Dominic Coyle answers your queries.

Interest rate rises will affect loan

I have a personal loan from the Bank of Ireland: €15,000 over five years at a variable rate of 8.7 per cent APR. Monthly repayments are € 306.96. Recently I enquired what the loan balance was with a view to paying it off. The amount owing was €11,372.

I calculated that I am paying €623 more in interest than I feel I should have to.

The bank stated that it adds more interest into the first two years. Is this normal and should I incur this penalty in paying off the loan considering it is at a variable rate?

Mr D.H., Dublin

I can only assume there is some misunderstanding here. I am quite confident - and the bank has confirmed - that there is no practice of adding "more interest into the first two years" of any straightforward variable rate loan.

Remember that, though your monthly repayments may be fixed, this loan is variable. While the APR at the time you drew it down was 8.7 per cent, there have since been two interest rate increases. These will impinge on your overall interest bill, most particularly if you move to pay off the loan early.

The bank calculates the interest outstanding based on the rate at the time you indicate you are examining this option - not at the 8.7 per cent applying when you took out the loan. It also assumes that this is the rate that applies to the balance of the loan.

Income tax

When I retired five years ago, I invested my lump sum in a number of financial products. These are now maturing. Tax will be deducted (23 per cent exit tax) and the DIRT tax forwarded on in all cases to the Revenue.

With the interest I will receive this year from my investments and my pension, I will exceed my standard rate cut-off point of €41,000. Does this mean that anything over €41,000 will be taxed at the higher rate of 42 per cent.

Ms T.O'B., e-mail

You are right that, in general, income over the standard rate cut-off point is liable to tax at 42 per cent rather than the 20 per cent applicable below that point.

However, DIRT and exit tax on investments are levied at flat rates - 20 per cent and the basic rate plus three percentage points (currently 23 per cent), respectively.

The State accepts that this covers taxpayers' full liability to income tax.

However, you will still have to file full details in your annual tax return and may find yourself liable to the health levy.

Gift liabilities

Last week you addressed the issue of tax liability on a gift from a parent based in Ireland to a child living abroad. Irish capital acquisitions tax also applies where the disponer is resident in the State. As this appears to be the case here, the child could have exposure.

Mr R.M., Dublin

I stated that liability rested with the adult child and as they were resident in Canada, where such gifts are not liable to tax, there was likely to be no tax in this situation.

However, Mr RM is quite correct and his position is reinforced by Grant Thornton's Douglas Sadleir, who points out that the Capital Acquisitions Tax Consolidation Act 2003 lays down, under Section 6, that where the person making the gift is resident in Ireland, the gift is a taxable gift.

Under Section 45 (2), it emerges that the person making the gift is "secondarily accountable" for gift tax if the recipient of the gift "reneges" on the tax. It remains the case that unless this gift means the recipient has received more than €478,155 from their parents, there will be no tax liability.

• 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.