Q&A: I want to reinvest Verizon payment into Vodafone

How can I reinvest my £200 Verizon money back into Vodafone. Will any stockbroker take so small a job?

Mr PM, email

If that’s what you choose to do, you can certainly do so. Your concern about the size of the trade is not unfounded as brokers are not enthusiasts of one-off trades and tend to charge accordingly to discourage the practice. What they are looking for is people who will either trade regularly or sign on for full service.

However, there is a “budget” option currently available – assuming you still hold the Vodafone shares that would have seen you qualify for that Verizon holding in the first place.

Following the recent Verizon offer to sell those shares, which you appear to have availed of, Vodafone has opened its own “low-cost” dealing window.

While the Vodafone offer is clearly designed to allow some of its army of small Irish shareholders to sell out of their investment – people with fewer than 50 shares, for instance, can sell their holding with no commission charges – it does also offer the opportunity for people to increase their holdings in the British telecoms group at low commission rates.

But, if you are looking to tap into this offer, you will need to come up with an investment of more than the £200 you are currently talking about.

The minimum threshold for people looking to buy more shares under the offer is £1,000 if you are in a sterling area as your email indicates, or €1,400 if you are based in the Republic. The sweetener is that the transaction fee will be a straight £30 (€42), plus 0.5 per cent Stamp Duty Reserve Tax, which Vodafone’s registrar Computershare will take from the investment sum.

For what it’s worth, the maximum any existing shareholder can invest under this offer is £10,000 (€10,400).

While €1,400 is not a huge sum in terms of stock market investment, it is clearly a multiple of what you are currently looking to put into the shares and an “offer” is never an offer unless it chimes with your own needs or choices.

A more fundamental issue for you to consider maybe is why you should be putting your Verizon payout back in Vodafone.

Assuming you are originally an Eircom shareholder, your experience to date has been one of losses – most particularly with the Vodafone share element of your holding. Even beyond that, if, like most Irish Vodafone shareholders, you hold no other stocks, you need to ask why you would further concentrate your investment in telecoms.

The first three maxims of investment are diversify, diversify, diversify. Especially given that you are looking at a choice of either putting five times your intended investment back into the company or paying a significant portion of your intended £200 investment in broker commission, I suggest you look at other potential homes for your money.

What happens if my aunt dies before my loan is repaid? My aunt is loaning me €100,000 to put a deposit on a house. If I get it written and signed by both of us that I will pay back this amount with market interest when I can, I believe Revenue would find this acceptable and no CAT owing from me. My question is does it turn into a gift if it is not paid back and if my aunt dies? Also if I pay her cash, how will Revenue say I did or I didn't?

Mr S O'D, Dublin

There seems to be a lot of lending going on within families at the moment as the new tighter Central Bank rules make it harder for young couples to get on the housing ladder. It's hardly much of a surprise but it does muddy the water for Revenue all right in terms of assessing what is a gift and what is a loan.

In any event, €100,000 is a considerable sum and certainly one that would be unlikely to escape the attention of Revenue.

The rules seem to be fairly clear – if the money is borrowed with intent to repay, with interest applied at a market rate, then it constitutes a loan.

As always with these things, the devil is in the detail.

How much interest? Even in the commercial lending market, there can be significant differences in interest rate. The main thing is that any rate applied would need to bear some reference to rates currently on offer.

Must a loan agreement be written out? It always helps for clarity but even with a written agreement between family members, it is most unlikely that such lending arrangements are going to be framed by strictly legal contracts.

The bottom line appears to be that Revenue must be happy that the arrangement is an honest one and not an attempt to get around provisions of Capital Acquisitions Tax law governing gifts and inheritances.

My experience is that they are understanding of these situations unless something in the financial affairs and returns of either party throws up cause for concern.

That might be one reason for ensuring that repayments do go through a bank account rather than simply being handed over in cash.

At least that way, if Revenue does query the arrangement, there is a record of repayment transactions. It’s not a requirement, per se, but certainly has a lot to recommend it.

But what happens if the loan is not repaid for whatever reason? Whether it is because your aunt dies or for any other reason, an unpaid loan is deemed to be a gift and would count against your lifetime limit. In this case – ie a gift from an aunt to a nephew – the relevant threshold is Category B, where the limit before tax is due is €30,150.

Any unpaid loan outstanding above this figure would mean a tax bill for you of 33 per cent – and remember that €30,150 includes any other gifts or inheritances you may have received from other “linear” relations – ie grandparents, aunts/uncles or brothers and sisters – but not from your parents.

Of course, the €3,000 small gift exemption still applies which would reduce any tax bill by €1,000. Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.