An Irish Times guide to personal finance.
One home or two
Q. My understanding is that upon marriage two individual Irish resident residential property owners can only be deemed to have one principal private residence and thereby be capital gains tax exempt on that one property alone should it be sold. Can you confirm this?
Before and since our marriage my partner and I live in separate parts of this State, by necessity of work and we currently have no plans to sell either property.
Should we wish to sell either property, why should we be subject to capital gains tax on the sale of that property after our marriage, given that each is a principal private residence where we in turn spend the majority of our time going about the business of living and working separately?
Mr M.McG., Wicklow
A. In general, you are quite right that when a couple marries, they are entitled to only one principal private residence, regardless of whether both held property as principal private residences previously. As you say, that would leave the couple liable to capital gains tax on the sale of one property should it be sold subsequently.
However, there is some leeway on this. There is a certain amount of time granted to people who sell one of the properties after they marry - as long as they do not rent it in the interim.
In any case, once you become liable to capital gains, you would only face a charge on that portion of your ownership during which the property was no longer your principal private residence.
Where there appears to be some confusion is on the subject of dispensations for people who are forced to live apart for work purposes.
The Revenue this week said that it did not believe there were any circumstances in which such a dispensation would be allowed.
However, back in June 2000, the same office accepted that there was the possibility of a dispensation for people who could certify that both homes would be principal private residences for certain members of the family.
That arose in the case of a man whose family resided in Dublin but who moved to Cork for work and bought a house there, returning to his family at weekends.
The certification, if granted, would be attached to the title deeds of the property.
The mixed responses mean that I cannot confirm or correct your understanding of the situation. It may be that the certification process operating in 2000 is no longer an option. I can only suggest you talk to an accountant.
What is certain is that the twin homes arrangement would have to be more than a matter of convenience. In an era of ever longer commutes, any certification procedure would need to be satisfied that you physically could not operate from the one residence, even given the 120 miles separating your respective jobs.
Covered warrants
Q. In the last week or so, I notice you have started running a table of "covered warrants" in the pages of the paper. What are covered warrants and are they open to individual investors?
Mr O.D., Carlow
A. Covered warrants are new investment products launched on the Irish Stock Exchange in recent months. They grant investors the right to buy a particular share on a given day at a particular price.
There is no obligation to buy the underlying shares but obviously if a warrant is not exercised, any money invested in it is lost.
Warrants can be traded in the same way as the underlying shares and their price will be determined by the length of time remaining to the "strike date" and the likelihood of the "strike price" yielding a profit.
At the moment, Investec is the only financial institution offering covered warrants in the Irish market and it only does so for five of the market's most liquid shares - AIB, Bank of Ireland, CRH, Ryanair and Anglo Irish Bank.
There are put and call warrants. Call or buy warrants foresee a rise in the price of the underlying security, while put or sell warrants indicate a falling price.
One important thing to remember is that each warrant grants rights only on a fraction of the underlying share. For instance, in the case of the Irish warrants, each accounts for one-fifth of the underlying share - that means you would need to own five warrants to buy one of the shares in the given company.
For instance, earlier this week, Ryanair call warrants were trading at 53 cents each with a strike price of €7.50 on March 16th, 2004. That means the warrant purchaser is buying the right to purchase Ryanair shares at €7.50 on that date. However, given that you need five warrants for each share purchase, the Ryanair price would have to be well ahead of €7.50 to justify their exercise. To yield a profit, you would need to calculate the cost of the five warrants plus the strike price - (53 cents x 5) + 7.50, which amounts to €10.15.
Warrants are open to individual investors but they should take a look at the risks involved as well as the potential rewards. According to some studies, up to 80 per cent of warrants are not exercised. That means the only people making a profit are those who may have traded them at a profit before their strike date. Whoever got landed with them finally lost out.
The Irish warrant market is only just emerging. There are only 10 warrants options, all with the same strike date, though the stock exchange hopes this will expand with time.
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.
