Personal Finance

Your queries answered

What should I do with my Abbey Loan Notes?

Q Scottish Provident issued Abbey Loan Notes almost 10 years ago. At the time, I did not cash mine in. Now I see Banco Santander has taken over the company. I am getting almost no interest. As the notes mature in 2012, I was wondering if I should cash them in. I have no idea what will happen when they mature. What should I do?

- Ms L.K., e-mail

ABack in 2002, Abbey National acquired former mutual Scottish Provident. Policyholders at Scottish Provident received a windfall at the time which could be taken either as cash or a loan note.

The latter option was useful for people looking to avoid exposure to capital gains tax. They could hold the note to expiry – 2012 – or redeem part of it on two dates in any year between 2002 and expiry. Interest would have been paid on the notes.

You should be aware that Santander has taken over Abbey because that happened back in 2004. The deal did not affect the loan notes and you would have received shares in Santander for your Abbey stock on a one-for-one basis.

If you do nothing, the loan notes – effectively an IOU – will expire in 2012 and you will receive their face value in cash. If that amount exceeds the capital gains threshold, you might be advised to redeem some of the loan notes between now and 2012 to avoid tax. If not, stay as you are unless you need the cash.

Q  How do I calculate CGT on my company shares?

I bought shares in the company that I worked for between 1999 and 2002. This was under a scheme whereby, as I was buying them with my annual bonus the purchase was “tax-free”.

When I come to sell these shares, how do I calculate the CGT to be paid; is it on the basis of the market price of the shares at time of purchase (less CGT for me to pay) or as the effective cost to me after tax relief (more CGT for me to pay)?

- Mr C.C., Dublin

AApproved Profit Sharing Schemes first came into the Irish market with the Finance Act of 1982. The Act allows companies to allocate shares to employees with no income tax obligation subject to certain conditions.

As you might expect, these conditions are quite detailed and all such schemes must be approved by the Revenue.

In general, there is a clawback of the income tax exemption if the shares are not held in trust for a certain period. Shares held for a “period of retention” – generally two years from the date of allocation – are subject to a partial clawback of income tax.

Shares held until the “release date” – three years after the date of allocation – will not face a clawback. You clearly come into this category.

Any subsequent sale of the shares is liable to capital gains tax (CGT). This is assessed on the difference between the market value of the shares on the date they were allocated to the employee and the eventual sale value.

In your case, you can avail of indexation up to the end of 2002 to counteract the impact of inflation. Indexation was ended at that date. You must pay capital gains at the current rate of 25 per cent on any gains above the exemption threshold of €1,270.

-This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2.

E-mail: dcoyle@irishtimes.com