Q & A

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 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.

Bacon report

My husband has taken up a new position in Cork. He will work there five days a week and return home to his family in Dublin at the weekend. We have a mortgage in Dublin but eventually will join him in Cork. He hopes to buy now in Cork rather than rent and, as such, will be an owner-occupier. What are the implications of the Bacon report for us? The Cork house is not being bought for speculative purposes.

Ms L.D., e-mail

The good news is that it appears you will not lose out under the new regulations. The imposition of higher rates of duty on second homes is intended as a damper on inflation and - despite the eminent good sense in terms of your own personal finances of buying now rather than later if the family is moving to Cork at some point - such a purchase might well have been seen as speculation in the sense of trying to maximise advantage through buying strategy.

However, there is a process whereby you can certify that the Cork home will be a principal residence for some members of the family. This certification, details of which will be available from your nearest Revenue office, will be attached to the title deeds of the property but will oblige your husband to use the address as his primary residence for a minimum period of time.

Cases such as yours show the importance of avoiding too much rigidity in regulation and, to be fair, it would seem the Government has bent over backwards to ensure that any valid property users are not hit by proposals aimed at speculative investors. The provisions are intended to catch out those who are purchasing holiday homes, which may subsequently lie vacant for the guts of the year. In fact, landlords will not be charged the additional stamp duty, provided they meet certain criteria.

On the subject of the 2 per cent tax due to be levied on such second homes in addition to the higher stamp duty, I understand from the revenue Commissioners that the details of this have yet to be finalised but that it may well kick in next April. We will have to wait for the details of the forthcoming Finance Bill to be certain.

In any case, given the unusual though not unique set of circumstances in which you find yourselves, you would be well advised to talk to an accountant to confirm the leeway available in the existing or new legislation.

Capital gains

Is interest on loans/borrowing to purchase shares allowable against either income or capital gains tax? I'm thinking of the following categories:

Bank loan for purchase of say Eircom shares (not an Eircom employee);

Margin interest (borrowing against stock portfolio) from brokerage;

Borrowing to purchase shares in employer's company (publicly-quoted US company).

I believe there is a lifetime £5,000 allowance against income for the purchase of shares in an employers company - how does one apply for this, and is it available for all publicly-quoted companies - domestic and foreign?

P.K., e-mail

With the one exception you mention at the end, there is no allowance on loans or other borrowings taken to purchase shares, which can then be offset against capital gains tax.

The case of Eircom is a very apposite one. It was precisely because there is no such provision that people were so strongly advised not to take out large loans to purchase the shares. Certainly anyone who did so and still holds the shares is not looking at offsetting interest against a gain but adding it to a substantial loss.

Similarly, there is no provision of which I am aware to offset interest accruing on margin calls against capital gains.

There is certainly an allowance against shares purchased in an employee's firm and, as you say, that is a lifetime allowance, which, at the moment stands at £5,000. It is available against all companies, public or private; the determining factor is the residence of the taxpayer. In this case, tax relief is available against loans taken out to purchase the employers' shares or, in the case of a private company, against loans to that company, again up to the maximum investment in the company of £5,000.

One important condition, however, is that the shares must be held for three years at least.

Premium bonds

Last week, you were looking at the question of Irish residents buying British Premium Bonds. You said An Post, which deals with the sale of Irish Prize Bonds was unaware of any impediment as was the Revenue. In my experience, it is the British authorities that have a problem with Irish purchase of premium bonds. Can you confirm this?

Mr M.L., Dublin

Well that's not quite true. It is true that the British Premium Bond office will not sell to anyone with an address in the Republic, but that is only because they feel hidebound by Irish legislation. In fact, there is no tax reason for refusing the sale of the bonds. It is, rather, a question under the lotteries and gaming legislation.

This legislation, which dates back o 1956, is currently up for review and I gather the question of premium bonds is one of the issues which has been raised, although there is no guarantee that any change will loosen the controls on their sale here.

As it stands, even if you go into an outlet in the North or Britain and try to buy the bonds, your money will be returned to you by the premium bond headquarters if you have given an Irish address. There is no simple way around this as the bonds are posted out and therefore a home address is sought at the time of purchase.

I suppose one could get them posted to the address of family or friends in Britain or the North, but then that would be illegal wouldn't it? It does seem daft that you can buy Irish prize bonds in the UK but not vice versa. However, I gather the Department of Finance, when it bothers to respond to queries, will assert that there is European case law in favour of its stance.