Anyone involved in the sale of land in Ireland will be familiar with the seller applying to Revenue for, and producing to the buyer, a capital gains tax clearance certificate on completion. Without a clearance certificate, the buyer is obliged under the relevant legislation to deduct 15% of the purchase price (subject to a minimum threshold sale price for one or a series of transactions, which is currently €500,000) on completion and pay it instead to Revenue, towards satisfaction of the seller’s potential capital gains tax liability on the sale. In this way the seller’s liability for capital gains tax on the sale is both accelerated and potentially overestimated, in which case the seller has to liaise with Revenue for a refund.
The obligations arise under section 980 of the Taxes Consolidation Act 1997 and, while very obviously can be seen to apply to land, the wider description of the assets to which the obligations apply, is broader and, most significantly for the purposes of this article, includes “shares” (taken to include “stock and any security”), other than shares quoted on a stock exchange, deriving their value or the greater part of their value directly or indirectly from the assets referred to above (with special provisions applying to share reorganisations and capital reductions).
The assets in a loan sale are, for the most part, the loan facilities of a financial institution and the related security (for example, mortgages over land). A Revenue eBrief published on the 27 October 2015, indicates very clearly that:
- it is Revenue’s view that the capital gains tax clearance regime will not apply to the sale of loans secured on lands in the State by a financial institution where any profit on the sale would be treated as a trading receipt of its trade; but
- otherwise Revenue regards such loans as securities and interests in land to which the capital gains tax clearance regime applies.
Officials in Revenue have acknowledged that the newly clarified position is not in line with case-specific confirmations that Revenue have provided in the past. However, as the position set out in the recent eBrief is the basis on which Revenue will view these transactions going forward, any entities contemplating, or in the course of, a loan sale, otherwise than in the course of a trade, should be aware of Revenue’s newly clarified position, so that the implications can be considered in good time and factored into the transaction. Whilst it may not be a substantive hurdle in many cases, failure to spot this sort of change and build it into the completion mechanics and timetable could be problematic.