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.
Risk-free investing
Any advice on the reinvesting of saving certs? We invested over the years and now they have matured and we are wondering if it is good enough to reinvest or should we do something more profitable. We are not for risks, be they high or low, and Eircom finished us on the stock exchange.
Ms P.F., e-mail
Your question more or less provides its own answer. Investing is a matter of judging risk against potential return; if you are not prepared to countenance any risk, as you state, you are severely limited in your scope for maximising profit on the investment.
People in such a situation can find An Post savings certificates a comfortable option. While each issue carries a different rate of interest, depending on the interest rate environment of the time, they tend to outperform the other main option for risk-averse individuals - bank deposit accounts.
However, it is worth remembering that in the current situation, where inflation is above 6 per cent, savings certificates will struggle to provide a return in real terms and deposit accounts will simply not do so.
You talk about your experience with Eircom finishing you with the stock exchange. This is a position you may want to revisit, although maybe not just at the moment, given the volatility in the market. Any investor in shares will tell you that you cannot reasonably expect a return if you put all your eggs in one basket. As a rule, investors will spread their money across a portfolio of stocks.
Less adventurous investors can put their money in unit funds, which spread the risks across different stocks or indeed different types of investment - shares, bonds, property and cash - or a mixture of them.
Another option is tracker funds, which seek to replicate the performance of a given index. Some of these offer a guarantee where your capital sum is secure regardless of performance. The two downsides are that the price you pay for the guarantee is that you only get a portion of any gain in the index and, if the index falls and you get your capital sum back, there is no allowance for inflation in the intervening period.
However, if you are truly averse to risk, your options are limited and reinvesting in savings certificates is certainly worth considering.
Inheritance
In your Q&A section last week, the answer to the inheritance tax question is, in fact, incorrect in relation to the gift given to his two children 12-15 years ago. One would need to establish the exact date of the gift, as all gifts given previous to December 1987 have been "wiped out", and will not affect future CAT liability. So their threshold is still £300,000 (€380,000). You should have mentioned to him to avail of the private dwelling house exemption brought in in last year's Budget.
Ms P.N., e-mail
Ms P.N. is quite correct about the discounting of gifts and inheritances received before a certain date. Mr T.L. in Dublin, who asked the original question, would need to ascertain precisely when he gifted £15,000 to each of his children. If it was more than 13 years ago, the gift would not need to be taken into account when assessing capital acquisition tax (CAT), better known as inheritance tax, on the disbursal of his estate to his two children.
On his estate of £770,000, the CAT would then fall to around £33,500 rather than around £39,500.
However, the "private dwelling house exemption" to which Ms P.N. refers is not relevant in this case on the information provided by Mr T.L. He said his children lived away from the family home and that the gifts they received some years ago were to help purchase homes.
The private dwelling house exemption only comes into play when the recipient has been living in the home for the three years prior to receiving the property. In addition, they must not have an interest in any other residential property and must not move from the family home they inherit for six years after the bequest.
The measure was designed specifically to overcome the situation where, with rising house valuations, people who had stayed in the family home - often to care for elderly and/or infirm parents - found themselves unable to pay off their inheritance tax bills without selling the property. Naturally, this caused great distress. As a result, the Minister for Finance, Mr McCreevy, raised the CAT threshold for offspring substantially in the Budget before last and introduced the exemption referred to above.
Stamp duty
Budget 2000 removed the CAT liability that would have formerly applied to some inherited properties. However, what is the position about stamp duty where such a property is conveyed to a beneficiary pursuant to a will? Specifically, what stamp duty liability, if any, would a beneficiary have on a property bequeathed by a parent?
Mr G.B., e-mail
My understanding is that stamp duty does not apply to the transfer of property from a parent under the terms of a will. While you will pay stamp duty on the purchase or other transfer during one's life of a second-hand property worth more than £60,000 and on new homes over a certain size, the liability to tax upon transfer in death comes under the provisions of CAT.
While you are correct in saying that some property inherited from a parent is tax-free, this is in particular circumstances set out in the answer above. One other determining factor is that the property being passed on must be the principal private residence of the person bequeathing it - in other words, the family home, not any other property.
Outside of this provision, a family home passed on by a parent will still be liable to CAT, or inheritance tax.
