Q&A

I am looking to sell a number of shares that I have owned for a long time. I read somewhere that before I calculate any capital gains tax I can deduct any expenses incurred in buying and selling the shares.

Stocks

Does this include stamp duty? Also, the Revenue used to provide an indexation table to offset the effect of inflation on shares bought some time ago but a friend tells me this is no longer in use. Is that so?

Ms A. O'B., Dublin

The only good news about paying stamp duty on purchases of shares is that it is an allowable expense when you subsequently go to sell them.

Essentially, any costs incurred in the acquisition or sale of the shares can be deducted from the capital gain before assessing what, if any liability you have. The other major cost as far as share purchases go would be the commission charged by your broker on either end of the deal.

In relation to the indexation table, your friend is only partly correct. It is true that the Minister for Finance, Mr McCreevy, decided to allow no further indexation on purchase prices after 2002.

Quite why he did so is still a mystery. After all, inflation continues to eat away at the value of the original investment and the indexation multiples were designed to cancel out the impact of inflation on the purchase price of the shares.

However, while indexation will not apply to any shares bought since the start of 2003, it is still very much an issue for shares bought before then. If you bought a stock in, say, 1990 and want to sell it now, you would be able to avail of the Revenue-determined indexation multiple up to the end of 2002.

Unfortunately, you have no protection against the impact of inflation on your original purchase price since then but it is still better than nothing at all.

Prize bonds

I am the holder of 150 prize bonds, many of them purchased in the late 1950s. In all that time, I have won just one prize of £100. Each of those bonds cost £5 which, translated into present day money, equates to around 100.

By the laws of actuaries, am I just unlucky that I did not have a better return for my investment?

I would like to see more transparency in the way the draw takes place (like a slot on television), something akin to the Lotto. Maybe this enquiry will spur the bond company on.

Ms B.D., Cork

Actuarially, you are indeed incredibly unlucky if An Post, which runs the prize bonds operation in this country, is anything to go by.

It maintains that for every €1,000 worth of bonds you hold, you should have a 4.3 to one chance to win a prize in any 12-month period.

Bonds are currently sold in batches of €25 with an individual face value of €6.25. On that basis, your 150-strong holding has a face value of about €1,000.

As such, you can see that you would have expected to win a good deal more than one prize in the guts of half a century. The draws are weekly and the annual prize pool is equal to 2.4 per cent of the total fund so there are a fair number of people out there winning prizes- 1,900 of them every week, according to An Post.

The only plus point is that you can always redeem the bonds - one of the big selling points for An Post along with the tax free nature of the winnings in what is classed as a low-risk investment.

However, as you noted yourself, a bond bought for £5 in the 1950s would be worth considerably more than the €6.25 face value today.

The figure you have been given of about €100 shows one of the weaknesses of bonds as a low risk investment. If you fail to win prizes to the extent that you and An Post might predict, inflation can leave you getting back considerably less than you invested if and when you redeem your funds.

As to transparency, I am all in favour of it. I have no reason to believe the An Post prize bond draws are anything other than scrupulously fair and well monitored but I agree that a TV draw would do more to engender public interest and trust. With all the junk we find time to broadcast these days, a slot could surely be found.

Pension

I am 65 years old and have paid tax over the years. Is paying my tax the same as putting on a stamp and will I be entitled to a contributory pension at 66? Is a contributory pension means-tested?

Mr P.G., Kerry

First things first. If you are entitled to a contributory pension, it will not be means-tested. Only non-contributory pensions are means-tested because the State is effectively supporting people who did not put away contributions to their retirement in earlier years. As a result, they do not want to be paying money to people who already have adequate financial means to support themselves.

Contributory pensions, on the other hand, are an entitlement because the person receiving them has contributed through their working years by means of pay related social insurance (PRSI) contributions, colloquially known as the stamp.

That's not necessarily the same as paying tax. If you simply paid income tax and not PRSI, you would not be eligible ... - a situation that might well occur if you were self-employed.

However, if you were employed in a PAYE job, you almost certainly paid full-rate PRSI.

The amount of pension you receive depends on the number of PRSI contributions you have made over your working life - the minimum required being 260. These contributions are added up and divided by the number of years from the time you got your first job until you turn 65. You must have started paying them before the age of 56.

To earn a full contributory pension, currently €167.30, you will need to have an average of 48 full PRSI contributions or stamps per year from 1979 to the end of the tax year before you reach 66.

The payment works on a sliding scale with those having an average of between 20 and 47 contributions a year eligible for €162 per week, a figure that drops to €125.50 for those holding between 15 and 19 contributions a year.

For those who have paid somewhere between 10 and 14 stamps a year on average from the time you started insurable employment to the end of the tax year before you reach 66, the weekly payment comes to €83.70.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or email 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.