Q&A

I am a healthy widower aged 75 on a reasonable pension. I have two professional sons, both single.

The elder is aged 35 and living in London and the second is 27 and living with me at present in Ireland.

He will go abroad in one or two years for further studies and may return home.

We live in a house worth 1.5 million. I have shares in Irish and English companies along with deposits and cash to a value of 2.25 million.

In my will, the estate is to be divided equally between both sons.

Is there some way I can gift money to my sons in my lifetime and thus possibly reduce the amount of inheritance tax that they may have to pay, presuming I predecease them?

Mr F.C., Dublin

The simple answer is no. Capital acquisitions tax (CAT) is the one that covers both gifts and inheritances, although it is more commonly known as inheritance tax.

Gifts received from a parent since December 1991 are aggregated with any inheritance received upon their death in determining the amount of CAT due.

You say you are a widower. That raises the prospect of any bequest to your sons on the death of their mother also entering the equation for the purposes of capital acquisitions tax.

The dispensation to which you refer applies in the UK where gifts granted during one's lifetime can be taken out of the inheritance tax equation as long as you live seven years following the transfer.

However, that only applies to those tax resident in the UK, a situation that is unlikely to apply here.

Of course, there is a certain amount that people can receive before capital acquisitions tax kicks in.

In the case of children receiving from their parents, this threshold is currently €441,198. Above this level, gifts and inheritances are taxed at the rate of 20 per cent.

Given the amount of your assets, I would suggest you consult an expert in estate planning, who may be able to suggest other ways to minimise the eventual tax liability on your estate.

Share transfer

I saw the article last week where the father wanted to give the daughter shares as a gift. I myself am from Austria and I've been in Ireland only four months now, so I still have to catch up on rules and regulations.

If the daughter was named on that savings/share account or they both opened a new joint account with their local Irish branch, would that then make any difference?

Could the daughter then dispose of the shares via phone order and transfer the money to Britain without gift/inheritance & capital gains tax?

Mr M.H., Dublin

The daughter in the case you read about is based in Britain. The share could be transferred to joint names but that would not preclude the process outlined in the answer - going through the Dublin Stamping Office of the Revenue and paying stamp duty.

Basically, any change from the current status, where the father owns the shares, leaves the transaction open to at least stamp duty.

Similarly, any change raises a possible capital gains tax liability for the father.

Whether the shares are put in joint names and then sold by phone from the UK and the money transferred, it does not absolve him of the capital gains liability, if any.

Only if the daughter had been named on the shares from the outset could the process be shortened. Even then, any sale would see the father liable to account for half of any capital gain.

And, of course, if the father paid for the shares originally, while putting them in both names, gift tax would still have to be considered, although it is not likely to figure given the size of a normal private shareholding.

Repaying loans

My wife and I have a number of equity-release loans, all at the same home loan rate, but of different terms, ranging from seven years to 20 years.

My wife is due to retire next month and will receive a lump sum, with which we are planning to pay off some of our borrowings.

Should we pay off the loans with short terms or those with longer terms?

Mr G.R., email

As a general rule, you should endeavour to pay off loans carrying a higher interest charge first.

That does not apply in this case as your loans all carry the same interest rate.

In such a case, the best guide is to reduce the amount of time over which the loans are repaid. Interest mounts up with each passing month.

Ideally, what you should do is pay off all or part of the longer loan and, if possible, maintain your repayments to accelerate the full repayment on the remaining loans.

The sooner you pay off the loans, the less you will pay cumulatively in interest.

Foreign income

Does the foreign income tax exemption allowance of the first €3,800 apply to pensions received as a result of working abroad?

I understood that my aunt was able to avail of this but I never could find any reference to it.

Where would I be able to purchase the guide which you mentioned in today's paper?

Ms E.DG., email

According to the wording of the Revenue document, while you are ordinarily resident in Ireland, though not actually tax resident here, any "foreign-sourced income" other than income from "an employment, trade or profession, the duties of which are not exercised in Ireland" (which is exempt from Irish income tax) will be liable for tax here unless it does not exceed 3,810 in a full tax year.

While the document does not mention pensions, its wording does seem to include them.

The important thing to note, though, is that the exemption does not apply to "the first 3,810" as you state in your question.

It applies only if all foreign- sourced income in this category does not exceed 3,810.

If this figure is exceeded, all the income in this category is taxable - not just the amount over and above the first 3,810.

As for getting a copy of the guide, it is free. The 22-page booklet is called Going to Work Abroad: A guide to Irish income tax liability based on some commonly asked questions and should be available at your local tax office. It is also referred to as Booklet RES 1.

Alternatively, it is available at www.revenue.ie.

Click on Publications, then Leaflets and Guides and go to Other Leaflets & Guides. It is the seventh entry.

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.