Dominic Coyle answers your questions.

Costly cancelled bank draft gift

My mother is aged 86 and is a "golden oldie" customer of the Bank of Ireland. Last March she bought a $50 bank draft for her granddaughter in the US. Unfortunately the draft did not arrive. She subsequently cancelled the draft and was informed that her account would be credited with the money. Imagine her surprise when the credit amounted to €15.45.

We paid a visit to the BoI Sutton Cross this morning and this is what we discovered. My mother paid €43.13 for the $50.00 draft, when you take the refund of €15.45 into account the charges amount to €27.69. I am not good with figures so I asked the bank official to help me to work out the percentage.

Imagine my mother's astonishment when the clerk advised us that the charges amounted to approximately 55 per cent of the original draft.

The clerks only consolation was that BoI does not get the money, it all goes to international banks. Both my father/mother have been customers of the BoI since the late 1940s. I hope you may be able to highlight this charge. I am not under the illusion that the banks are the Vincent de Paul, but 55 per cent charges could be described as excessive.

I have asked the bank manager to telephone me to discuss this charge but I am not holding out much hope of my pensioner mother getting her money back. I am also thinking of bringing it to the attention of the Ombudsman but am not sure if they can deal with it.

Once again I hope you may be able to highlight this. I would love to see how the BoI spokesperson justifies these charges to a Golden Oldie.

Ms G.H., Dublin

It has become almost a default position to assume the Irish banks are gouging their customers and a debilitating series of scandals and self-serving explanations when things go awry hasn't helped.

However, in this case, it does appear that your local branch has been on the mark with the information it gave you.

Bank of Ireland assures me that Golden Years accountholders, such as your mother are not liable for this €3.80 charge.

The problem in this case emerges when the draft was cancelled. Apparently foreign currency drafts have to be drawn on a foreign bank. When a draft is cancelled, that foreign bank charges a cancellation fee.

Cancellation fees vary from country to country. In the UK, it would traditionally be around £10 sterling (a significant sum in the context of the size of the draft your mother was sending).

In this particular case, the US bank charged a cancellation fee of $30 - 60 per cent of the face value of the draft.

That $30 amounts to around €26 and accounts for the bulk of the shortfall for your mother. The balance is accounted for by the difference in exchange rates on the day she bought the draft and the day it was refunded.

I am afraid you have no case for the Ombudsman or anyone else in this instance.The 55 per cent charge is certainly disproportionately high but that is largely down to the relatively small size of the draft itself and the flat rate nature of charges by the foreign banks, which have no commitment to free banking for elderly customers.

Despite your mother's experiences, Bank of Ireland tells me a draft remains the cheapest way for such cash transfers - unless of course the draft goes astray, as in this case. The bank says requests to stop drafts are a rare occurrence.

The alternative - electronic transfer payments - would incur charges by both Bank of Ireland and the US bank and is more complicated as you need the recipient's account name and various identifying bank codes.

Bank of Ireland charges 0.2 per cent of the face value of the transfer, with a minimum of €8.85 and a maximum of €36.80, on such transactions, although Golden Years customers would get a €4 deduction. US bank charges would be somewhere between $5 and $10.

Ultimately, it seems your mother did everything right in trying to send this gift to her granddaughter.

In this case, she was simply unlucky.

Liability to pay tax on €2,500 gift

Over the past number of years and following high profile investigations, it has been brought into public focus the importance of not only paying tax but also filing an appropriate tax return. I have recently had the good fortune to receive a gift from an aunt of €2,500. I hope to use this, in addition to savings to put a deposit on a house. She has indicated that next year she will also give me €5,000 to help with furnishing the house

What are the tax implications for both my aunt and I with respect to the cash gifts and do we have to file a return for each gift? Is it necessary to keep some sort of proof regarding the source of the funds in case it was queried by Revenue in the future? My aunt is retired and I am a PAYE worker.

I also hold shares in Irish Permanent that I received some years ago following demutalisation. They are currently valued at around €6,500. I would like to start realising this value whilst minimising my tax bill. A colleague at work has suggested disposing of shares each year to the value of the CGT exemption. Would this be feasible, and also, if you realise a capital gain below the exemption, are you still required to file a return with Revenue?

Mr J.M., email

There are two entirely separate issues here. Taking them in turn, the good news is that neither you nor your aunt face any tax charge in respect of your €2,500 windfall this year.

Under the provisions of the capital acquisitions tax legislation, which cover such gifts, the first €3,000 of any gift between two people in a calendar year is exempt from consideration for tax.

Over and above this €3,000 annual exempt allowance, there are thresholds governing gifts and inheritances, depending on the relationship between the people giving and receiving the gift. In the case of gifts between linear relations other than parents to children - which includes aunt to nephews - the 2006 threshold is €47,815.

The is a cumulative threshold and all previous gifts from linear relations need to be taken into account.

As a result, next year's €5,000 gift from your aunt is unlikely to trouble the tax authorities. To be certain, your aunt could spread it over the two years.

On the issue of Irish Life & Permanent, there is nothing stopping you selling some of your shares free of tax.

You are entitled to make a capital gain of €1,270 each year before falling liable to capital gains tax at 20 per cent. The exemption is on all capital gains in a given year, not simply on shares.

When calculating the gain, you are entitled to deduct any charges incurred in their acquisition and disposal, such as stockbroker charges.

Indexation does apply to older share purchases to offset the effect of inflation but if your shares were obtained free at the time of flotation, that would not apply.

• 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.