Questions and Answers

An Irish Times guide to the world of Personal Finance, this week Savings Certs and Gifts to Children

An Savings certs

In last week's Q&A in reference to An Post saving certificates, you wrote that even after funds were passed to NTMA the contract with An Post remains in place and there is no danger of losing access to the money, ownership is retained and the right to reclaim remains. What about the continuance of interest entitlement under the savings contract? Will interest continue to accrue as would otherwise be the case?

Mr P.MacH., e-mail

You do not need to worry about the issue of interest due on savings certificates whose underlying funds have been transferred to the National Treasury Management Agency charitable purposes fund under the new regulations covering dormant accounts.

While the money has been transferred, as I stated, the contract remains in force between yourself and An Post. Under the terms of that contract any interest due to you will continue to accrue.

When you present your certificate for payment, you will receive the full amount of your investment, including any interest that has built on the account after the original five-year-and-six- month term of the investment. However, you do need to check for yourself what interest is due on the certificates after that initial investment period. An Post only guarantees the surface interest rate for that period. Thereafter, it will communicate your options to you.

These might include the same or an amended interest rate on funds left with An Post and/or an option to transfer your savings to a later issue of savings certificates or An Post savings bonds. Beware though, that in some cases, no further interest is payable unless you move your money. A certificate taken out for one of my children recently matured and An Post wrote to say it would receive no further interest of any sort following its maturity date. We had the option of transferring the money to a later issue of certificates paying a lower rate of interest or into An Post savings bonds. If we did not respond, the letter advised, An Post would assume we were cashing in our investment.

Obviously that is a recent case but should we prove uncontactable and leave the money there for 15 years - after which it would be moved to the dormant account fund - we would receive back only the money that stood in the account after the five years and six months, money that would be worth far less in 15 years.

The lesson is that the onus is on investors to keep an eye on their money and their options.

Gifts to children

What gift valuation is allowed to be received annually from parents by children? What is the threshold before tax is incurred?

Ms M.B., Westmeath

Gifts come under the aegis of capital acquisitions tax, more commonly known as inheritance tax. Under capital acquisitions tax (CAT), anyone can pass €1,250 to anyone else as a gift in any calendar year without attracting a tax liability. For instance, you could pass €1,250 each calendar year to each of your children; your spouse could also donate €1,250 per calendar year to your children.

That provision apart, any gift to your children comes within the relevant tax threshold. From parents to children, in 2002, this is €422,148. However, this is not an annual allowance, understandably.

Any gifts or inheritance received by the child from a parent since December 5th, 1991, are added to determine whether the latest gift falls within the allowance. If the gift does not bring the aggregate received from a parent over that period above the threshold, no tax is payable. If, however, the amount goes above the threshold, CAT is levied at 20 per cent on the amount above the threshold.

The tax is payable by the person receiving the gift and must be paid within four months of receiving the gift. Thereafter, interest at the rate of 1 per cent per month or part thereof, is levied on the amount outstanding.

It is worth bearing in mind that the person making the gift or any trustee involved in property passed as a gift may have a secondary tax liability.

While most gifts tend to be cash, the tax also affects gifts of jewellery, property, land or even the use of a house for life.

The threshold is index-linked and rises each year in line with inflation.

• 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.