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.

Gifts

A friend of mine wants to give her brother and sister-in-law (married couple) in Ireland a monetary gift. What are the Irish Government rules? In the US, we are allowed to give a maximum of $10,000 (€11,788) to any number of people. I mentioned to my friend that our laws are most likely different from the Irish laws and she needs to investigate what the rules are for the recipient prior to sending gifts to Ireland.

What is maximum gift per person? Is this annual or lifetime? Can she give a maximum gift to her brother and give a maximum gift to her sister-in-law - thus, the married couple could receive two gifts but one per person?

Actually, my friend's brother is a farmer. Are there any additional allowances for farmers to receive monetary gifts from US relatives?

Ms. P.M., e-mail

The limits in Ireland are somewhat less generous than in the United States. There are two elements to the issue of gifts. First, there is a sum that can be given free of tax on an annual basis. At the moment, this stands at £1,000 (€1,269). This is the amount that can be received from any benefactor in each calendar year. For instance, your friend could gift her brother £1,000 this year and a further £1,000 in January. She would also be able to gift the same sums to the sister-in-law as the couple would be seen as separate on the issue of capital acquisitions tax, more commonly known as inheritance tax, which governs this scenario. As you say, this would allow her to gift two sums to the one couple, doubling the tax-free benefit. That is the situation with annual gifts. Turning to lifetime gifting, each person has a threshold below which they will not pay tax on gifts and inheritances received. In the case of siblings, the limit stands at £30,000; in the case of the sister-in-law, the figure is £15,000. These figures are cumulative, so the couple would need to take into account any gifts/inheritances already received in assessing liability to capital acquisitions tax (CAT).

Above the limits, CAT is levied at a rate of 20 per cent.

I don't believe your friend's brother would be able to benefit to a greater degree by virtue of his being a farmer. There is agricultural relief, but this relates to land passed on as part of an inheritance. Similarly, it does not matter whether the person making the gift is based in Ireland, the US or elsewhere. The relevant issue is the relationship between the benefactor and the beneficiary.

One final issue. We are reaching that stage of the year where any advice must carry the rider that the situation may change in the upcoming Budget on December 6th. In particular, the limits on annual gifts and lifetime gifts may be raised, although there is no guarantee this will happen.

Unit funds

As a neophyte to the investment world, I wonder if you could help clarify for me a few issues relating to unit funds. These, I believe, generally state that there is no further liability for personal tax - e.g. Hibernian Dynamic Bond, Irish Life Property Module etc. Does this mean:

1) that there is no capital gains tax on disposal of a holding, which has increased in value?

2) that there is no requirement to declare investment to the tax inspector?

On what basis does the fund pay tax on investment gain and at what rate?

I note from the article in

The Irish Times on mutual funds some time ago that a new tax regime will apply from next year. Please explain in more detail how the tax will then be applied. Will it apply once-off on exit from the fund on the increase in value? The article referred to payment at the standard rate (currently 22 per cent) plus 3 per cent for the deferral. Will a higher rate apply for taxpayers on a higher marginal rate? Why is capital gains tax not applied instead?

Mr S.C., Dublin

What has happened up until now is that tax has been levied within the funds on an annual basis. As such, there is no further tax upon exit, such as capital gains tax. Capital gains tax is generally levied upon assets - such as shares, property etc - whose capital values have increased during the period of ownership but which have not been taxed during that time. As a result, the tax is levied upon the sale/passing on of the asset, except to a spouse or upon death.

Again, until now, there was no need to declare income from maturing funds to the tax authorities because tax had already been paid.

That has been the situation to date. As you say, the regime will be changing in the new year. What will happen from then on is that no tax will be levied on the funds on an annual basis. Instead, upon maturity or exit from the fund, tax will be charged at the standard rate plus 3 per cent on the growth in the fund - at the moment that would amount to a tax of 25 per cent (22 per cent standard rate plus 3 per cent). If, as is widely expected, the Government moves to reduce the lower rate of tax in the forthcoming Budget, the rate will be lower.

No higher rate will apply to higher income earners. Remember, the money going into such funds comes from previously taxed income.

The reason for the change is the requirement from Europe that we standardise the manner in which tax is levied on unit funds. At the moment, different rules apply to funds sold domestically and to those sold abroad from the International Financial Services Centre. We are simply bringing our policy in line with practice elsewhere in the euro zone.