An Irish Times guide to the world of personal finance.

Capital gains

I have a question concerning personal Capital Gains Tax liability on share speculation profits. Is it permitted by the Revenue authorities to carry over losses on share speculation from one tax year into the next, so that those losses can be offset against taxable CGT profits in the following tax year?

Also, in evaluating a share speculation loss incurred on a share purchase made a number of years ago, is the person permitted to apply an inflation factor on that loss over the years in question. This would increase the loss amount offset against taxable CGT profits.

Mr C.D., e-mail

As a broad principle, capital gains tax is applied where there is a profit realised in any given year on an asset - by selling it on or gifting it to another person. Of course, that profit must be more than the annual tax-free exemption allowance granted to each individual, currently €1,270.

Equally embedded in the tax code is the general principle that losses incurred in such asset disposals can be offset against gains realised in the same year before assessing whether there is a liability to capital gains tax.

If the loss in a given year exceeds any gain made in that year, the loss is in most cases - and certainly in the circumstances you outline - carried over to subsequent years until it is matched by any capital gains.

Please bear in mind that, although there is an annual exemption on capital gains, it cannot be carried over.

So, if you do not make a gain of €1,270 in one year, you cannot carry over all or part of that exemption to set against subsequent gains.

There were a couple of changes made to the capital gains tax regime in the most recent Budget and one of those affects the issue of indexation. Until now, the revenue would each year announce indexation multiples. Under these, when assessing the capital gain on the sale of an asset, the initial purchase price of the asset was multiplied by the indexation figure for the appropriate year to compensate for the impact of inflation.

This is now history. Assuming the Minister for Finance does not make a U-turn on the issue when the details of the Finance Bill are published next month - and there seems to be no pressure on him to do so - you will only be allowed to index assets up to the end of 2002.

That means you will have to make a larger gain on your assets to allow for the way in which inflation will have eaten into the value of your investment.

I realise it is not strictly applicable to the sort of speculative share investment to which you are referring but one other change in the Budget means that people who sell shares in a company for loan notes - typically upon a takeover - will face a capital gain assessment at that point.

Until now, people could defer that assessment until they encashed or passed on to others the loan notes.

Finally, once you do assess your capital gain, it will be liable to capital gains tax at the rate of 20 per cent.

Dormant accounts

My mother has held a special savings account with TSB (now permanent TSB) since Sept 1997. Her latest transaction was in February 1999. Interest was credited to the account correctly in November 1999, 2000 and 2001.

When she visited the bank to have the interest marked into her book, the amount was very small (£3.62) and she was told that the account was in fact dormant but would be reactivated. She wrote to the bank querying this to be told that dormant was the bank term for an inactive account (an account not transacted in two years) and was not dormant under the Dormant Accounts Act 2001. They confirmed that the £3.62 interest is correct. Can they do what they did?

Mr K.B., Cork

Your mother's position is not that unusual and there is no reason why she should be concerned about the status of her account. With the advent of the Dormant Accounts Act, it is surprising that banks and building societies are still using the same term for accounts that do not fall within its remit although they have not been accessed by the customer for some time, but that's customer service for you.

Many financial institutions operate a system where inactive accounts are shelved. This is primarily for in-house administrative purposes, although it does allow for the institutions to make sure that any action on such accounts after a period of inactivity is legitimate as is required under money-laundering legislation.

There is nothing wrong or suspicious in the Permanent TSB making the account inactive after two years without use.

Having been in such a position myself, albeit not with Permanent TSB, I can attest that bank officials merely check to ensure that you are the account-holder - normally by asking a series of questions related to the account. This is not onerous and, once satisfied, the account can be reactivated immediately.

As you already know, any interest due to the account is added to it regardless, although this may only be indicated once the account is reactivated.

As you know, under the Dormant Accounts Act, accounts are officially termed dormant after 15 years and the money in them is moved on to a separate fund. Before this, of course, the institutions would have to make any reasonable effort to contact the account-holder. Regardless of what happens, the money in such accounts would still be available to the account-holder at any time once they contact the relevant financial institution.

As to the amount of interest your mother was due after the three years, I agree it sounds small but then I have absolutely no details on the amount she had in her account at the time. As you are no doubt aware, the interest rates on deposit accounts in the recent past have been negligible. If you do have any doubt about it, I would suggest you or your mother ask the bank to account for the way interest has been calculated. Specifically, you want to make sure that interest in years beyond 1999 is assessed on the basis of the deposit plus any interest due in 1999 and subsequently.

Holiday homes

My wife and I purchased a holiday home in Spain three years ago. Do we have to notify the tax man?

Mr M.W., Dublin

The tax authorities, despite the way it sometimes feels, are not interested generally in what you do in your private lives unless it attracts an income or you are claiming a relief against it.

The purchase of the home in itself is of no interest to them. However, if you rent it out or if you look to claim against your income tax for any money put into it, then I imagine, the Revenue would need to know about it.

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.