Dominic Coyle answers your finance questions.

Aer Lingus can balance Eircom

I recently sold shares in Aer Lingus and realised roughly a €4,500 gain. I understand my annual allowance is €1,270 and that I pay 20 per cent capital gains tax on remainder.

What I need to do, however, is try to offset my Eircom losses. I bought 1,465 shares in Telecom Eireann at Ir£3.07 - €3.90 - for a total spend of €5,713.

I held on forever. Valentia bought all or part of the stake in June 2001 for which I received 721 Vodafone shares plus cash (from memory). I cannot figure out the amount of cash I received. I sold the 721 Vodafone shares in April 2004 and received about €1,375.

Is it possible to work out the amount of cash I received in the Valentia deal if I originally had 1,465 Telecom Eireann shares and subsequently received 721 Vodafone shares.

Apologies to bother you - I can assure you I've spend quite a while trying to figure it out.

Mr N.C., Dublin

The good news is that you can certainly work out exactly what you would have received at the time the Valentia consortium, headed by Sir Anthony O'Reilly, took Eircom (originally Telecom Eireann) private. The more important detail from your point of view is the scale of any loss you incurred on that deal.

After all, that - and any loss subsequently realised with your sale of the Vodafone shares - are what you will want to offset against the gain on Aer Lingus.

What happened with Eircom was that the mobile operation, Eircell, was demerged from the original telco and farmed off to Vodafone.

At the time, the Revenue determined that, of the original €3.90 equivalent purchase price, €1.69 related to the fixed line business taken private by the Valentia group and €2.21 was attributable to the mobile business acquired by Vodafone.

Valentia paid €1.335 per share to take the group private. That would have yielded you a payment of €1,955.78. More significantly, you were left nursing a loss of 35.5 cent for each of your Eircom shares in relation to the Valentia payout. In your case, this amounts to a loss of €520.08.

Turning now to the Vodafone shares. As I said, Revenue determined that €2.20 per share of the Eircom purchase price was related to the mobile business. The situation was complicated by the fact that Eircom shareholders received slightly less than one Vodafone share for every two original Eircom shares.

Not surprisingly, given the numbers of people involved, Revenue decided to set an "acquisition price" for each of the Vodafone shares now held by original Telecom Eireann shareholders. That figure was €4.66.

This €4.66 is effectively the "price" at which you are deemed to have acquired those shares and equally the breakeven price on any subsequent disposal.

You sold your 721 Vodafone shares for a cumulative €1,375 back in April. (I know you said it was about this figure but I will have to take it as absolute to calculate a loss.)

On the basis of your €1,375 cheque, you received just under €1.91 a share - considerably short of the €4.66 you needed to break even. In fact, your material loss on the Vodafone end of the deal was €1,982.75.

Together with the €520.08 loss on the Valentia cash payout, you are €2,502.83 out of pocket on your Eircom adventure - a loss of more than 40 per cent on the original investment.

Fortunately, your second dabbling in a State flotation has proved considerably more fortuitous - in part because the Government deliberately priced the Aer Lingus IPO at a level low enough to ensure that it could not fail and repeat the political fallout from Eircom, and in part because Ryanair's Michael O'Leary, as ever with an eye for a good deal, pounced with his bid for the company.

So you have a gain of around €4,500. Offsetting your outstanding capital loss on the Eircom deal of €2,502.83, your net gain is €1.997.17.

As you are aware, you also have an annual capital gains tax exemption of €1,270, which leaves you with a capital gain liable to tax of €727.17. With capital gains tax levied at 20 per cent, you have an outstanding bill of €145.43.

One final point to bear in mind is that any capital gains accrued before the end of September in any tax year must be paid to Revenue by the general tax deadline of October 31st. Gains made after October 1st in any year must be settled by the end of January in the following year.

This regime is fairly new having been introduced only in 2003. Prior to that you had more than a year to settle capital gains tax liabilities.

• 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.