Q&A

Dominic Coyleanswers your questions.

Computing capital gains

Some years ago my wife and I obtained 500 ICI ordinary shares and 2,400 ordinary shares in Reed Elsevier. To our astonishment (as we have no other stocks), we will be hearing soon from both companies regarding payments.

ICI is being taken over by Akzo Nobel for £6.70 a share while Reed is selling a subsidiary and giving us shareholders 82 pence sterling per share. What deductions do we have to make on this and should they be kept separate? What is the total amount we need to pay?

Mr P.D., Dublin

That's the sort of good fortune everyone needs, especially amidst the current market turmoil. You will be liable to capital gains tax but you do not need to keep each gain separate. Capital gains liability is assessed by adding together all your relevant gains in a given period, in your case the first nine months of 2008, and assessing the taxable gain.

Of course, you are entitled to an annual capital gains tax exemption of €1,270. You are also entitled to deduct any costs incurred in acquiring or disposing of shares. If the shares were bought before the end of 2002, you are also entitled to apply an indexation multiple to the original acquisition cost to reflect the impact of inflation. A list of these is on the Revenue website.

The only thing that will complicate your position is the precise method used to return money to you in relation to your Reed Elsevier investment. As I understand it, this special distribution equates to about 13 per cent of your original Reed holding.

However, you will certainly need to read closely any material accompanying the special distribution when it arrives to be certain of the position.

Dishing DIRT

With reference to your reply of December 21st, I was surprised to read that Dirt covers full liability for income tax on interest received. For years I have shown interest received (bank, credit union etc) on which Dirt was deducted and the Revenue have charged me the difference between the Dirt rate and the top rate. In addition they take a further 2 per cent health levy.

Could you confirm that Dirt payments cover full tax liability so that I may be able to claim a refund over the past number of years?

Mr P.G., email

Deposit Interest Retention Tax (Dirt) deducted at source at the rate of 20 per cent does cover your full tax liability - but you still won't get a refund. Confused? I'm not surprised. This issue arises every time Dirt payments and tax returns are mentioned.

Even though you have no further liability to tax on the Dirt stopped by the financial institution, you are still required to submit details of Dirt payments to the Revenue.

The full amount of interest received subsequently appears on the balancing statement you receive from Revenue. In order to ensure that no further income tax will be charged, however, you will notice that the standard rate tax band on the balancing statement has been extended by the same amount. Your tax credits figure will also be adjusted to recognise the fact that the Dirt has already been taken at source.

As for the health levy and PRSI, these are not strictly taxes, although the impact feels the same. Where applicable, they will still apply to your interest.

Saving rates

I have €100,000 to invest and I see there is a very large variation in savings interest rates offered by banks. In the light of the Northern Rock fiasco, I'm worried that banks offering the higher rates may not be able to continue doing so. Do you have opinions on this or other suggestions on how to invest the money safely at a reasonable rate of return?

Mr T.F., Dublin

There are two points you should consider. First: Northern Rock was the first UK bank collapse in close to a century. Second: even then, the British government felt obliged to step in and protect savers - at a cost to taxpayers currently running at £25 billion. Bank deposits in Britain and Ireland are remarkably safe. Can they continue to offer current rates? Well, that depends on the market. You will find the best current rates on offer in the Pricewatch column on this page.

• Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irish-times.ie.

This column is a reader service and is not intended to 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.