Is there any relief from USC for pensioner couple?

Q&A:My wife and I are in our late sixties. Our only source of income is my public service pension which is subject to the universal social charge. Could you indicate the circumstances in which exemptions are granted to this charge?

Mr W. K., Dublin

There are very clearly defined circumstances in which the universal social charge is waived. These relate mostly to social welfare payments but not uniquely so.

The most straightforward exemption to the charge is for those people whose income is below the USC threshold of €10,036 annually.

The good news is that this 2012 threshold is a significant increase on the €4,004 applicable last year. However, it is still not likely to cover people in receipt of most occupational pensions.

You will also not be troubled by the charge on any income received from the Department of Social Protection – ie welfare payments.

While that would include the State pension, it would not apply to a public service pension of the sort that you outline.

Payments made in lieu of social welfare, such as community employment schemes, are also exempt from the charge.

Finally, you will not pay the charge on bank interest to which Deposit Interest Retention Tax has already been applied.

This is in line with the general position that DIRT is the only deduction to interest income on savings.

Finally, there is a list of “exempt income” in the legislation.

This includes, but is not confined to, certain foreign pensions and things as regular as rent a room relief. Scholarship income and income from savings certificates are other examples under this category. More particularly, the list also includes expenses of members of the judiciary and the foreign service allowance for State employees. The full list can be found at iti.ms/LLdrwV.

Essentially, as you can see, the exemptions are generally fairly tightly defined.

More importantly, once you exceed the income threshold, all income is subject to the charge – including that under the €10,036 threshold.

You will pay 2 per cent on that first €10,036 of qualifying income, assuming your income exceeds this level.

As you are in your sixties, you will pay 4 per cent on the next €5,980 above that threshold and 7 per cent on anything in excess of that – unless you have a full medical card.

If you do have a full medical card then you will secure the same reliefs that apply to people over the age of 70 – ie you will no longer be liable to that 7 per cent rate, with 4 per cent being your maximum exposure to the charge.

Exemption on ‘small gifts’ keeps on giving €3,000

In your response to a question last month, you said parents can “gift” each of their children €3,000 a year. Is there a limit on this? Can it go on for 30-40 years? Can an aunt “gift” a nephew in the same way?

Ms J.M., Dublin

It is almost as if no-one was aware of this “small gift” exemption to the capital acquisition tax (gift tax) legislation.

The letters have been piling in since we covered the area a few weeks ago.

As stated previously, there is no limit on gifting the €3,000 per annum to a child in terms of time. You can gift that sum each year without the recipient incurring a tax charge or having to put the sum towards their lifetime threshold on gifts for CAT purposes – two years, 20 years, it doesn’t matter.

Of course, there is nothing to stop the Government changing the rules – the figure was originally €1,000 until raised to its current level during one of the Celtic Tiger budgets.

Equally, there is nothing to say the gift can only be from a parent to a child.

You could gift your child €3,000 in a given year and the child could also receive the same sum from an aunt with no tax implications.

The one thing to beware is that if the Revenue sees, for instance, that you have gifted €3,000 to, say, your sister (a transaction within the terms of the small gift exemption and exempt from CAT), but that your sister then gifts the same figure to your son in addition to the money you yourself have gifted the son, the Revenue will in all likelihood determine that both “gifts” came from you and that the child has therefore received €6,000 from you, his parent.

In this case, €3,000 is exempt and the other €3,000 will be set against their lifetime category A exemption threshold of €250,000 governing gifts and inheritances between a parent and a child.

Liability to tax outstanding on inherited shares

If I inherit shares from my spouse or parents which have not been returned for tax purposes, am I liable for any tax due?

Mr P.L., email

Under Irish law, any taxes due on an estate – ie when a person dies – are the responsibility of the estate and its executor. The beneficiary is liable only for inheritance tax, and then only if the inheritance exceeds the threshold.

In the case of a spouse, there is no threshold and you can receive as much as is available free of tax. In relation to inheriting from a parent, you will pay tax on any lifetime inheritances or gifts worth cumulatively more than €250,000.

In your case, tax will have been due on the shares but this should have been paid by the estate before disbursement and, if not, the liability remains with the estate and the executor.

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.