Q&A

Your business queries answered

Will student son pay less gift tax?

My wife and I are in the process of home downsizing and we intend to split the equity in our new home three ways to include our son. He is 22 and thus above the 18-year threshold to receive gift tax credits.

I should point out that he is still financially dependent on his parents and will remain so until he completes his studies in 2008. Would the fact that he is financially dependent on us provide mitigation in his being able to benefit from the gift tax threshold?

Mr S.L., Dublin

The fact that your son is financially dependent on you will not really enter the equation when you are talking about gift tax, or capital acquisitions tax (Cat) as it is more properly called.

The determining feature in calculating your son's exposure to the tax is the relationship between the parties. In the case of a gift from a parent to a child, the relevant threshold is €466,725.A gift worth anything less than this would not leave your son open to liability under the Cat regime.

However, it might well leave him open to a liability later on should he inherit from either of you.

For the purposes of capital acquisitions tax, gifts and inheritances within the same category - in this case from parent to child - are aggregated.

Once the total exceeds the relevant threshold - which is revised annually - the recipient of the gift or inheritance is liable to tax at 20 per cent.

There is an exemption available to people who use a property as their main residence for the three years before it is gifted to them and who retain it as a principal private residence for six years afterwards, but I believe that would only apply to people who receive full ownership of the property. It is not likely to come into play in the sort of transaction to which you refer.

Having said that, if your son is likely to remain living at home, it would be worth taking advice to see if it would be better to put off giving him an equity stake in the property at this point.

In addition, it would retain his status as a first-time buyer subsequently. It would also do nothing to preclude you from gifting him money or assets further down the line.

Loan charges

I took out a loan about two and a half years ago for €120,000 on a short-term basis. I was told at the time that I would need to take out a life insurance policy and mortgage protection.

I have since learned that there was no need to take out both of them and I have been paying €290 extra per month for the duration of the loan, which I did not need to pay.

I only recently found out about this and was not told by the bank that this double charge was not necessary. What can I now do?

Mr P.Q., e-mail

Your first port of call is clearly the bank. As with most of these things, you are going to find yourself in a situation where both sides have their memory of what was and was not said at the time the loan was taken out.

However, the bottom line is that no reasonable consumer is going to purchase more protection than they reasonably require.

It is difficult to see why you would, on your own account, feel the need to purchase both mortgage protection and life insurance on the same loan. Effectively, you are paying twice for the same cover because the insurers will not pay out twice if you defaulted on the loan.

On the other hand, it is possible to see how the financial institution gains in terms of commission and/or the sale of one of its own financial products from selling you these two elements of cover.

As you say, you have effectively been paying €290 a month more than necessary. I would ask the financial institution how it intends to recompense you for this unnecessary outlay.

If you have no joy there, I would contact the new financial services ombudsman, Joe Meade, at: Financial Services Ombudsman's Bureau, 32, Upper Merrion Street, Dublin 2.

You can also telephone 1890 882090 or 01 613 0892 or e-mail enquiries@financialombudsman.ie.

Irish tax status

I will be spending some time abroad over the next few years. However, I would like to remain tax resident in Ireland.

Is it correct to assume that if I spend 183 days in Ireland during every tax year, I will continue to be tax resident in Ireland?

If I spend 183 days in Ireland, 150 days in another EU country and 30 days outside the EU over the next few years, what will my status be?

Mr J.O'B., e-mail

The general rule is that you are considered tax resident in Ireland if you spend 183 or more days here in any given tax year.

Of course, as with most issues relating to residence, things are not quite that simple.

First of all, if you spend anything more that 280 days in any two-year period in the State, you will be considered to be tax resident.

That might leave you in a situation where you spend less than 183 days in any year here, but still find yourself answering to the Revenue on tax liability.

You should also remember that if you reside in Ireland for 30 days or less in any given year, that residence will be discounted entirely in assessing the amount of time spent in the State over any multi-year period.

Another commonly-used provision of the legislation by people looking to spend time in the State without being considered tax resident here is the midnight clause, which states that where you are at midnight determines, for Revenue purposes, where you are for the rest of the day. For instance, if you spend most of a day here but fly out in the evening and are outside the State at midnight, you are considered not to have been here for the entire 24-hour period.

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.