I have a second credit card with a major bank, which I no longer use and which has been dormant for about 12 months.

Credit cards

When I received my statement in May with a 40 stamp duty charge, I rang the bank to cancel the card and close the account. I used to work in the credit card section of a major bank about 10 years ago, and stamp duty used to be written off and the account closed in this situation. I was advised that the stamp duty would still have to be paid, and a further 40 in stamp duty would be payable, due to an anti-avoidance measure introduced by the Government whereby another year's stamp duty is payable when you close the account. Adding this to interest and penalties, it will cost me almost €100 to close a dormant bank account. Is this correct, and is there any way to avoid this?

Mr N.D., Galway

The explanation you were given is somewhat disingenuous but that is of little consolation to you as the bottom line is that you are liable for two instalments of stamp duty on the card.

The May statement would have informed you of stamp duty deducted from your account in April in respect of the previous year's business. As you will know from your own history, banks tend to levy these charges in April - probably because, historically, the tax year ended around that time.

While the tax year has now been shifted to a calendar year basis, the last Finance Act, I gather, dictated that the tax year for the purposes of stamp duty on credit cards would be from April 2nd to April 1st.

As a result, people in your position were taxed once for holding a card on April 1st, 2003 - the last day of the previous financial year by this measure. When you then moved to close your account following the statement in May, the bank charged you for continuing to hold the card on or after April 2nd, 2003 - the start of the new year on the card stamp duty regime.

Regardless of when you close your account, the bank is liable to collect stamp duty in respect of any credit card account open on or after April 2nd - even if it were to close on April 3rd. As it will have to pay the duty, it is understandable that it will seek it from you before you close the account.

So it is not that another year's stamp duty is payable by way of penalty when you close the account but rather that your use of the account has continued into another year.

To be fair to the Government, I think this was partly to facilitate people who were trying to make up their minds what to do about their cards following the announcement of the dramatically increased charges by the Minister for Finance, Mr McCreevy, in his last Budget. That took place on December 4th last and, in the run-up to Christmas, many people will not have had time to organise their affairs and reduce the number of cards held.

There was a lot of publicity about this issue after the Budget, and people were advised to act before the April cut-off. As you are discovering, there is a fairly hefty price to pay for failing to do so.

Selling land to nephew

I purchased land in Ireland a decade ago and have been made an offer by my nephew to purchase a section of this land back from me. I am inquiring about my position with regard capital gains tax from the sale of my land to my nephew. Would my nephew take any tax burden or would I as the seller incur the full cost and what would the rates of capital gains tax be?

Mr P.B., e-mail

The person selling the asset, in this case the land, is the person making the gain and therefore it is you who would be liable to capital gains tax.

The situation in Ireland is that capital gains tax is levied on any gain, once expenses have been taken into account. In this case, obviously, you will not be able to include all the expenses involved in the original purchase as you are only selling a portion of the site. Expenses involved in the sale will be a valid offset to any capital gain, which itself will have to be determined by subtracting from the sale price, that fraction of the original purchase price accounted for by the plot now being sold.

An indexation multiple, determined by the Revenue Commissioners, also comes into play to allow for the effects of inflation on the value of the investment from the time of its purchase to the end of last year. From that date, the indexation factor has been abolished by the Minister for Finance, Mr McCreevy.

Finally, any individual has an annual capital gains tax exemption of €1,270 in respect of disposals in any calendar year.

Capital gains will certainly be due in Ireland and, if you yourself are based in another jurisdiction, you may find yourself liable there as well, although double taxation agreements with Ireland should see the tax paid here offset against any liability elsewhere.

Gains and losses

I have made a number of stock market investments that have yet to provide a profit for me. Given that I am nursing a loss, must I declare this on my annual tax return? If so, do I have to break down each deal (some have yielded a profit and others a loss)? Lastly, at what point does an investor, who is subject to capital gains on his trading profit, become a day trader and are any gains then treated as liable to income tax rather than CGT?

Mr D.D., Dublin

The simple answer is that you do have to declare any disposal on your annual return, regardless of whether the asset was sold at a gain or a loss. You will have to do this for each and every disposal during that tax year, which is why it is so important to keep accurate records.

The situation with day trading is a lot more complicated. Quite simply, there is no cut and dried ruling. The Revenue examines each case as it comes in which allows for all sorts of interpretation and confusion. How, for instance, does one differentiate between an enthusiastic amateur who may trade more than is good for them and a professional day trader who is trading intensely in the pursuit of profits on the margins?

As a general rule, the Revenue is likely to look very carefully at instances where shares are bought and sold or sold and re-acquired in a very tight timeframe. If it were to happen occasionally, you might well be able to argue that you are simply an investor playing the market on the back of experience and informed judgment; if it happens regularly, the revenue will almost certainly argue that you are day trading.

The difference in tax is substantial - 20 per cent on capital gains as against the marginal rate of 42 per cent on any income above the standard level threshold - so if you are in any doubt, I would invest in a good accountant to argue your case to the Revenue should it become necessary.

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. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.