Will giving AIB shares to charity allow me access my capital loss?
Q&A: Unless the shares are sold, there’s no capital loss to use
When the State acquired a 99.8 per cent share AIB in order to prop it up, that effectively meant the investors who previously owned 100 per cent of the bank now owned by 0.2 per cent.
I purchased approximately 2,000 AIB shares years ago. They are now eight shares. I want to sell the shares to offset the loss against capital gains in the current year.
AIB recently wrote to shareholders offering the option of donating the shares to charity. If I donate the shares can I offset my loss less the current value of the shares.
Mr J.S., email
You are one of oh so many people still counting the cost of what used to be considered almost zero-risk investments in “blue-chip” Irish stocks. It was at one time a mantra of Irish equity investing, especially for people looking to allocate funds for income in retirement, that putting money into dividend yielding Irish banks was, to make a bad joke, a banker.
The financial crisis changed all that and, in the process, impoverished a generation of pensioners who had relied on such income (and a generally upward capital gain curve) to bulk out often meagre pensions.
And you don’t have to be a pensioner to have suffered. Tens of thousands of ordinary investors like yourself are left holding stock that is next to worthless.
The cost of selling your eight shares in the market here is quite likely to be exceeded by the cost of doing so at many of the larger brokers
Your 2,000 or so AIB shares were acquired before the State bailout. But when the State acquired a 99.8 per cent share in the bank in order to prop it up, that effectively meant the investors who previously owned 100 per cent of the bank now owned by 0.2 per cent.
There is no way you are ever going to make your money back on that and so it does make sense to try to crystallise the loss, take the tax benefit of that against gains elsewhere and close the door on what must have been a fairly traumatic episode. However, I’m not too sure giving to charity is going to be the best way to do it for you.
I can certainly see its attractions – apart from the feel-good factor of charitable giving. The cost of selling your eight shares in the market here is quite likely to be exceeded by the cost of doing so at many of the larger brokers. If you look around, you might find a way of selling and still having some of the €40 or so they are worth left in your pocket but it’s not likely to be much.
When you give to charity, you have the choice of opting for income tax relief or capital gains relief. If you opt for income tax relief, the charity gets the benefit and you still have any capital gains liability arising.
If you opt for capital gains relief, my reading of the Taxes Consolidation Act 1997 is that you can claim neither a taxable gain nor a loss that would confer tax advantage on you by offsetting taxable gains elsewhere.
Now, it’s important to note that I’m no lawyer and making sense of the legalese in legislation such as the Taxes Consolidation Act is not the easiest of tasks, but that interpretation would also be in line with international norms.
I don’t have the precise figures because you don’t say when these shares were bought but the loss is likely to be considerable
The bottom line with tax relief on charitable donations, in general, is that they cannot confer a tax advantage on the donor.
A separate but relevant point is that the Revenue’s charitable donation scheme covers amounts under €1 million but over €250. On that basis, on its own, your AIB share offering would be unlikely to meet the qualifying provisions of the scheme.
So where does that leave you? I don’t have the precise figures because you don’t say when these shares were bought but the loss is likely to be considerable. It seems to me that the only way you can crystallise this is to sell the shares yourself – even if this costs you more than the face value of the shares.
Unless you sell them, there’s no capital loss to use so it is probably worth taking a hit on the sale to access the loss.
Your loss can then be used against other gains accruing through separate asset sales this year and, if some of that amount is still outstanding, in future years until it is fully offset. If you wish to make a charitable donation following the share sale, that is obviously still open to you but the €250 threshold still applies if it is to deliver an additional tax benefit to the charity.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice