People aged 70 or over whose aggregate income for the year is €60,000 or less pay a reduced rate of USC (currently 4 per cent).

It would appear from the wording used that, where aggregate income exceeds €60,000, USC is charged at the standard rate (currently 7 per cent) on the entire income and not just on the amount in excess of €60,000. Is this correct?

Mr P.L., Dublin

The wording on these things can sometimes be confusing but the Revenue Commissioners does publish a very helpful and plainly written “Universal Social Charge – Frequently Asked Questions”, or FAQs as they tend to be known in our acronym-riddled world. An indication of just how confusing this whole area is can be found in the fact that the publication runs to 55 pages.

Essentially, universal social charge (USC) is an additional form of income tax brought in by a Government precluded from increasing income tax by its pre-election pledges.

Provision has consistently been made for taxpayers over the age of 70, who have attracted a reduced rate of USC since its introduction.

However, in the last budget, the Minister for Finance decided that people with an income in excess of €60,000 should no longer be entitled to reduced rates of USC despite being over the age of 70.

In a world where many families must survive on considerably less, the thinking is that a retirement income of €60,000 a year is comfortable enough not to attract added relief and, despite the distortion that is the USC, it is hard to argue with that.

However, the situation is not as grim as you suppose – you will not be paying the 7 per cent on everything if your USC-liable income is above €60,000.

You will pay 2 per cent on the first €10,036 and 4 per cent on the next €5,980.

The 7 per cent rate only kicks in for income above the €16,016 threshold.

It is also worth noting that any social welfare income/pension is not liable to USC.

If you had income below the €60,000 threshold – but above the €10,036 lower exemption threshold – you would pay 2 per cent on the first €10,036 of income and 4 per cent on everything else.

However, it is not the case – as some have supposed – that the "reduced rate" applies right up to the €60,000 threshold with the "full rate" only kicking in thereafter.

How do I calculate the baseline for
capital gains?

Several years ago Standard Life (UK) granted certain policyholders a small number of free shares. Over the years I have reinvested the dividends in more shares.

If in the future, I were to sell some shares each year, staying below the tax threshold, how do I calculate the baseline for capital gains purposes. Hopefully it is not zero each time.

Mr J.F., email

When Standard Life floated in 2006, it proved a windfall for with-profits policyholders as you mention.

Essentially, everyone received a minimum of 185 shares, plus an additional amount determined by the size of their policy and how long it had been held with the assurer.

Shareholders who held on to those shares also got a bonus share on the first anniversary of the July 2006 flotation for every 20 shares they had held for that first year. Thereafter, as you note, they will have received dividends in the normal manner, and had the option of receiving those in cash or converted into additional shares.

The original shares will have a nill value as they cost you nothing to purchase, as will the anniversary bonus shares. However, with the dividend reinvestment plan (DRIP) – where your dividends were paid in additional shares rather than cash – the position is different.

Standard Life has paid dividends consistently since its flotation and those have risen over the period.

The number of shares you will have received on each occasion will depend on the dividend due and the price of the shares at the time they were “purchased” with the dividend.

Standard Life or its share registrars, Capita, will have sent you documentation on each occasion outlining how many additional shares you now hold and the price paid for them. Hopefully, you will have held on to this information.

On the tax front, there are two issues. First, the original dividend will have been liable to income tax, regardless of the fact that it is being paid in shares rather than cash. In the case of UK dividends, UK authorities deduct a “tax credit” – essentially 10 per cent of the gross dividend, which can be set against tax in the UK.

Unfortunately, it has no relevance these days in Irish tax law. Thus, you are liable to Irish income tax, but only on the net dividend – i.e. the amount paid to you or used to purchase shares under the dividend reinvestment plan.

Thereafter, you have a capital gains tax (CGT) issue.

The “base cost” for shares purchased under the dividend reinvestment plan will be the price at which they were acquired in the market on the dividend payment date. If you have not kept hold of your documentation (and you should have), contact Capita who should be able to provide you with the information.

That should allow you organise the future sale of shares without triggering a CGT liability.

Remember two additional things: the CGT annual exemption and “first in, first out”. The annual exemption means you can make a capital gain in any year of €1,270 before becoming liable for capital gains. Of course, before taking the exemption into account, you need to offset any losses you might have built up on other dealings.

First in, first out is a rule which determines the order in which a shareholding built up over time is sold.

Essentially, when you sell, you are deemed to be selling the shares you have held the longest – in this case the ones from the original 2006 flotation of Standard Life.

You cannot “choose” to sell shares acquired more recently under the dividend reinvestment plan ahead of these original shares.

So the order is: windfall share; bonus shares; and then the dividend reinvestment plan shares starting with those received in 2007 for the final 2006 dividend and finishing with those coming to you for the second half of 2013 following next month’s Standard Life annual general meeting.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St reet, D ublin 2, or e mail to dcoyle@irishtimes.ie. This column is a reader service and is not intended to replace professional advice.