Dominic Coyleanswers your questions.

Clarifying cost of PRSA investment

I am 69, married, with no other dependants. I have a civil service pension of €36,000 and pay tax at 20 per cent. My original plan was to avail of the €2,500 payment and open a PRSA account for €10,000, leave it for a year and then cash it in. Does the following apply: a commission at 5 per cent totalling €500, management fees at 1 per cent totalling €100 and tax at 20 per cent totalling €1,880. That leaves just €7,520 of the €10,000 investment - or just €20 more than my original investment of €7,500, a figure that would not make much sense.

Mr T.M., Dublin

My understanding is that your broad point is correct, but the figures are not quite right. It is certainly the case that people with incomes of less than €50,000 availing of the Cowen incentive to invest €7,500 of their maturing Special Savings Incentive Account (SSIA) will receive a €2,500 top-up from the State. It is also the case that the main beneficiaries of this incentive will be less well-off pensioners or others who pay no income tax.

However, the outlook is not as grim as you make out. In general, the charge structure you outline will apply, but it pays to shop around as some intermediaries will reduce commission charges, saving you as much as half the figure you quote. My understanding is that you are also entitled to draw down a quarter of the PRSA free of tax. On the figures you use, which do not assume any growth in the PRSA over the one-year investment term, that would mean a tax-free lump sum of €2,350.

You would then pay tax on the balance - €7,050 - at your income tax rate of 20 per cent.

That would leave you with a tax bill of €1,410, or total outgoings of €2,010. Your ultimate gain would be the balance of the Government handout, €490. In addition, you will have saved by not paying the 23 per cent exit tax on the investment or interest gains related to the €7,500 SSIA fund investment to your PRSA.

The benefit of the handout diminishes the higher your marginal tax rate; those on 42 per cent would not benefit at all, but then the scheme was never designed for them.

It is worth noting that the incentive is designed to encourage long-term pension saving. Consequently, the minimum investment period must be one year, but the scheme is not designed as a one-year savings scheme. The main benefit will come from any investment return on the "free" €2,500 top-up.

Bequeathing shares

I am now in my 80s and wish to make over to my son, as a gift, all the shares I hold in Waterford Wedgwood, Abbey and Readymix. The holdings in each company are rather small.

Can you advise me on how to make the transfer with the least bother and expense? The shares will be a gift and no cash is involved.

Mr P.D., Waterford

It is, in fact, quite simple to transfer shares from one party to another at little expense. However, there will still be tax issues to consider.

You can bypass stockbrokers and their fees by filling out a stock transfer form and returning it to the stamping office of the Revenue at Dublin Castle or the stamping office in Cork or Galway within 30 days of the transaction.

You can get these forms from a legal stationers, although I understand that they may also be available from most stockbrokers, solicitors or banks. While avoiding brokers' fees, you will still face stamp duty, which is currently levied at 1 per cent of the value of the transaction.

In addition, you will have to calculate any capital gain made by you on the shares during their time in your ownership.

This is true, regardless of whether you are selling the shares or giving them away.

Bear in mind that you are entitled to deduct expenses incurred in acquiring and disposing of the shares before calculating your capital gain, as well as applying the inflation multiplier up until to the end of 2002.

Of course, given the performance of Waterford Wedgwood and Readymix in recent years, it is possible that you will have no capital gain to calculate at all.

• Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara 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.