Personal Finance

Barry McCall gives us some tips on Capital Aquisitions Tax and a Member's Survey from St.Patrick’s Credit Union.

All that you leave behind

Readers of a certain age will recall a time when the phrase "death duties" was enough to strike fear into the hearts of most ordinary people. Thirty or forty years ago the tax was so onerous that many people found themselves having to sell the family home upon the death of a parent or spouse. But those days could be coming back thanks to rising house prices.

Things changed greatly in the 1970s, however, and reasonable allowances were given to spouses and children in relation to the amount they were allowed to inherit before paying tax. The name of the tax was changed as well, instead of death duties it became gift and inheritance tax, and is now known as Capital Acquisitions Tax, which is charged at a rate of 20%.

Capital Acquisitions Tax comprises Gift Tax, Inheritance Tax and Discretionary Trust Tax. Gift tax is charged on taxable gifts taken on or after the 28th February 1974, and Inheritance Tax is charged on taxable inheritances taken on or after the 1st April 1975. There is no real difference between the two, save that an inheritance is a gratuitous benefit taken on a death and a gift is a gratuitous benefit taken otherwise than on a death.

The tax is charged on the taxable value of the gift or inheritance. The taxable value is arrived at by deducting from the market value of the property comprised in the gift or inheritance permissible debts and incumbrances and any consideration paid by the beneficiary. In other words, if the beneficiary has to pay legal or other fees, these can be deducted from the taxable value of the gift or inheritance.

Various tax-free allowances or exemption limits were introduced over the years in an effort to ensure that people weren't forced to sell the family home or whatever. These exemptions have been index linked over the years to keep pace with inflation; the only problem is that house prices have been rising far quicker than inflation.

The relationship between the person who provided the gift or inheritance (the disponer) and the person who received it determines the maximum taxfree threshold - known as the "group threshold" by the Revenue Commissioners. Three group thresholds were introduced in 1999 and these cover three broad groups of beneficiaries.

Group A comprises children of the disponer; Group B comprises parents, siblings, nieces, nephews and grandchildren; and Group C applies to all others. The current tax-exempt thresholds for the three groups are €478,155, €47,815, and €23,908 respectively.

Spouses are not mentioned in any group as gifts and inheritances between spouses are completely exempt from the tax. However, the €478,155 threshold for children could cause problems in the future. For example, a fairly average four-bedroom home in a reasonable area of Dublin will now fetch more than €600,000.

In the event that a child inherited such a residence, they would be left with a tax bill of more than €24,000. And that's before any other parts of the estate are taken into account. Unfortunately, there is no easy way around this. The threshold is not an annual allowance; it is the aggregate of all gifts and inheritances received by that individual, so making gifts to a son or daughter of parts of the estate or home over a number of years will not necessarily lower the eventual tax bill.

On the other hand, there are steps that can be taken to plan for such events. These include taking out some life assurance to cover the potential tax bill, which might be faced by children. It is useful to talk to your solicitor or bank manager about such matters when you are making or reviewing your will.

St. Patrick's Credit Union (ESB Staff) Ltd.)

Members Survey

St. Patrick's Credit Union is conducting a Member's Survey and is asking all of its members for their co-operation and assistance. Every member will receive a Survey by early September, and we would greatly appreciate it if each member takes the time to complete and return them to the Credit Union by the 29th of September.

Prizes to be won!
All members who complete and return the Surveys will be entered into a draw, in which 3 lucky members will win a top of the range Plasma Television.

A Word of Warning

A number of our members have recently advised us that some banks and building societies are "discreetly" adding on an additional payment to loan terms. E.g. Some banks are quoting repayments over 5 years, which should equate to 60 monthly payments. However, in the small print the actual number of payments may be 61, which on a loan of say €20,000 could result in an additional €400 at the "end of the loan term."

St. Patrick's Credit Union has no payments added on to the end of loan terms and has no hidden charges or fees.

The Credit Union cannot be beaten on price either, with a loan rate of just 6.5%!! Repayments on a loan of €10,000 over 5 years are just €45.15 per week (260 payments), or €195.66 per month (60 payments).