Q & A: I am a 24-year-old male in full employment. I live in my parents' home and pay them €100 per week for accommodation. I feed myself. Can I claim a tax allowance in respect of my rent payments and can I claim in respect of previous years when the situation was the same?
If I am granted a tax allowance, will my parents have to pay tax on the income that they receive from me?
Mr A.D., Dublin
I'd be very careful about going down this route. It may be that the course of action you outline might yield you a small return by way of tax relief. But this would be far outweighed by the cost to your parents, who would certainly have to register as landlords and would be fully liable to income tax on the full rental income.
Worse still, as this is their main property, they would not qualify for mortgage interest relief.
The accountants to whom I spoke said that, while technically it might be possible, it was not a situation they had ever come across simply because, overall, the family would lose out financially from such an arrangement.
Eircom issues
I read with interest your response on losses incurred on Eircom offsetting gains in Aer Lingus from your article last week. I had an identical scenario myself and am sure many of your readers have. I was confused by your response on two counts:
1) Valentia's buyout of the fixed element of Eircom occurred, I think, in 2002. Taking from your example, the reader realised a loss of €520.08. Can that loss be used to offset gains in 2006 even though it was incurred in 2002?
2) Again, in the example shown, the reader stated he had sold shares in Vodafone in April 2004 at a loss of €1,982.75. Once again, can a loss incurred in 2004 offset tax in 2006?
Mr E.N., Cork
The simple answer is that, yes, you can. The capital gains tax system is not designed to punish people for losses; it is more designed, rather, to provide that where a person makes a gain on the sale of assets, they are subject to taxation.
Essentially, any capital loss you incur is set against a capital gain in the year in which it occurs before asssessing any tax liability on that gain.
If the loss is greater than the gain - or if no capital gain exists against which a capital loss can be offset - the loss can be carried forward to be set against a subsequent capital gain.
There is no time limit on this. The loss remains on the books until a sufficient gain emerges to nullify it. Only at that point does capital gains tax liability enter the equation.
This is fortunate for investors in Eircom, many of whom would not previously have come into contact with the notion of capital gains and investment in such assets.
Morrogh affair
Last Friday, the very full coverage of the Morrogh affair did not mention those clients of the firm who held their shares in certificate form instead of nominee accounts. Was the treatment the same in both cases? My stockbrokers are keen on nominee accounts only but I like my piece of paper. What is your opinion?
Mr P.M.,
The treatment was not, to the best of my knowledge, the same in both. I am aware that, following the collapse of Morrogh in 2001, share certificates that were traceable to particular customers were returned.
Shares held in nominee accounts were frozen and remained so for some considerable time after share certificates were returned.
There was a High Court case over whether losses should be spread over all investors or only those whose accounts were plundered by junior partner Stephen Pearson. The outcome did hold out the prospect of the receiver Tom Grace pursuing holders of share certificates for a share of the burden but I don't think that happened ultimately.
Clearly, in this case, certificates were the better option. In general, I am against nominee accounts, although they have their advantages in terms of felxibility and anonymity. They can also be more secure than paper certificates that are easily lost.
In any case, the Irish Sotck Exchange is moving towards a situation where all shares will be held electronically - either through nominee accounts or through Crest accounts that are more actively controlled by the investor - but through a stockbroker.
Stockbrokers do prefer nominee accounts because they are less hassle and more cost-effective for the brokerage. If you prefer paper certificates and are prepared to accept the inevitable delays this entails in conducting stock market transactions and you are confident of your ability to hold on to your paper certificate, I would do so - at least until the choice is removed.
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. Due to the volume of mail, there may be a delay in answering queries.
