Savings

I have read about investment companies complaining about the cost to them of dealing with small monthly contributions under the new special savings incentive scheme. Over the years I have put savings into the National Instalment Savings Scheme, which put 100 per cent of my contribution into the pot with no handling charges, or so I have believed.

Can An Post continue the same scheme as they have over the years and top up the interest with the 25 per cent bonus on offer under the new scheme? Surely this is the simplest way of collecting the money from the small saver through company schemes as have operated over the years. Savers in such schemes are already attuned to the five-year waiting period and the 25 per cent top-up will entice them to stay in a scheme that treated them well before recent low interest rates made it unattractive.

Mr O.C., e-mail

I imagine An Post would be delighted if all their saving customers were as happy to promote their schemes as you. You are right that the post office has long offered a path to small savers looking to put away money in low-risk savings.

To date, An Post has not announced its plans for the new scheme but no doubt it will be offering some products. If it didn't, it would find it hard to tempt savers of any description to its products. The Minister for Finance's offer of 25 per cent has effectively changed the environment for Irish savings products.

As to whether small savers should opt for this route, it depends. We shall have to wait and see exactly what An Post offers and what rival institutions such as credit unions and other deposit-based accounts are putting together to tempt prospective customers.

The most important thing for everyone to remember is that they can opt for only one such product. They are best advised to sit back and see what emerges. In the meantime, they might assess their attitude to risk in these turbulent times for equity-based investments. At least that way, they will be in a position to make a decision quickly when we eventually have sight of the full range of products on offer from the plethora of institutions.

In a recent reply referring to the situation for those who wish to invest in the Government's new savings incentive scheme and also wishing to go abroad in the next six months or so, you mentioned that you could open an account here, as tax resident, go abroad and suspend payments when abroad, and, on return, begin again the monthly repayments. My understanding was that, once you agreed a starting minimum monthly payment, you had to stick with that for the first 12 months? Is this the case? Mr P.H., Dublin

The truth is that, at the moment, we do not know for sure because the details of the provisions governing the new special savings incentive scheme have yet to be finally approved as part of the Finance Bill 2001 and passed into law.

It may be that people will have to invest for 12 consecutive months or it may be that you can invest for a shorter period but that you cannot alter the monthly payment at any point in the first year. As with everything else to do with this scheme, prospective investors are best advised to wait and see. After all, they cannot invest any money in the scheme until May 1st.

Housing

I own my own house and inherited my parent's house three years ago. I did not have to pay any inheritance tax. Do I have any tax liability if: 1) I now sell my parent's house? 2) I now sell my own house and move into my parent's house? 3) I rent out either house and sell it in the future?

B.A.S., Wicklow

Okay, let's take each question in turn. If you sell your parent's house, you will be liable to capital gains tax on the difference in value between the time you inherited the property and the time you sell it, less the expenses incurred in any sale. Essentially, your parents' house is your second property and, as such, is not immune from capital gains tax.

On the other hand, if you sell your own house and move into your parents' house, you may well avoid capital gains. You will be selling your principal private residence which, as such, is not liable to capital gains. You will also face no tax charge for changing your residence to your former parents' house. It will subsequently become your principal private residence and therefore immune from capital gains. The exception would be if you had rented out your parents' property for some period from the time you inherited it until the time you made it your principal private residence. In that case, you would be liable to capital gains on that portion of the eventual difference in value between inheritance price and sale price. For instance if you had rented it for two years and then lived in it yourself as your principal residence for eight years before selling it, you would be liable to capital gains on one-fifth (two years out of 10) of the difference.

That is the same if you rent your current principal private residence at any time now and sell it in the future.

Stamp duty

Your answer to a reader's recent query concerning stamp duty on residential investment property was misleading. The "claw-back" of 9 per cent duty on property originally purchased as "owner occupier" and subsequently rented out only applies for five years from the date of purchase. Where property is purchased by a person who intends to occupy it as their residence, the certificate the Revenue require in the deed to stamp it at residential rates only states that it will be occupied as the owner's residence for five years, not for the entire period of ownership. Perhaps you could print a correction.

Ms R.H., e-mail

Ms R.H. was one of several readers to take me up on the question of stamp duty levied on a second home purchase, where it is intended that the second property becomes the principal private residence. And like most of those alert readers, she is quite right.

The situation where a person with a house buys another property as a new principal private residence is that the new purchase will be subject to stamp duty at a rate of up to 9 per cent. If the property is worth less than £100,000, no stamp duty will be applicable. Between £100,000 and £150,000, the rate is 3 per cent. It rises at the rate of 1 per cent for each additional £50,000 band up to £300,000. Between £300,001 and £500,000, the rate is 7.5 per cent. Above this, the rate climbs to 9 per cent.