Q&A

An Irish Times guide to the world of finance.

Bonus shares

When the Irish Permanent floated in 1994 shares were issued at a price of £1.80. As an investor I received 300 free shares. I held onto those shares and later received two lots of 15 "loyalty" shares. If I sell the free shares or the loyalty shares will I have to pay capital gains tax on the full proceeds or can this amount be reduced by imputing an original cost of £1.80 per share?

Mr D.K., e-mail

It appears that you will be stuck with a capital gains tax charge on the full amount of the share sale, as free shares are deemed to have a "nil" value. Worse still, they are not eligible for indexation to reflect the effect of inflation on the original purchase price since there was no original purchase price.

Of course, you need to remember that you do have a £1,000 capital gains tax-free allowance in any given year.

At the end of last week, Irish Life & Permanent shares were quoted at €11.80

Life policies

I invested a moderate sum in a life policy over a number of years. Although the policy matured a some years ago, I only recently retrieved my money. I was disgusted at the paltry interest paid on the funds in the time between maturity and drawdown. Why is the level of interest on such policies so derisory and are life companies free to set such arbitrary rates?

Ms R.W., Dublin

Many are familiar with the situation where life policies mature and are forgotten only to be remembered at a later date when documents turn up in a spring clean, a house move or even the execution of an estate.

It is, as you say, frustrating to find at that point that one's investment, carefully chosen to maximise returns within a certain risk profile, should be languishing with a post-maturity rate of return that fails even to meet inflation.

Unfortunately, there is little you can do. As you say, the company did notify you of the policy's maturity at the appropriate time and, for one reason or another, you failed to act at the time to draw down your investment.

Quite simply, the life companies have no subsequent obligation. They have entered a contract with you covering the investment and its term. You do not allege any impropriety during the term of the investment and, unless there is something in the small print to the contrary - which would be unusual and is not, I think, an issue in your case - they have no subsequent obligation.

The Irish Insurance Federation says it does have a code of practice under which investments not claimed within two months of maturity start to attract interest, but it is only a code of practice and, in any case, does not set any particular level of interest. The federation says this is a matter for the individual companies and they tend to set rates with an eye to practice at rival institutions.

From the individual investor's point of view, there is no doubt that it is a raw deal. The rates being credited to your investment in recent years don't come near those available on the more competitive deposit accounts - even demand deposits - in the Irish market.

From the assurer's point of view, there is no requirement for them to pay anything at all on matured savings. It is very much a case of the investor keeping a close eye on their financial affairs to make sure they do not undo their good investment work by leaving the money to fritter away post-maturity.

For what it is worth, some institutions will allow mature savings to continue to grow, particularly in more modern unitised fund investments, which just goes to show the importance of taking an all-round look at the institutions offering the type of product in which you are interested.

SSIAs

I opened a Government special savings incentive account (SSIA) at the end of the summer with ACC, when it was offering a variable interest rate. Now I read that they are offering a fixed interest rate of 4.5 per cent. My question is this: May I now change over to the variable scheme without being penalised in any way?

Ms A.D., e-mail

I'm confused. You say you joined when the ACC was offering a variable rate and have now read they are offering 4.5 per cent fixed, but you want to switch to a variable rate. Isn't that where you are now?

Assuming you do indeed have a variable rate special savings incentive scheme account with ACC, there will be no penalty or trouble transferring to a fixed-rate account at the same institution. However, you cannot switch from a fixed to a variable SSIA without penalty.

Eircom

Returning to last week's query about the possibility of taking legal action over the ability of Valentia to compulsorily purchase the shares of Eircom investors, I gather the case to which I referred was dismissed by the judge.

However, I am informed that it referred to the inequitable position of Eircom shareholders compared with Eircom employee shareholders.

Ms C.C. is investigating the possibility of a class action on the constitutional issue that the section of the Companies Act 1963 - which allows Irish companies to compulsorily buy-out minority holdings when they control more than 80 per cent of the equity - runs contrary to the citizen's right to own property.

As I said last week, I am not going to second guess the courts but I would suggest Ms C.C. and any other interested parties check case law. I would not be surprised to find that such a case has already been decided on a law that is, after all, more than 30 years old.

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.