Business Questions: “My dad left me €500,000 in bank shares. How can I reduce the risk?”

I was amazed that so much of my father’s wealth was in shares of one company, especially considering what happened to holders of bank stocks during the crash.

How much inheritance tax will I have to pay on shares and how can I get rid of the risk of a single share and invest the income properly? I have already exhausted my pension.

Ciarán, Co. Galway

​AND I will assume that you have not previously received any gifts or inheritances from your parents and are therefore entitled to the unused Band A threshold of €335,000 for Capital Acquisition Tax (CAT) purposes.

I will also assume that you have no liabilities or benefits to pay and that the market value of the shares on the date of inheritance was indeed €500,000.

In this scenario, €335,000 would be deducted from the €500,000 and the Capital Acquisitions Tax (Cat) rate of 33% would be applied, resulting in a tax liability of €54,450.

I highly recommend using the services of a financial advisor to fully map out your situation.

There is no Capital Gains Tax (CGT) on the transfer of assets after death and shares can be sold without incurring high CGT costs if they have not increased significantly in value since they were inherited.

Diversification is key to reducing investment risk. The current emphasis is on passive investing through low-cost products such as index funds.

For lump sum investments, consider your time horizon and avoid investing when markets are high and withdrawing when they are low. If you plan to use up your funds within five years, consider a lower-risk money market fund, government bonds or government savings.

I highly recommend using a financial advisor to carefully plan your life goals, expenses, and income, taking into account inflation and taxes. You can then build an appropriate investment portfolio based on this data.

View these investments as buckets of sorts, like an emergency fund in a deposit or checking account and excess funds in a diversified investment vehicle for at least seven years.

If you are suffering CGT losses then direct investing may make sense as you can use the losses to realise future gains.

Online platforms will give you direct access to funds, stocks and listed funds. However, be aware of tax filing requirements to avoid interest and penalties. Stockbrokers can manage your shares for a fee.

If you do not need to cover losses with future profits, a more aggregated structure, such as an equity-linked life insurance policy, may be appropriate.

This would allow you to invest in a variety of funds that pool client money, making it easier to access investments that you wouldn’t typically have access to as an individual investor.

You can switch between funds available under your investment policy without incurring tax charges.

All insurance companies offer this type of policies as one-time and regular investments.

The insurance company is responsible for calculating, deducting and paying the output tax on the payouts to the tax office.

In the event of your death, any exit tax payable on the policy proceeds can be used by your beneficiary to reduce the amount they pay inheritance tax on.

“I’m 75. How much longer can I live on the payouts from my Zurich SuperCAPP fund?”

Q I retired 10 years ago and have been drawing an annual pension from my Approved Retirement Fund (ARF) ever since. My pension amount is in a fund called Zurich SuperCAPP, which is mainly invested in bonds, stocks and cash.

Since I am 75 years old, I am trying to estimate how long my remaining funds will be enough to cover these payments.

In my annual statement, the “current cash value” is regularly around 10–15% higher than the current fund value.

What value of “value” should I use when estimating how many years I can withdraw this fixed amount?

Kevin, Co. Kerry

​AND SuperCAPP is a united interest-profits fund that aims to provide policyholders with a regular return in line with prevailing medium-term interest rates, while retaining the potential for higher growth over time than a deposit account.

Profits from investments in the SuperCAPP Fund are distributed to policyholders in the form of annual dividends, and a special dividend may be paid upon withdrawal of the funds invested in the Fund for five or more years.

There will be a range of funds available for you to invest your ARF money in

The difference between the “Current Distribution Value” and the “Current Fund Value” is the current special dividend that applies. This dividend is not guaranteed, is adjusted quarterly, and applies only once (including when switching from one fund to another within the ARF).

The annual dividend is declared annually and is reflected in the unit price published daily.

The most appropriate way to calculate payouts will be the current payout value, which reflects the value at a given point in time.

It’s worth remembering, though, that ARF is your pension and there are a range of funds you can invest your ARF money in – you’re not limited to just this fund.

Sinéad Cullen is Head of Wealth Management and Financial Planning at NFP Ireland. You can email your questions to [email protected]