Is tax due on Custom House Capital cash?

Your questions answered

Is tax due on Custom House Capital cash? Stock image
Is tax due on Custom House Capital cash? Stock image

Q In 2004, I had a sizeable pension together with an investment in an office block in Brussels, which I entrusted to Custom House Capital (CHC) to be put into an Approved Retirement Fund (ARF) and was due to be managed by them. CHC went into liquidation in 2011 and a liquidator was appointed to recover what it could for the investors. The office block investment was a sequestered investment and not under the liquidator’s control. CHC investors have been recently advised that the liquidator is realising the assets of CHC and will distribute them on a pro-rata basis. As of now, the administrators cannot put a figure on the sum I invested (although I can) because the information they can gather from CHC portfolios is described as untrustworthy and nobody seems to be able to put definite figures on anything. Within the next two years, the liquidator has been directed by the court to distribute the funds to the investors. My query in light of all that has happened is what are the tax implications going to be when I withdraw whatever the liquidator deems to be my share? On entering the ARF, I was advised that any withdrawals would be taxed at the full rate. As the investors in CHC have lost considerable amounts, will the Revenue treat the money as lost income and not impose any tax? Paddy, Co Kerry

Approved Retirement Funds (ARFs) are post-retirement investment vehicles through which certain individuals can invest the proceeds of their pension fund in retirement and draw cash as required. ARF’s can be offered by what are called ‘qualifying fund managers’ and this term includes life assurance companies and stockbrokers.

Income and gains from assets in an ARF (set up on or after April 6, 2000) are exempt from income tax and Capital Gains Tax (CGT) while retained in the ARF. Other than the exceptions provided for in tax legislation (such as the transfer of funds from one ARF to another), the withdrawal of any funds from an ARF is liable to tax in the hands of the ARF holder.

The ARF holder may withdraw funds from the ARF as and when required and the qualifying fund manager is required to deduct the appropriate taxes from payments made out of the ARF. Irrespective of the performance of the underlying assets in an ARF, all withdrawals from an ARF are liable to income tax, Universal Social Charge and PRSI as appropriate.

In relation to the specific question as set out above, the position is that the amounts received from the liquidator will not be exempt from tax when subsequently withdrawn from the ARF. These amounts will be subject to the normal taxation rules when withdrawn from the ARF.

PAYE system overhaul

Q I’ve heard that the Revenue Commissioners plans to reform the PAYE system. I’ve worked in Ireland – and been a PAYE worker here – all my life. What will be the main changes that I can expect when the new PAYE system comes on board? Gemma, Clare Hall, Dublin 13

Under the new PAYE system, from January 1, 2019, your employer will be required to report details of your pay and statutory deductions to Revenue in real time, every time it pays you.

This will mean that Revenue can ensure that you get the full benefit of your tax credits and rate bands throughout the year, even if you have more than one employment.

This is in contrast to the current system, where there is an ‘end of year’ reconciliation and you must, potentially, wait until after the year-end for any refund, or perhaps be faced with a tax underpayment at the end of the year.

The new PAYE system will also provide you with greater transparency; you will be able to confirm, through Revenue’s myAccount online service, that your tax deductions and social insurance contributions have been fully reported to Revenue. You will be able to view your tax and other deductions as they build up over the year and you’ll have the option to make any necessary changes online, in real time, to your tax credits and how they are allocated.

If you move job, you’ll no longer have to get a P45 from your old employer. Your old employer will simply report to Revenue through the new real time PAYE system that you are no longer on the payroll and have left that employment. When you start with your new employer, your available tax credits and rate bands will automatically be assigned to this new employment and this means that you will not have to pay emergency tax.

You will still be able to claim relief on health expenses, or make other claims after the year has ended – however you won’t have to wait for your employer to give you a P60: Revenue will provide you with an end-of-year income statement showing your pay and deductions for all your employments.

In summary, PAYE modernisation and the move to real time PAYE reporting will transform the administration of payroll taxes.

Under the new PAYE system, employees, employers and Revenue will all have access to the most accurate and up-to-date information available relating to pay, tax, PRSI and USC deductions. This will ensure that the right amount is collected at the right time from employees and that employers pay their correct liabilities on time. The new PAYE system will reduce the administrative burden for employers and provide improved accuracy and transparency for employees, employers and Revenue.

Daughter’s inheritance tax

Q My wife and I, and my daughter each own a third share in the house we have been living in for 18 years. When myself and my wife have passed away, can we leave our two-thirds share of the house to my daughter free of Capital Acquisition Tax (CAT) if she continues to live there for at least six years? Frank, Dundalk, Co Louth

Legislation provides for a dwelling house exemption which allows for property to be inherited tax-free where the inheritor is already living in the home – subject to certain conditions.

Firstly, the inherited dwelling house must have been the deceased person’s principal private residence at the date of his or her death.

This requirement is relaxed in situations where the deceased person had to leave the house before the date of death because of ill health – for example, to live in a nursing home. In addition, the beneficiary must not have a beneficial interest in another residential property.

Finally, the beneficiary must have lived in the house for three years prior to the date of the inheritance and must continue to live in the dwelling house for six years after the date of the inheritance. In the scenario set out, the daughter could inherit a two-third share of a dwelling house in which she has lived with the disponers free from CAT, provided she had lived there for three years before the inheritance and she remains living there for six years after the inheritance – so long as she has no interest in any other dwelling house at the date of the inheritance.

The dwelling house exemption applies to parents and children living together as it does to any other persons living together who satisfy the qualifying conditions for the exemption.

Padraigh Donnelly is a manager in the Revenue Commissioner’s planning division, with responsibility for developing and implementing Revenue compliance policy.

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