Q&A

Dominic Coyleanswers your questions.

Is the co-owner of house exempt from tax?

I write on behalf of a lady who shared and co-owned a house with her late sister. She and her sister worked in America for years and then returned to an older sister, who willed her house to them both as co-owners. The older sister died.

One of the other two sisters died recently and the remaining sister is trying to fix up her matters. Her solicitor told her that she would have to pay either inheritance tax or gift tax on her sister's part of the house.

I think the solicitor is wrong in view of the answer you gave to a somewhat similar question last year. I think the remaining sister is not responsible for any tax.

P.G., Kerry

The only thing I am unsure about is whether these sisters were living with their older sister after returning from America or not. If not, they may well have been liable to inheritance tax (or capital acquisitions tax as it is more formally known) at that stage.

Let us now turn to the woman's current position. She was living with her sister in the house which they both co-owned. Following the death of this second sister, she is now the sole owner of the house.

The first thing to state clearly is that capital gains tax is not an issue. One provision of the capital gains tax code is that capital gains die with the owner of the asset.

Anyone subsequently coming into possession of the asset is assumed to do so at the value it holds following the death - not the original purchase price.

As it happens, in this case, capital gains is irrelevant. When it comes to succession along the lines you outline, inheritance tax is the only applicable issue.

Your belief that this woman is not liable to any tax is based on an exemption introduced by Charlie McCreevy when he was minister for finance. The details of this exemption can be found in Form CAT 10, available from any tax office or from the Revenue Commissioners' website, www.revenue.ie.

Essentially, it provides that after December 1st, 1999, inherited homes will be exempt from capital acquisitions tax, provided:

l the person receiving the house (or a share in it) must have occupied the property continuously as their main home for the three years before the bequest;

l the recipient must not own any other house or stake in any other house. Owning a stake in the same property, as this woman does, would not create a problem;

l the recipient must continue to reside in the property for six years after the bequest. However, that condition is waived where the person receiving the bequest is aged 55 years or more at the time that they receive the property.

For those under the age of 55, living in another house which is directly replaced by or which replaces the property that is bequeathed fulfils the residency criteria.

In your case, the only question seems to be whether this lady has lived in the property for three years before her second sister died. If so, she has no liability to capital gains, at least as far as the home is concerned.

Of course, there could be a liability to capital gains on any other assets she might have received from her sister.

Assuming she is eligible, this lady should fill out Form CAT 10 to apply for relief from inheritance tax in relation to the property.

DIRT runaround

I have spoken to many people who are in my age group - between 65 and 75. Most of them are, as I am, confused and befuddled - not from advancing old age, but from reading unclear and contradictory articles about DIRT and pensions.

They have had a difficult task in persuading bank staff and tax inspectors to acquaint themselves with the existence of the DE1 declaration form and to cease deducting DIRT.

They have all been given the runaround by the banks and other institutions when they tried to invest €7,500 in a PRSA. The chief culprits in all this appear to be AIB and Irish Life, although I now find myself in the same position with AIB as the person who wrote to you about the experience with Bank of Ireland. Surely we deserve to be treated better at this time of our lives?

Mr P.L., Mayo

This letter should be posted at the workstation of everyone in our financial institutions and public service. Increasingly, it encapsulates the inexcusable experience of elderly people in dealing with officialdom in all its forms these days.

You make the point, separately, that your local tax office twice flatly denied the existence of Form DE1 until you went off, sourced a copy and slapped it on the desk in front of them. There is simply no excuse for that level of ignorance in our public service - note the use of the word "public".

Form DE1 - for it does exist, as does the complementary Revenue leaflet DE1 - was published last April and sets out the the new regime on Deposit Interest Retention Tax (DIRT) as amended in the 2007 Finance Act.

It provides that people over the age of 65, whose income is below the annual threshold for income tax, can apply directly to their financial institution to have interest paid on their accounts with the deduction of DIRT.

Until now, DIRT was automatically deducted and pensioners with income below the income tax threshold had to apply for a refund each year.

Under the new regime, you will not have to apply every year, the exemption will continue indefinitely, although you are required to notify the financial institution of changing circumstances. Again, the details are outlined in leaflet DE1, which also explains how people only marginally above the income tax threshold may be in a position to receive a partial refund of DIRT.

Turning to the issue of PRSAs and the difficulties pensioners have had availing of the Pensions Incentive Credit Scheme, you have my sympathy.

It should have been very simple - people transferring money from a maturing Special Savings Incentive Account (SSIA) to a pension scheme, such as a Personal Retirement Savings Account (PRSA), receive a State bonus of €1 for every €3 transferred, up to a maximum bonus of €2,500 on an investment of €7,500.

However, the Revenue put the frighteners on the banks. That led the banks to turn down applications under the scheme from pensioners. Despite the Revenue being forced to tone down their advice after representations from this newspaper, financial institutions in general have simply refused to accommodate people over the age of 65 who are perfectly entitled to avail of the scheme.

I have long since given up fighting with the individual institutions and now simply advise that anyone who finds themselves in this position should ensure they communicate in writing with the financial institution and then pass the case on to the pensions ombudsman Paul Kenny or the financial services ombudsman Joe Meade - who have an agreement to pass cases between them as appropriate, depending on the specific circumstances - seeking compensation of the €2,500 on which they have lost out, together with the attendant 23 per cent SSIA exit tax exemption to which they would have been entitled and any investment gain forgone. They should also seek recompense for the time and trouble.

• Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by 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.