Tax withheld, but is there more to pay?

QA: Q I have a number of shares in Irish Life Permanent that I receive dividend cheques on. All these cheques state that withholding tax has been paid on them. I assumed that that meant that tax was paid and the money was mine to do with as I pleased. However, I was recently told that I would owe more tax than that and would need to declare the income received for tax purposes.

Several phone calls to the Revenue commissioner and PAYE hotlines later, I am still in the dark. I have been variously told that:

– I do indeed have a further liability and will have to furnish tax vouchers for the number of years I have been receiving dividends;

– I have a liability but only for the last four years and should provide tax vouchers for that period;

– I have paid tax and only need to declare them due to now being jointly assessed with my husband who is being self- assessed at the moment so only need to declare them for 2008.

Can you shed any light on this? As it will cost me money to get the tax vouchers reissued I would like to be sure I need them before doing anything else.

Ms D.B., e-mail.

A The basic thing to remember is that dividends from shares are a form of income and, in Revenue terms, are liable to income tax.

Dividend withholding tax is deducted at 20 per cent and this can be offset against your total income tax liability. If you are not liable for tax, you can claim a refund; if your income tax liability is rated at 20 per cent, the dividend withholding tax amounts to full payment; if you are liable to income tax at 41 per cent, you owe a further 21 per cent on your dividend.

The four-year rule relates only to claiming refunds from the Revenue. It doesn’t work the other way around. If you owe tax, you still owe it. If you are jointly assessed with your husband, who is self-assessed, your dividend income on which tax is outstanding needs to be disclosed.

Q A friend of mine was buying some shares a while ago and asked me was I interested in buying some. I accepted his offer and he bought the shares, all of which are registered in one purchase in his name. Can I ask would I have a potential capital gains tax liability when the shares are sold or would it be my friend, the registered owner, who would be responsible for the settlement of any capital gains tax liability that may arise?

Mr N.L., e-mail

A As far as the tax authorities are concerned the owner of the shares is the person in whose name they are registered. In this case that is your friend.

That means that, should any taxable capital gain arise on the dealing in these shares, it is your friend who will be held liable.

Any arrangement between the two of you is a personal matter and, as a matter of honour, I would assume you would recompense your friend for any tax paid on your behalf under the arrangement. However, such liabilities explain why advisers counsel for clarity and formal agreements when it comes to financial affairs.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes. com. 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 questions. No personal correspondence will be entered into.