Q&A

Your personal finance questions answered

Canada Life

My wife and I were shareholders in Canada Life and we received a cheque, in July last, from Great-West. I understand we are now liable for capital gains tax, which is due by October 31st next.

Can you confirm the following:

1. The gain is the cheque amount less zero;

2. The tax is at a rate of 20 per cent;

3. That there is an exemption of 1,270 for an individual, and a married couple may obtain twice this amount? Mr M.C., e-mail

There will be quite a number of people in the same situation following the payout from Canada Life this year. As you say, the regime has changed somewhat, most importantly in the timing. Returns are now required by the end of this month.

In the case of free shares acquired through windfalls like the demutualisation of Canada Life, the base value of the shares for capital gains tax purposes is, as you suspect, zero.

You paid nothing for them and therefore anything you receive from their sale will be a gain under the tax code. The fact that they have a nominal value at the time you acquired them or the market value of the shares at that time is irrelevant.

You are also right when you say that there is a tax-free exemption under the capital gains tax regime. This is 1,270. However, it is not transferable and married couples cannot simply double this allowance.

If the shares are in your name, you are entitled only to a gain of €1,270 free of tax. Of course, if the shares are in joint names, each of you can utilise your tax-free allowance before calculating any liability to capital gains tax.

Finally, you are again correct when you say that the relevant tax rate is 20 per cent on any gain over and above the tax-free allowance.

In certain circumstances a multiplier would kick in to allow for inflation but this only relates to shares held for more than a year, which could not apply to Canada Life disbursements following the Great-West LifeCo deal.

As it happens, the multiplier has been abolished in the last Budget and so only purchases up to the end of 2002 qualify for a multiplier and, even then, only up to the end of that year.

Marriage and property

I got married in March this year and my now wife and I each owned a property when we got married. We now live in her house and are debating whether to sell my apartment or to hold on to it.

We would like some advice from a capital gains tax perspective. I have had the place for five years now - am I liable for CGT on it, given that it is no longer my principal primary residence, and if so, how do I calculate the liability? Mr. T.C., Wicklow

It depends. In general, the Revenue will allow people a certain amount of time to sell one property in circumstances such as this where the second property is not an investment but simply an overhang.

The issue is then: how much time? On that score, I have no clear answer, although I would guess that in a situation where you got married in March, you could reasonably seek a dispensation on a sale before the end of the year. Of course, once you rent out the property, any ambiguity ends.

Leaving aside any dispensation you may get from Revenue on an overlap period before a sale, you would be liable to capital gains tax on any increase in the value of the house in the period that it is no longer your principal private residence.

The way this works is that the period in which it is your "second home" is calculated as a percentage of the total time you have owned the house.

You are then liable to capital gains on that percentage of the difference in the selling price and the original purchase price of the property - allowing for certain buying and selling expenses and a capital gains tax multiplier to allow for inflation.

At least, you do not have to confront the issue of a clawback of the stamp duty exemption granted to first-time buyers on new property, as you have held the property as your principal private residence for five years.

Bank fees

The arrangement regarding bank fees when I opened my current account at AIB a number of years ago was that as long as I had €500 in the current account I would not have to pay fees.

When I recently got my bank statement I noticed bank fees totalling over 20. I contacted the branch and explained my arrangement. They said that had now changed and they were charging fees.

When I told them that I had not received a letter advising of this new arrangement they told me it was published in the daily newspapers at the time. Bottom line I had to pay the 20. Can they make changes to existing arrangement without notifying clients? Mr J.K., email

Well, they would argue that they had notified customers. The system is that the financial institutions must receive the approval of the Director of Consumer Affairs for any increase in charges.

Once this is done, they do have to notify customers that the conditions relating to their account have changed - whether that is increasing charges or introducing them where they did not previously exist.

How they do this is down to the Director of Consumer Affairs, a division of the new Irish Financial Services Regulatory Authority. The default, essentially, is information by way of newspaper advertisement but the regulator can insist on customers being informed individually by the financial institution.

I can see why an increase in existing charges might be notified by newspaper advertisement but I do feel that cases, such as yours, where an account that was charge-free (albeit with a minimum balance) suddenly attracts charges should require individual communication.

After all, banks have no trouble finding your address when they want to tout a new product or, indeed, when they think you are changing your understanding of the relationship by, for instance, assuming an unsanctioned overdraft.

I would suggest that you contact the Director of Consumer Affairs and determine what communication mechanism was sanctioned in this particular case.

Much and all as I am in favour of people reading newspapers, it is clear that not all people do so and nor should they be expected to.

Quite apart from everything else, it seems daft of the bank to jeopardise a long-term relationship for the sake of 20. Even assuming, as I do, that it acted in accordance with the regulators wishes, it is clear you were not aware of the change. So much for customer relations.

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. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.