Dominic Coyleanswers your questions

At a loss

I recently sold my house, and I put the proceeds from same into Eagle Star's European equity fund at the start of the year.

The total amount was €500,000. It is now worth about €460,000.

You can switch your money into their secure fund if you wish, where the amount is guaranteed, but interest is very low. Under this option, the amount is tied in for five years, and there is a penalty clause of 4.5 per cent if you take it out within the five years, which reduces each year by one percentage point.

What can I do to try to improve my present position?

Mr D.C., e-mail

From the tone of your letter, I think you know that switching into the secure fund is probably not the answer - at least in terms of recovering your loss. Such a switch would also tie in your money, which might not be desirable in your position.

I am not a qualified or registered financial adviser and so am not in a position to advise on particular funds. What I can say is that most equity funds have slipped this year in volatile markets but, over time, they have tended to outperform. Within that sector, Eagle Star has a good recent record.

Overall, I think you should consider the benefits of leaving the money where it is - or, if possible, switching into another Eagle Star equity or balanced product. You obviously did some research before choosing this fund in the first place. Opting for the secure fund is really only likely to crystallise your losses.

Losing capital

If I made a capital gain, prior to 2002, I could multiply the cost of the original asset by a Revenue Commissioners factor, thus reducing the monetary gain and the tax paid.

If I made a capital loss before 2002, may I multiply the numerical value of the loss by the same factor for a given year (say 1998) or a similar Revenue Commissioners-generated factor? The object here is obviously to increase the loss when offsetting against subsequent capital gains.

Is there a time limit for setting capital losses against subsequent gains?

Mr R.K., e-mail

Nice try, but the answer to the first question is that you cannot use indexation multiples to exaggerate a loss on an investment.

The indexation multiple, when it existed prior to 2002, was designed to adjust the gain in the price of an asset for the effect of inflation, thus bringing the figure closer to the "real" gain on the investment and ensuring that you are reasonably taxed on your actual gain.

For the same reason, you are allowed to deduct costs incurred in acquiring or disposing of an asset before assessing liability to tax.

However, a loss is simply that: a loss. It is an absolute figure. If you invested, say, €1,000 and you subsequently sold for €500, you are out of pocket by €500 and no more, so there is no validity in indexation.

On the second point, to my knowledge there is no time limit on offsetting capital losses against subsequent gains. Any loss is offset against future gains until the loss is fully offset.