Q&A: Dealing with tax advisers who will not use plain English

My daughter and spouse owned a property bought at the top of the last boom and when they sold it they took a loss of €170,000. That was three years ago.

They held another house which they just sold at a profit of €70,000.

Their tax adviser is telling them that they have only €12,000 of a carried forward loss and is using language neither them nor I understand about implied profits etc. This will leave them subject to CGT [capital gains tax] on €58,000.

Can you please throw any light on how this is? They don’t have other investments or income.

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Mr T.McM, email

The genesis of this column many years ago was to cut through the gobbledegook that far too many people have suffered through with financial advisers, tax consultants, lawyers and banks for far too long.

People who use such language do so for only one of three reasons in my view. Perhaps it gives them a sense of superiority over the clients which, they hope, will make those clients even more reliant on them due to their own confusion. More likely, it is because they either don’t fully understand what they are saying and therefore retreat to regulatory-speak or they are simply incapable of using the English (or Irish) language to get their point across in a clear manner.

I think it is exacerbated in Ireland, at least in relation to financial and tax advice, because the customer is not paying upfront and the adviser may therefore not feel the same requirement to “earn” their fee. But the customer is always paying. “Free” advice can be even more expensive when you look at brokers’ share of commissions you pay on investments.

In any case, there is always only one answer. If your adviser — financial, legal or other — cannot explain in simple, practical language what your options are and why, thank them, walk away and look elsewhere for advice.

You approach advisers because you want to tap their expertise to help you make the most of an opportunity or to explain a position in which you find yourself and how best to handle it. There is simply no excuse for anyone emerging from that process more confused than they were at the outset.

The position you outline seems fairly clearcut though I’m always cautious that a scenario briefly set down on paper, especially by a third party, may not be the full story.

Taking it at face value, your daughter and her spouse made a loss of €170,000 on the asset they bought at the top of the Celtic Tiger market when they sold it in 2018 or 2019.

When you crystallise a capital loss, the first thing you do is offset it against any gains you might have made on the disposal of other assets in that same tax year so that you are assessed for tax on your net capital gain position at year-end.

If there are no offsetting capital gains, you carry forward the loss — or that part of it that remains outstanding if some of it has been used to offset gains in the year the loss arises — to the next tax year.

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The same thing happens again and the loss continues to be carried forward. Essentially, until you make gains that equal the capital loss arising on this property sale, you will have no tax liability.

I have no idea what this adviser means when he or she talks of “implied profits”, but the reference to a “carried forward loss” suggests that in your daughter’s case, they may have sold other assets — not necessarily a property, but shares, artwork, or whatever — either in the year the loss on the sale of this property arose or subsequently.

If the adviser says only €12,000 of the loss remains, that presumes that capital gains of €158,000 have been made by the couple since the year in which they sold the property.

If so, good luck to them; that’s a creditable investment performance. But it would mean that the bulk of the €70,000 profit made on the sale of the second property is subject to capital gains this year — unless they have something else that they choose to sell at a loss.

If, however, they made no other sales of capital assets, the entire €170,000 is carried forward and remains available. On that basis, even after this sale of the second property, they would have €100,000 available to offset against future gains.

I suspect the position is the former and that there were other profitable disposals in the meantime but a simple check on their capital gains tax filings should confirm it either way. Either your daughter, her spouse or the tax adviser should have copies of any capital gains tax returns made in the years since the first property was sold and they should tell the story.

There are some limited exceptions to the offsetting rules above. One is where the first property was sold to what is called a “connected person” — ie, generally a close relative — in which case a loss can only be offset against a gain made in transactions with those same persons. The other is where the loss was offset under income tax acts.

I don’t see either applying here.

Finally, you don’t say but if either of those properties was a family home, their sale would not be liable for capital gains tax. On the flip side, any loss made on their sale would equally not be offset against other gains.

If they had lived in the first property as a home for part of the time and rented it out for part of the period of ownership, the loss would be adjusted pro-rata and only that applying to the time it was rented out could be used for offsetting against capital gains. That, too, might explain the €12,000 carry forward figure.

• 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. This column is a reader service and is not intended to replace professional advice.