An Irish Times business desk asnwers your questions on personal finance.This week; Equity Release and Capital Gains.

Equity release

I'm 68 years young and own my own house, which has no mortgage outstanding. I have a pension from my employer plus the social welfare pension. I also have some investments, which are giving me approximately 2,000 a year extra. I would like to have more money to spend, say for an extra holiday in the sun, especially in winter, and to help our two children, who are young adults. I have borrowings of about 10,000 but I feel I should be able to borrow against the property itself - but not at 10 per cent. My wife will be inheriting a property worth 100,000 in the future. This could be some time away but with our home valued at approximately 450,000, is there any way I could borrow say 50,000 at today's mortgage rates without having to compromise our assets?

Mr P.Q., Dublin

You find yourself in exactly the same position as an increasing number of people in Ireland - asset rich but, if not cash poor, at least cash constrained. You have two options:

Look at selling the investments you hold to provide you with a lump sum that will go at least some of the way towards raising the money you are looking for. You can re-evaluate later whether you need to take further action to raise more at a time when your children may no longer require your help or when your wife's inheritance may have materialised.

n Examine the various options of releasing equity out of your home.

It is precisely for people like you that a whole new industry has burgeoned in Ireland - equity release. The idea is that you release some of the equity you have built up in your home in exchange for future repayment - either in case or in property.

If it sounds like a panacea for people in your situation, that is because it has been cleverly designed to appear so but beware. The simple truth is that equity release is, depending on the option you choose, just about the most expensive money you will ever "borrow". I use the word "borrow" advisedly, much as it irritates those offering equity release options. Essentially, you are borrowing money secured against your property. It can be in the form of a life loan from the likes of Bank of Ireland (AIB intends shortly to enter this market too) or a more straightforward sale of part of the property to either Residential Reversions or Shared Home Investment Plan (SHIP).

As you might expect, the banks' products are reasonably simple. You can borrow up to 20 per cent of the value of your home at a rate of interest that is fixed for the first 15 years and the money is paid off either when you die or the property is sold. The interest rate is a good bit higher than the standard variable mortgage rate but considerably lower than the loan rate.

While it enables you to borrow without the requirement of monthly repayments, the downside, obviously, is that the loan is building up all the time. While AIB's product is not yet out, it is understood to be close to that of Bank of Ireland and the competition, such as it is, may see rates come down.

The alternative - releasing equity by selling part of the property to groups like Residential Reversions or the Shared Ownership Investment Plan - should be avoided at all costs unless you have no other money to pay for the bare essentials of food, heat, health or essential repairs. Why? Because the cost is very high. If you have a house worth €300,000 and opt to sell 50 per cent, you will get a lot less than 150,000.

According to figures produced by SHIP, a man aged 72 would get 82,370 for a half share in such a property, while a woman at the same age would get just 75,210. A couple would do even worse, getting just 67,450. While the amount paid gets higher as you get older, at 75 a couple would get only 74,200.

Such equity release schemes are generally only available to those over 70.

What I would suggest is that you investigate the possibility of taking out an ordinary mortgage on your property. The advantage, clearly, is the low mortgage rate you would pay; the downside is finding the money to make repayments.

To counter this, you can take out more than you need and use the surplus to pay off the loan at cheaper rates than are otherwise available - bearing in mind that you have a 100,000 windfall coming your way at some stage in the future.

At 68, getting insurance to cover the loan is a problem and you may want to consider not taking insurance and being aware that the bank will have a lien on your estate when you die ahead of your inheritors.

Still, it gives you the cash you want to enjoy quality of life now rather than struggling to achieve your hopes in retirement while sitting in an unrealisable asset and the opportunity to give your children a hand up when they need it. Can it compromise your assets? Your home is at risk with any loan borrowed against it when cash repayments are not made. But if you want to borrow at a time when you have limited income to make repayments, you either borrow more than you need at the lower rate or opt for something like Bank of Ireland's life loan.

Capital gains

My wife and I are being generously gifted a site by her father, on which we plan to build our family home. He had previously inherited the site from his mother but it appears that he will face a large capital gains tax bill on the transfer of the site to us. This seems perverse, as he never bought the site to begin with, nor is he selling it to us now. How can a "gain" be deemed to have taken place for tax purposes when no money will have changed hands and my wife's father is not profiting from the disposal of the site? Is there any way around this bizarre ruling?

Mr R.F., e-mail

As you say, it does sound perverse that your father-in-law should face a tax charge on something when he is making no financial profit but that, I am afraid, is the rule. Every asset has a value and, over time, that value generally increases. For the purposes of the tax code, capital gains liability kicks in when a transaction takes place. There is an assumption that such transfers are financial and that the gain is therefore locked in at that point. The tax code does not care whether the asset is given away. That is the choice of the owner. From the taxman's point of view, capital gains needs to be computed on every change of ownership, regardless of the circumstances.

The only way out of this is when someone inherits upon death. In that situation, while there may be capital acquisitions tax (inheritance tax to you and me), the asset is understood to be passed on free of any capital gain to that point.

Your father-in-law will be taxed on the increase on the value of the property between the time he inherited it and the time he passes it over to you.

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.