MD writes from Dublin: I live with my parents in a house that is in my name, but would now like to transfer ownership of the house to them. They own no property because they signed over the family pub business to my brother and me three years ago. If I were to gift the house to my parents or sell it to them at less than the market value (currently €180,000) what would be the tax implications for them and for me? The house cost €43,000 14 years ago, and they have been living there for 13 years.
You can gift each of your parents an asset worth €45,644 (or a joint €91,288) tax free, assuming their lifetime tax-free threshold is still in place. More than that amount and they will have to pay 20% capital acquisitions tax (CAT). If the market price is €180,000, their combined tax bill would be €17,742. Do they have this kind of money? I’m afraid the Revenue will not allow you to gift this house to your parents below its market value.
If security of tenure is an issue you could draw up a legal document guaranteeing them a lifetime right of residence.
If your motives are to help them financially, you can still do this without your parents incurring such an onerous tax bill. What about gifting them €91,288 worth of the house — which they can receive tax free and dispose of at a later date — to you, or onto the open market if you, as the co-owner, agree.
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Or, as owner, you could raise a modest mortgage on the house and gift them this money to boost their income, though this might affect any means-tested social welfare benefits they receive (including non-contributory state pensions).
Parents can also be recipients of a tax-efficient Deed of Covenant from a child. You could also leave all or part of the house to your parents in your will to ensure their long-term interests are protected if anything were to happen to you, though they would be liable to CAT on such an inheritance.
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Bank’s charges hit at wages payment
FR in Dublin writes: A few months ago, I started seeing a €6.35 charge from AIB on my inward fee advice slip for my wages which are paid by electronic transfer. The bank said it was a standard charge but I have never had to pay this before and, as I was not notified in advance, I am seeking to have it refunded and waived in future. Am I within my rights as a long-term personal banking customer to refuse a charge?
I have discovered that your wages are paid to you from your employer who is based in Britain. AIB says there is an international payment charge of €6.35 on electronic transfers on sums in excess of €127. If your wages come from within the eurozone and were below €12,500, and the correct IBAN number was used, the charge would only be 75c. This charge has been in effect since last summer. To avoid paying it you could ask your employer to revert to a direct euro cheque payment.
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It’s never too late to change brokers
JBD writes from Galway: I’m 63 and planning to retire in December 2005. I’ve had brokers over the past 15 or 20 years dealing with my pension, usually to their own advantage. I have two separate pension funds, one with Irish Life in an “exempt fund”, whatever that means, and one with Canada Life, neither of which is performing very well. I have lost 30% on the latter fund in recent years which is invested on “the open market”, and into which I put €13,500 every year. Should I keep it there and risk a loss, or move it to a guaranteed fund and be sure of a safer return? I am hoping that between the two funds, and another €50,000 contribution, my pension will be worth about €492,000 which would enable me to maximise my tax-free lump sum and allow me about €350,000 to €380,000 for an annuity pension/or other options.
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First, if you do not have any faith or trust in your brokers — who sound as if they have been paid by commission rather than on a fee basis — then you should dismiss them and hire a fee-based authorised adviser with plenty of pension experience to review the state of your two pensions.
It usually makes sense for pension fund assets to be gradually shifted out of volatile equities and into safer cash and bond assets in the five-year lead-up to retirement, but it doesn’t sound as if this has happened in your case.
The new adviser will examine the risk exposure of your funds, even at this late date and should check to make sure that you have claimed all your tax relief on contributions. Most advisers I know recommend that pension contributions of your size are spread around between more than one or two pension fund managers; the two companies you mention have generally not been top performers over the years, and I suspect that the proportion of your money that has gone in charges and sales commissions is much higher than would have gone in fees, had you gone that route from the beginning. More than anything, you need professional, unbiased advice. Good luck.
Jill Kerby is co-author of the 2004 TAB Guide on Money, Pensions and Tax. E-mail her at money.ireland@sunday-times.ie or write c/o Money Matters, The Sunday Times, Fourth Floor, Bishop’s Square, Redmond’s Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility.