue possible.
What evidence do I need for the Revenue Commissioners when I am calculating the capital gains tax it terms of the cost?
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Mr D.B.
We would have been dealing in pounds back when you bought these shares as the euro only came into use in 1999, but your query highlights an issue that is affecting a growing number of people in Ireland.
The opportunity to acquire shares in your employer is a growing feature of the Irish workplace – in large part due to the growing number of US employers in the markets. It is a far more common feature in US business than it has been traditionally over here.
But that brings with it a need to keep our paperwork in order. We all tend to assume we’ll remember these things – £500 back in 1995 was a significant outlay for many people – but inevitably the details get lost in the mists of time. And, with house moves and so on, sometimes the paperwork does too.
There are two elements to your dilemma: selling the shares and sorting out the tax liability.
When you say you cannot get the original paperwork for the transaction, I assume you are talking about the transaction receipts rather than any share certificate? Otherwise, things could get complex and expensive.
If you held the shares by paper certificate, you will need this to sell them. If the certificate is missing, then it will need to be replaced in paper form or electronically and that will involve administration fees and indemnity costs that, between them, could run into hundreds of euro.
Trading with a paper certificate also involves additional costs because any broker will first have to dematerialise the shares – transfer them into electronic form – before conducting any trade. Again that costs and is on top of the broker transaction fees for the actual share sale.
It will also rule out using any of the growing number of online stockbroking businesses where basic transaction fees are much lower as they deal only with electronic holdings and will want nothing to do with a share certificate.
Of course, if the shares are held electronically by whichever share registrar manages the investor holdings in this unnamed company, and you have the necessary details, including your unique shareholder reference number, you can go to any broker operating in the Irish market – online or otherwise – to conduct the trade.
Which brings us to the Revenue end of things.
Given the recent surge in the value of these shares, you will certainly be facing some sort of capital gains tax (CGT) charge. In Ireland, that is self-assessed, so it is up to you to calculate how much is owing.
The basic calculation, as I am sure you’re aware, involves deducting from the sale price your initial purchase price and any other costs directly involved in the purchase and sale of the shares.
An added factor arises because you bought the shares back in the 1990s: indexation. This was a multiplier set down by Revenue each year to account for the impact of inflation on the original purchase price of your shares. It was discontinued after 2002, but would certainly go some way to cutting your tax bill.
Back then, of course, the Irish tax year ran from April 6th to April 5th the following year. So when you say you bought the shares 30 years ago, you would need to sort out whether it was before or after April 5th, 1995.
If it was earlier in the year, then the indexation factor is 1.309. After April 5th, it is 1.277.
Taking your £500 (which translates as €635 in today’s money) for CGT purposes, that purchase cost would be €831 if they had been bought before April 6th in 1995 or €811 if bought later in the year.
Having got your net profit figure, you are entitled to an exemption from CGT on the first €1,270 of profit. On the rest, you are liable to tax at 33 per cent.
Obviously, if you cannot recall the cost of purchase then you cannot claim it.
In terms of “evidence”, you will only need paperwork if Revenue queries your assessment, but it will be no harm for your own peace of mind to be comfortable with what you are putting down on your return, which must be filed by October 31st of the year after the year in which you sell the shares.
So, if you are selling now, the return will be needed by October 31st next year. However, the tax will have to be paid before then. If the shares are sold before November 30th in any year, the tax is due by December 15th of the same year. If they are sold in December, you will have until the end of January the following year to settle your Revenue liability.
But getting back to evidence. If Revenue does come checking, they will want the purchase date and price of the stock. You seem to be sure how much you originally invested and, in the absence of paperwork, your first port of call might be to the share registrar, the company managing the share register for this business.
They should be able to determine when you joined the register. You can also check back in the bank account used to purchase the shares – assuming it is still active – to determine when the money was deducted from the account. Or, if the shares were acquired through a company scheme, the employer may have details – though in my experience some of them are less likely to hold on to paperwork than their employees.
Any stockbroker involved in the transaction should also have the details, though, of course, many of the brokers who existed back then are no longer in business.
You will also need to allow for any stock splits or consolidations that took place over the intervening decades – and indeed any change of company ownership that could have involved payment for your original shares in the shares of the new owner, if appropriate. And if your dividends were reinvested in the stock down the years then that too will affect your liability.
Again, the share registrar should be able to provide details or splits, consolidations, rights issues you may have tapped or dividend reinvestment, though they could charge for providing the details.
I get the impression from your letter that these shares were bought and held without too much activity or change. And you know how much you invested. If you have a reasonable understanding of when they were bought, I don’t think you’ll run into too many issues with Revenue.
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.
