Dominic Coyleanswers readers' questions bank-deposit security and CGT.
Finer details of deposit guarantees
Q Regarding your article last week, could you clarify the detail of the €100,000 guarantee by the Government. As it applies to an individual account holder, does the guarantee therefore rise to €200,000 for a joint account or would it be necessary to split the funds into two separate accounts in separate names.
Also you refer to the fact that money deposited with Northern Rock is fully guaranteed by the UK government. I was informed by my bank that this only applied to funds deposited before the "nationalisation" and any new deposits would only be guaranteed to £35,000 as is the norm in the UK.
Mr B, Dublin
A:Events of the past few weeks have illustrated starkly how fast the situation can change. A couple of months ago, Irish bank deposits were covered by a 90 per cent guarantee on sums up to around €22,000 and no one really thought anything of it. Even as crowds queued up outside Northern Rock last year, most people recognised that the €20,000 upper limit on the amount payable under the deposit protection scheme was sufficient for their needs.
The total collapse of confidence in the financial services sector forced the Government last week to radically improve the terms of the deposit protection fund - ensuring that the first €100,000 of deposits by an individual with a particular institution was fully covered. Days later, amid continuing concern about the health of elements of the Irish banking system, the Government has felt forced to enact legislation to fully protect all deposits, regardless of size, with any of six Irish-owned banks and building societies - AIB, Bank of Ireland, Irish Life & Permanent, Anglo Irish Bank, EBS and Irish Nationwide - and that guarantee may yet be extended to certain other banks operating here.
So where does that leave you? If your funds are with one of the six institutions named above, your funds are fully covered, regardless of size and whether the account is in joint names or otherwise.
If your funds are elsewhere, other than with RaboDirect, Northern Rock, Leeds Building Society and Investec, the €100,000 limit applies to each individual - ie each named signatory on a joint account has their own threshold, so a joint account for two people would effectively have protection on €200,000 as long as neither party has any other account at that bank or building society.
On the Northern Rock issue, the information you have been given by your bank is wrong - not too surprising given that it has no interest in you switching your funds to Northern Rock or elsewhere. The UK government guarantee covers all deposits in the bank at the time it was "temporarily" nationalised as well as all funds subsequently deposited in those accounts or new accounts and all interest paid on those accounts. The UK government has additionally guaranteed that it will not withdraw this guarantee without giving at least three months' notice. These terms are explained on the Northern Rock website: www.northernrock-ireland.ie
CGT and delayed house sale
Q You stated recently that there is no capital gains tax (CGT) on the disposal of a principal private residence if the home is sold within one year of moving to a new home. But if the sale is after that, when is the base datum considered for calculation of CGT? The following will illustrate the question. A home was purchased in, say, 1994 for €80,000. In 2004 it was valued at €250,000, but it failed to sell. If it were sold in 2007 at, say, €260,000, then CGT is surely based on €10,000 gain. Surely the base price for CGT calculations cannot be €80,000 as the home was principle private residence from 1994 to 2004.
Mr J McK, Waterford
A:Capital gains tax is not as straightforward as you might imagine. In the illustration provided above, you owned the house for 13 years - from 1994 to 2007. Of this period, it was your principal private residence for 10 years - from 1994 to 2004 - and, as previously explained, the final year of ownership is determined to be a period of owner occupation regardless of the actual circumstances for the purposes of capital gains. Thus, your property was determined to be your principal private residence for 11 of the 13 years of ownership. For the balance, ie two years or two-thirteenths, the house is considered an investment property and you will pay capital gains tax on this portion - 2/13ths - of the increase in the value of the property over the period of ownership.
Of course, €80,000 back in 1994 is not worth the same these days and, up to the end of 2002, the Revenue set down indexation multiples to reflect this. So, depending on whether the property was bought before or after April 1st, 1994, your €80,000 purchase price is now deemed to be either €106,480 or €104,720. You are also allowed deduct from the gain any costs incurred in buying or selling the property - legal and estate agency charges for example.
Leaving them aside for the moment and assuming you bought the property before April 1st, 1994, you have an "adjusted purchase price" of €106,480 and a sale price of €260,000. That leaves a "gain" of €153,520. Two-thirteenths of that is €23,618. You are entitled to a CGT exemption of €1,270 in any given year, reducing this taxable gain to €22,348.
Capital gains is levied at 20 per cent which would leave you, in this example, with a capital gains tax bill of €4,469.60. The tax is payable by October 31st of any year on gains realised up to the end of September in that year and by January 31st of the following year on gains realised in the final three months of the previous year.
As stated previously, this example does not take costs incurred in the purchase and sale of the house into account.
• 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 replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
