Personal finance: Q&A


Your queries answered by DOMINIC COYLE

Any market in AIB shares on stock exchange?

As AIB is still shown on the stock exchange, is it possible to buy shares and, if so, how would they differ from shares held before the Government bailout?

Mr H.K., email

As you say, AIB is still a quoted company although the stock has moved from the main Dublin list to the junior Emerging Securities Market, which is something of a comedown for what was Ireland’s largest bank. The shares don’t really differ from those held before the bailout – ie they are still ordinary voting shares in the company. The one major change is that the holdings of those people who held AIB stock before the crisis are considerably diluted.

Where ordinary shareholders previously controlled 100 per cent of the company stock, the Government now holds 99.8 per cent control. So you can still buy the shares – currently trading at about 6 to 7 cents – but it would be a high-risk move.

How much can we leave our adult child in inheritance

What amount can a parent leave an adult child in their will without the recipient incurring penalties? I know the amount was adjusted downwards when the recession set in.

Does the same amount apply when it concerns a house – eg can parents after death bequeath their house worth €1 million without an adult child having to pay capital gains tax?

What is the amount an aunt in her will can bequeath to a nephew without the recipient incurring capital gains tax?

What is the amount a sister in her will can bequeath to a sister without the recipient incurring capital gains tax?

Ms J.M., Dublin

Someone is clearly getting started on some estate planning here which is never a bad idea. Beneficiaries of people who believe they have very few assets can be in for a very sharp surprise on the tax front when the true scale of affairs emerges after a will is executed.

Although the rates of the two taxes are currently the same – ie 30 per cent – the tax applicable to inheritances is capital acquisitions tax, not capital gains tax. Also, while a tax charge may certainly apply, depending on the scale of the inheritance, it is not the case that anyone receiving a bequest will face “penalties” as you suggest in your opening question.

Also, the amount you can bequeath free of tax is not affected by whether the recipient is an adult or a minor.

On the more prosaic issue of thresholds, this has been covered in this column over recent months. There are three categories when it comes to capital acquisitions tax (CAT) and each has its own threshold.

You are correct in your recollection that the thresholds have been reduced significantly since the financial crisis struck – having been expanded massively and then index-linked during Charlie McCreevy’s time as finance minister.

Category A applies to inheritances and gifts received by a child from a parent. As with all categories, there are certain limited exceptions but they are not relevant to this conversation.

The threshold below which no tax applies in this category is €250,000 – a figure that is less than half the €542,544 applicable at the start of 2009.

Category B applies to gifts and inheritances between linear relatives – an uncle/aunt and nephew/niece, a grandparent and grandchild, siblings etc.

Traditionally, the threshold in this category has been 10 per cent of the threshold applying to Category A. However, in the last budget, the minister broke this link, increasing this category threshold to €33,500 from €33,209 previously at the same time as he reduced the Category A figure to €250,000 from €332,084. At its peaks, Category B allowed beneficiaries to receive up to €54,254 free of tax.

Category C applies to gifts and inheritances between all other people – ie “strangers”. This includes also cousins, in-laws or more distant relatives. The threshold here remains half the Category B figure and, at this time, is €16,750.

It is important to note that these thresholds apply to aggregate gifts and inheritances received since December 1991 – apart from the annual €3,000 small gift exemption which has been much discussed here in recent weeks. So, if your adult child has already received, say, an inheritance of €100,000 by way of cash and/or assets from his father, then he can receive no more than an inheritance of €150,000 from you before triggering liability to CAT.

Equally, any previous gift or inheritance (since December 1991) from a linear relative will affect the amount they can receive tax-free from an aunt or that sisters can receive from each other.

In relation to bequeathing what is a valuable home to an adult child upon death, the general position is that it will count as part of the inheritance and would, on its own, push your adult child over their Category A exemption. One alternative, if you have more than one child, is to bequeath the house to them as a group.

Alternatively, there is a provision in the CAT legislation for an exemption on the transfer of such property. However, this is quite tightly constrained. Your adult child must have been living in the property as their main or only residence for the three years prior to inheritance, they must own no other property – or an interest in any other property – and they must continue to live in the home for six years after inheritance.

Again, there is certain flexibility to account for people moving homes but, in general, the main exceptions relate to working abroad and long-term hospital stays during the six-year period. Breach of the rules triggers an automatic liability to CAT.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes. com. No personal correspondence will be entered into.

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