Dominic Coyle answers your queries

Capital gains tax on collectibles

I am an OAP and have collected first-day-issue stamps for 45 years. Were I to sell them, would I have to pay capital gains tax?

I also have some 100-year old memorabilia that might be valuable now but which, at the time of origin, were of no monetary value - if sold, would capital gains tax apply?

Ms P.W., email

Unfair as it might seem, I am afraid you are going to be liable to capital gains tax on the stamps and the memorabilia.

The fact that you are a pensioner won't really have any impact on the issue. The important thing, from the point of view of the legislation, is that these are assets - in much the same way as a house or a work of art would be.

Of course, the liability to capital gains would depend on the value of the items. You would also be able to apply an indexation factor up to 2002 to allow for the eroding impact of inflation on the value of your original purchase. The Revenue website has a table of indexation factors which would allow you to work out what multiple to use on your original purchase price. The table is available in the leaflets and guides section of the site (www.revenue.ie) under capital gains tax.

You are also allowed to deduct expenses incurred in the acquisition and disposal of the the assets before calculating the liability to capital gains tax.

Finally, you are also entitled to a €1,270 capital gain on disposal of assets in any given year without facing a liability to the tax.

After that, however, you are going to be charged capital gains tax at 20 per cent on the remained of your gain.

SSIA into pension

Further to your recent article on transferring money from your matured SSIA into a pension fund with a Government top-up, I wonder if you could confirm the following in your column:

a) that if you are a pensioner, you can open a PRSA up to 75 years;

b) that you can withdraw all of the money tax-free including top-up if you were not liable for tax in the previous year;

c) when can you withdraw it?

My SSIA provider doesn't seem too clear on these points. If what you say is true and still the case, it is a brilliant return and hopefully not too good to be true. I would only be interested in the immediate return and not in getting a small annuity.

Mr J.L., Cork

The Finance Bill that is currently making its way through the Oireachtas provides incentives for people to transfer the proceeds of their special savings incentive account (SSIA) into a pension, including a PRSA.

Essentially, people will receive €1 for every €3 they transfer to a pension, with a €2,500 ceiling on the bonus. In addition, anyone transferring money to a pension from an SSIA will receive a refund of the 23 per cent exit tax charged on the interest/investment gain in the SSIA.

You can open a PRSA as long as you are under the age of 75 at the time of opening the account.

The issue of tax relates more to availing of the Government incentive than on the withdrawing of cash from the PRSA. In order to avail of the transfer incentive, you have to be paying income tax at the 20 per cent rate or less - such as appears to be your case.

In relation to withdrawing the money free of tax, anyone is allowed take a quarter of their funds tax-free with the rest being put into an annuity. However, you state you have no interest in an annuity arrangement on the SSIA proceeds.

If you are already in receipt of guaranteed income of €12,500 a year through an existing pension or other income, you should be able to withdraw the sum placed in a PRSA immediately. Apart from the first quarter of the total fund in the PRSA, you will pay tax at your marginal rate on the balance - the same as you would on any pension payment or other income. What tax you paid last year is relevant only to eligibility to receive the Government bonus on SSIA-pension transfers. On drawdown, it is your income tax liability this year that matters.

Thus, for pensioners paying little or no tax, this transfer is extremely advantageous. Depending on your particular level of income, you would need to calculate the likely tax charge on the drawdown of the 75 per cent balance of the PRSA.

Of course, you will have to wait for the Finance Bill to finish going through the Oireachtas before this scenario becomes a certainty - and, naturally, wait for the SSIA to mature. In that context, it's hardly surprising that the finance houses have yet to brief their staff on such a possibility.

Death and SSIAs

I thought that, by now, you would have covered all aspects of SSIAs. However, on RTÉ recently, I was alarmed to hear of a new drawback: if an SSIA account holder is unfortunate enough to die before maturity, all bonuses and tax exemptions are withdrawn. Could this really be correct? In most walks of life, "involuntary cancellation" in the form of death is never penalised.

Mr E.M., Dublin

And so it is with special savings incentive accounts (SSIAs). It would be more than usually stingy of the tax authorities to penalise someone for the unfortunate and unforeseeable prospect of death.

The rules state that if an SSIA accountholder dies the scheme is deemed to have reached maturity - as against ceasing. The significance of the wording is that upon maturity (which normally only happens at the end of the full five-year term) exit tax is charged at 23 per cent only on the interest or investment gain.

Accounts that cease (ie people are no longer eligible to hold the account) are subject to 23 per cent tax on everything in the account - the initial contributions from already taxed income, the Government bonus and any interest or investment gain.

Naturally, given the account has "matured" at the date of death, no one else can make contributions after that date on behalf of the deceased.

CAT between married couples

My wife and I have made wills in favour of each other. Our "estate" is the family home, valued now at around €1 million. However, when we bought it many years ago, as was the norm at the time, it was put in my name only. Should I predecease my wife, will she be liable for punitive tax? I read something to this effect recently.

Mr P.B., Dublin

Don't worry yourself on this matter. As you say, it was routine for the husband's name only to go on the deeds of property in the not-too-distant past. However, that will have no impact on your wife's tax situation should you predecease her.

The tax in question in capital acquisitions tax (CAT), which is sometimes colloquially known as inheritance tax. In general, there are thresholds above which people will pay tax on bequests and gifts.

There are a number of exceptions to this and, as it happens, the most significant one relates to married couples. It states that there will be no CAT liability on any assets passing between a husband and a wife. In other words, should you predecease your wife, she will receive all your property in accordance with the terms of your will, unencumbered by any tax liability.

I can only assume the piece you read referred to property passing between long-standing but unmarried partners, whose situation is a little more problematic.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 10-16 D'Olier Street, Dublin 2 or by e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice.