Will the Revenue inquiry affect me? I understand the Revenue is now investigating people who hold life insurance policies that were funded with single payments rather than regular payments.
Does this mean everyone with such a policy is going to come under their review? Also, if someone previously reached a settlement with the Revenue on tax issues, will they be treated differently from other people coming forward this time?
Mr C.R., Dublin
Effectively, it does mean that anyone with a life insurance product acquired with a lump sum may be required to explain where the money that was used to open the policy came from.
Initially, the Revenue has said it is looking at people who invested more than €20,000 in such policies - a threshold that is understood to encompass 200,000 policyholders across a number of institutions.
A significant number of the policies under review are likely to have been opened with perfectly legitimate funds that have already gone through the tax system. But those who invested in such accounts with money on which the relevant taxes had not been paid are facing significant penalties. However, these will be mitigated for those who disclose all tax liabilities - whether on life assurance products or elsewhere - by May 23rd and pay their debt by July 22nd.
People coming forward voluntarily will avoid being publicly named and will also forestall any prosecution. They will have to repay any tax due together with interest; however, they will be able to avail of reduced financial penalties on top of this bill. People who are already under investigation by the Revenue will not get credit for "voluntary disclosure". Certain others who have made settlements are also specifically excluded. These are:
Although such people will not be able to avail of reduced penalties, it is likely that they will avoid the possibility of prosecution by coming forward themselves. Naturally, the interest bill they face will also be slightly lower, given that the longer they wait before coming forward/being caught, the more time for interest to mount.
House sale
My wife and I are in our early 70s and we still have a small mortgage outstanding on our principal family residence where we have lived for the past 30 years. We also own a second property (with no mortgage), a small artisan cottage in Dublin's inner city, which has been used by our children while attending college. It has never been let out. We are now contemplating selling this second property and dividing the proceeds four ways. One part would pay off the outstanding mortgage on our current property and the other three would be divided between our three children.
We have owned the cottage for the past 40 years and its present value would be in the region of €250,000. It was extensively renovated and extended some time ago.
What would the tax implications be at this stage if we sold it on the open market, or if we sold or gifted it to one of our children. Two of the children would be first-time buyers.
Mr A.G., Wicklow
There are a couple of things that are slightly unclear from the question. First, I cannot determine whether this Dublin "cottage" was originally your family home - given that it was bought 10 years before your current family residence. If it was, it would have an impact on the tax situation.
Second, you do not state whether any of your children are still resident in the Dublin property. However, the basic issue remains largely the same - at least from your point of view.
Aoife Walsh, solicitor and tax manager at Grant Thornton, says you will be liable to capital gains tax on the second property, as you have another principal residence. Equally, CGT will be due whether you sell the Dublin house outright or pass it on to your children in a sale or by way of gift.
The tax would be due on the difference between the purchase price and the sale price and charged at 20 per cent. However, this is somewhat mitigated by indexation, which recalculates the purchase price to take account of inflation - at least between 1974 and the end of 2002 when indexation was abolished. Basically, this means you multiply the purchase price by 7.528 and then subtract this from the sale price to assess your capital gain. Costs and expenses incurred on acquisition and disposal, such as auctioneers or legal fees, are allowable in addition to enhancement expenditure.
Obviously, if you dispose of it on the open market, that is the end of the story. If, however, you sell or gift it to your children, there are other matters to consider. These mainly concern capital acquisitions tax (better known as inheritance or gift tax) and stamp duty.
If you gift the house to your children, it could become liable to gift tax. Given the price of the property - around €250,000 - and the current gift tax threshold between a parent and a child - €466,725 - that would not mean an immediate tax bill for any of your children, but it could increase the prospect of their being taxed on future inheritances, if any.
Ms Walsh notes that this could be avoided if one of the children is still living in the property and has been doing so for the past three years. In that event, the house could pass to them without affecting their inheritance tax threshold.
If the house is sold or gifted to the children, there is the prospect of their being liable to stamp duty. You say two of the children are first-time buyers. If they bought the property, stamp duty would not arise. If, on the other hand, all three children are purchasers, the fact that one is not a first-time buyer strips all three of this advantage.
On the plus side, the children could avail of "consanguinity relief". This operates when a property passes between related parties, such as parents and children. The impact of the relief is to halve the rate of stamp duty applied to the deal. In the case of this property, it would bring stamp duty down from 4 per cent to 2 per cent.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice.
