Q&A ...

I am thinking of giving a substantial sum of money to a child of mine who is now permanently working and living abroad. Are there any implications in doing this from the point of view of the banking and/or Revenue authorities.

Also, can you indicate if the receipt of a sum such as this would attract income or capital taxes in the receiving jurisdiction.

Mr R.H., Dublin.

From your perspective, there are no financial implications in making a gift of this nature. There used to be tight rules, monitored by the banks, regarding the passage of money out of the State but these are now a thing of the past.

You have already paid tax on this income so the Revenue authorities are not a cause for concern.

The person to whom you are making the gift will have to check the situation with their local tax authorities. As far as I can tell on a brief trawl of tax information, Canada does not levy tax on financial gifts to Canadian residents, regardless of whether the person making the gift is based inside Canada or abroad.

Certainly, if your child were based in Ireland, such a gift would be liable to capital acquisitions tax if it exceeded a certain threshold. The relevant threshold at the moment for gifts from a parent to a child in Ireland is €478,155, although this is cumulative and includes inheritances.

The liability would rest with the recipient of the gift and amounts over the threshold are taxed at 20 per cent.

SSIA taxation

One thing I haven't seen dealt with in all the articles on the subject is the taxation of SSIA accounts. Is the interest on an SSIA deposit account taxable and if yes at marginal tax rates?

More generally, where interest is not paid out on an account but re-invested, when does this interest become declarable for tax?

Mr P.D., Mayo

There's certainly been a lot written about Special Savings Incentive Accounts (SSIAs) over the past five years. As such, you might have missed it but this newspaper and others have certainly gone through the tax treatment on SSIAs.

Put simply, as long as your SSIA matures - ie you don't close it and withdraw the money before the five years are up - you will pay tax only on the interest or the investment gain. This "exit tax" is levied at the basic rate of income tax plus three percentage points - 23 per cent at present.

Your original investment and the Government bonus are not taxed.

However, if you do close the account early, do not complete and return the maturity form SSIA 4 in time or are discovered upon maturity to be no longer eligible to hold an SSIA, you will pay the 23 per cent tax on everything in the account - the original investment, the Government bonus and any interest/investment gain.

In the case of SSIAs, interest is taxable as the account closes at the end of the five years, regardless of whether you immediately re-invest the funds or not.

AIB product

AIB is offering a new savings product to attract SSIA savers. It offers a very good rate of 5 per cent, and interestingly the AIB website says that while they will deduct DIRT (at 20 per cent) - the recipient will not have to pay other Irish income tax on the interest.

My AIB branch confirmed this to me - subject to the rider that PRSI/health levy may arise, depending on one's circumstances.

I had thought that a 42 per cent taxpayer had to pay tax at this rate on all marginal income - regardless of source. If so, I would have to pay an additional 22 per cent on top of DIRT deducted. Am I right, or is AIB right?

Mr D.F., email

I can see where the confusion lies. In general, it is true, that people pay income tax at their marginal rate regardless of the source of that income.

However, there are exceptions and one of these is DIRT. By law, this is levied at only 20 per cent and this is deemed full settlement of tax liability. However, the gross interest on which DIRT is levied must be included in your annual return to the Revenue and may be subject to the health levy, where applicable.

So, in this case at least, the bank is correct and you will not face a further bill for income tax on the interest accrued.

Managed funds

Can you explain the difference Irish managed funds (gross) and Irish managed funds (net), as reported in Business This Week?

Also, Oppenheim was reported in a recent article in the paper as giving the highest return in recent years but is not included - why?

Mr P.D., Mayo

Managed funds used to operate on the net system. Tax was deducted at the basic income tax rate on the fund's gain each year and the amount paid out to the customer at the end of the day was thus paid "net" of tax.

From January 1st, 2001, tax treatment of managed funds changed. Under this "gross roll-up" system, investments accumulate tax-free until they mature. When they are drawn down, the gain is taxed at the basic rate plus three percentage points. The three percentage point "surcharge" in this "exit tax" is designed to compensate the Revenue for having given up its right to tax funds annually.

Ultimately, the new system should mean that funds perform better from the investor's point of view.

The reason for the change was to bring the tax treatment of Irish investment funds into line with those of our European partners.

All policies sold since the start of 2001 operate under the new (gross) scheme but there are a number of outstanding policies taken out before that date and retained by customers. For that reason, we run data on both sets of funds on our Units page each week.

The data is produced for us by MoneyMate, which receives the information weekly from the various providers.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. No personal correspondence will be entered into.