Q&A

Dominic Coyleanswers your questions.

Fyffes shares and capital gains tax

I purchased Fyffes in 2004 at an all in cost €1.74. Following the demergers, I now have also shares in Blackrock International and Total Produce. What are the base prices of all three shares for calculation of CGT on disposal?

Mr C.H., email

It has been an action-packed year for Fyffes shareholders. As you note, the company has now essentially broken itself into three. Last May, the company spun its substantial property interests into a new company called Blackrock International Land.

According to the company, continuing dissatisfaction with the performance of the share price saw it move again in December to split the fruit import and distribution business in two. The general produce and distribution business became Total Produce while the tropical produce business remains branded as Fyffes.

All three companies now trade on the less restrictive IEX market for smaller companies in Dublin.

When Blackrock and Total Produce were formed Fyffes shareholders received one share in each for every share they originally held in Fyffes. In the case of Blackrock, the cumulative shareholding of the original Fyffes investors amounted to 60 per cent of the company with Fyffes plc holding the remaining 40 per cent.

No such company shareholding was allowed for in the Total Produce deal which was, rather, a straight share for share deal.

When these demergers take place, the companies concerned are obliged to agree with the revenue the apportionment of value from the original shareholding in order to set down the base cost of the various new shareholdings.

In the case of Blackrock International this has been done and the figures are available on the websites of both Fyffes and Blackrock. Effectively, the Revenue has decided that 77 per cent of the purchase price of your shares will be attributable to the remaining Fyffes business while 23 per cent is attributable to Blackrock.

In your case, where you paid €1.74 for your shares back in 2004, at the time of the Blackrock deal €1.34 of that price will be attributable to the rump Fyffes holding with 40 cent becoming the base price of each of your Blackrock shares.

The issue is less clear as far as the Total Produce operation is concerned - although clearly that will impact on the recalibrated Fyffes base price quoted above.

Again, Fyffes is talking to both the Irish and British tax authorities about how base cost should be allocated to the shares of Total Produce and Fyffes respectively. This has been going on now for more than two months and there is still no definite outcome.

I spoke to the company this week and they tell me a decision is expected shortly. When available, it will be posted on the company website.

What is certain is that you would appear to be ahead on your investment. The shares you bought for €1.74 were trading at around €2.24 before Fyffes started dismantling itself. As of this week, the three constituent elements of the former company - Blackrock, Fyffes and Total Produce - were trading at 54 cent, €1.16 and 85 cent respectively. That is a total of €2.55. As it happens, the stocks have weathered the recent market "corrections" very well. Before the first tremors, they were trading at a total price of €2.58.

It is worth noting that the demergers, transfer of assets and issue of shares in these new companies did not, of themselves, trigger any tax charges for Fyffes shareholders.

TAX-FREE GIFTS

I am a widower and have made a will leaving my estate to be divided equally between my three daughters and four sons. I have a recollection that I read in The Irish Times that where a testator donates a sum not exceeding €3,000 during any tax year in which he survives, this will not be taken into account for probate purposes as an advancement of his/her legacy.

Could you please advise me what the current maximum amount of such an exemption may be? I have noticed reference in recent budget statement indicating an adjustment in the allowance to cater for the changes in the cost of living.

Mr S.O'H., Dublin

You are quite right that there is an exemption for gifts under the capital acquisitions tax (CAT) regime. This tax, levied at 20 per cent, applies both to gifts made during one's life and also to inheritances.

The exemption allows a person to give any other person €3,000 in any given calendar year without this amount being taken into account when assessing a capital acquisitions tax liability. It does not matter whether the person making the gift survives the year in which it is made, only that they are alive when gifting the sum.

For instance, you could give €3,000 to each of your seven children each year and it would not count against their CAT exemption threshold. As a matter of interest, that threshold stands at €496,824 this year, a figure that is indexed in relation to the consumer price index each year. The €3,000 exemption is not indexed in the same way and has remained stable at €3,000 for a number of years.

In other words, your children could each receive an inheritance and/or gifts of up to €496,824 without triggering a tax liability.

For what it is worth, even if you gift your children €3,000 a year, they could still receive a similar sum from other parties without facing a CAT bill.

CHILDREN AND DIRT

I am a young widower and have placed a modest amount of cash on deposit for my four-year-old son for his future needs. Is he entitled to a DIRT refund as he is obviously not a tax payer?

I know that tax payers over 65 years of age are entitled to a rebate of DIRT but, given our circumstances, we would greatly appreciate similar treatment. The account is in his name.

Mr P.B., Dublin

Unfair as it no doubt seems, there is absolutely no provision for children to be exempt from Deposit Interest Retention Tax (Dirt), even though they are not taxpayers in the general understanding of the term.

Whether the account is in your name or that of your son is irrelevant.

The one exception - which applies whether the accountholder is a child or an adult - is if they are permanently incapacitated but that clearly does not apply in this case.

CGT AND THE HOME

Am I right in saying that Capital Gains Tax does not apply to the sale of a primary residence? My second question is if, after the sale of the primary residence, one moves into an owned property that is currently rented and it becomes the primary residence, upon its sales does Capital Gains Tax apply.

Mr D.O'C., Dublin

The first part is easy. Capital Gains Tax does not apply to one's principal private residence unless been rented or part of it used "exclusively" for work purposes. In general, that means no tax on the family home.

The provisions above, though, do give some indication as to what will happen when you move into your other property.

This , you say, has been rented for some time. When you come to sell this property, Capital Gains Tax will be liable for the portion of time during which it was rented as a proportion of the total period you owned the property. For instance, if you own the property for 20 years and it was let for four, a fifth of the gain you make on the sale of the property would be liable to capital gains tax at 20 per cent.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara 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 enteredinto.