Jill Kerby

Royal Navy Pension is torpedoed by Irish tax

 

 

MB writes from Dublin: I am in receipt of a small Ministry of Defence pension from the UK as I served in the Royal Navy. My understanding is that I don’t have to pay tax on it here in Ireland where I am resident. I am at present fully employed but retiring in 2014. Is this correct or am I just living in hope?

As a general rule, all income is subject to Irish income tax if you are tax resident here, including your Royal Navy pension that you should be declaring in an annual income tax return. However, if this pension is already taxed at source by the UK authorities, in order to avoid you paying tax twice on the same income, you can claim a tax credit here if the combined tax exceeds your Irish tax liability of either 20% or 41%. The Revenue ROS.ie on-line pay and file tax deadline is November 15.

Meanwhile, you can always request from the UK authorities that your MOD pension is paid gross, not net of tax (if this is the case) so that you only pay income tax once here in Ireland. 

It may be helpful for you to know that from 2014 as a pensioner aged 66 or over, you will also be entitled to earn €18,000 or €36,000 (as part of a married couple) entirely income-tax free, in addition to unlimited income and Dirt-free returns from state savings.

Also as a pensioner you will no longer be liable to the 4% PRSI charge on any income, not even on unlimited amounts of unearned income. (Unfortunately, from next year, non-pensioners will be liable to 4% PRSI on unearned income like rent, deposit interest or dividends that exceeds €3,174 per annum.)

However, until you turn 70, you will be liable for the universal social charge (USC) at a 4% rate if your total individual income (excluding yields from tax-free state savings) is between €10,036 and €16,016, or 7% if it exceeds €16,016. Over age 70, USC reduces to 4% on qualifying individual income up to €60,000.

 

 

TMcG writes from Blackrock:  I heard recently that the €3,000 CAT-free limit for gifts from a parent to a child could be increased to €6,000 if the gift were to be made by the two parents, i.e. €3,000 from each.  Inquiries made by colleagues has provided conflicting answers.  Perhaps this is something you could clarify?

You don’t say who provided the information your colleagues passed onto you, but they were misinformed. Under capital acquisition tax (CAT) rules anyone – whether a direct relative, a friend or stranger is entitled to give another person up to €3,000 a year, as a gift, tax-free. The gift does not have be reported to the Revenue by either the benefactor or recipient.

As parents, this means that both of you can give each child €3,000 a year in perpetuity, along with every child of your acquaintance if you so wish. This can be a valuable succession planning or inheritance tool as the tax-free gifts of up to €3,000 per annum have no impact on lifetime CAT thresholds; that is, the aggregate value of inheritances or gifts within the three CAT tax-free threshold groups, that is, Group A, parents and children; Group B, linear ancestor/descendents like siblings, nieces or nephews and Group C, strangers.

CEO’B writes from Wexford:  We owe just over €100,000 on our tracker mortgage, which matures in eight years, comprising the ECB rate of 0.5% plus 0.75%. However, we have been saving hard over the last few years and we hope to be in a position soon to clear the mortgage.

Our question is, do you think that due to the fact that our tracker mortgage is costing the bank money, they would agree to reduce the capital sum if we clear it before years’ end? Also, what size discount could we expect and how should we approach them?

 

The question comes up periodically, and the mortgage experts I speak to usually say the same thing. First, is it in your interest to use your precious capital this way? Could you get a better return than 1.25% net (the current cost of your tracker) over the next eight years on the €100,000 by investing it in another, albeit higher asset. 

 

Financial advisors are particularly keen on reminding clients that a low cost, properly invested pension plan that grows tax-free not only attracts marginal 41% tax relief on contributions, (you are paying 41% income tax on every euro you earn over €32,800) but due to the magic combination of time and compound interest on the invested assets, the long term returns from a pension should exceed the mere 1.25% compound interest at stake here.

 

Whether or not your lender agrees to discount your final capital payment is another matter. Yes, trackers are a loss-leader, especially on top of all the payment difficulties so many tracker mortgage clients are experiencing. You, on the other hand, are an ideal client who is already repaying the tracker faster than required.  The advantage to the bank in you repaying the loan sooner is not as great than if you were in serious arrears and suddenly had a lump sum with which to bargain.

 

All you can do is ask and hope, but keep in mind that there is nowhere else you can take your business if the bank turns you down.

 

Even if that happens, keep your eye on the endgame. There is a lot to be said about clearing a huge mortgage early – my husband and i did so 11 years ago and have never regretted it. Not only do you finally own your home outright, saving thousands of euro in future interest payments but you also now have those accelerated monthly payments to spend, save or invest  - even in a worthy, tax efficient pension if you so wish.

 

 

 

 

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Worthless PTSB shares can be put to good use

DP writes from Dublin: Like your correspondent GB from Co. Tipperary (8/12/2013), I hold a small number of essentially worthless Permanent TSB Group Holdings (formerly Irish Life) shares. I also have a small number of worthless AIB shares. I have no share dealing account and no desire to open one. What is the best way to get rid of these shares and so crystallise the capital loss for declaration on my tax return?

One relatively cheap way to sell your shares is to find a stockbroker with low minimum costs for once-off transactions – Campbell O’Connor, for example, only charge €40 for an execution only transaction on share values up to €12,500 or 1.5% of the value, whichever is the greater. Unless you have a huge shareholding (PTSB trades at 5 cent and AIB, 12 cent) the cost to you is more likely to be €40.  Or you could contact a charity of your choice and ask them if they would be interested in accepting the shares in exchange for paying any transaction charges. Big, long-established ones may be very happy to file your unwanted bank shares away in the hope that some day they will be worth cashing in.

As I explained to the Tipperary reader, PTSB (and AIB) were diluted to the point of worthlessness when the State rescued the banks from certain closure. The best you and anyone else with such shares can expect – unless there is a miraculous recovery in the value of these banks – is to dispose of them and carry forward your losses against future capital gains.

 
RW writes from Galway: I am a full-time adult student on a Back to Education allowance of €188 per week. I have no debt and while this is a liveable income, paying the usual car tax, insurance, oil bills can be a strain. I have three saving accounts with An Post that will be worth a total of €87,000 when they mature.  I tried to get a €5,000 loan with my local bank and credit union in which I would pay the capital interest in one lump in December 2015 but to no avail.  I wonder is it possible to cash in one of my post office accounts early and if so what are the conditions, the firsts matures in two years, the rest the following May.

Early encashment is always possible with state savings products whether they are savings bonds, certificates, or instalment savings and national solidarity bonds, but you will suffer an interest penalty that will vary depending on whether the redemption happens at the anniversary of the date of purchase or not. In the case of the latter it will amount to 0.15% per annum of the redeemed amount (the principal) for the number of days between the most recent anniversary of the purchase and redemption. Redemptions will be made within seven days of An Post receiving (at any post office) your completed redemption form that you can download from the www.anpost.ie website.

 

I’m curious as to why you wanted to borrow €5,000 from a bank or credit union when the cost of such a loan per annum, typically interest of 12%-14%, is so much higher than the puny amount of interest you would receive from An Post, or any other deposit taker at perhaps 2%.  Borrowing money to advance your education and employment prospects isn’t a bad thing in itself, but most students only do so because they don’t have sufficient savings or income.

 

 

 

GB writes from Dublin: Can you please advise on any good value health insurance policies, as you did for me 12 months ago? My Laya policy renewal has arrived and is up 32% from €885 to €1167 for 2014.  I am a single man, have made no claims since I switched last year. Are there any corporate policies that are cheaper?

Since you didn’t supply me with the name of your Laya policy, I suggest you contact a good broker who specialises in health insurance, such as www.healthinsurancesavings.ie . They should be able to supply you with a list of similar, cheaper alternative plans from Laya and the other three providers. And yes, the corporate ones tend to be better value:  our community rating system means everyone is entitled to buy any health plan on the market, even those designed specifically for companies.

All health insurance members can do their own research as well by going onto the Health Insurance Authority website www.hia.ie which provides a comparison search engine.

 

PC writes from Dublin: I am in my late 50s and am currently receiving Job Seekers Benefit which will end next May and am currently living off my savings. Am I liable to pay PRSI for as long as I receive this benefit? Does the PRSI stop after I stop receiving it?

You get PRSI credits automatically, that is, you do not have to make the contributions, if you are fully unemployed and getting Jobseeker's Benefit which now lasts nine months if you have made 260 past PRSI contributions, or six months if you have made fewer than 260.  When your Jobseeker’s Benefit runs out your credits should continue if you move onto Jobseeker’s Allowance. PRSI credits continue then, so long as the recipient has made PRSI contributions themselves in either of the last two tax years, or has been credited with PRSI contributions.

 

 

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How will Danske offset impact on mortgages?

RA writes from Dublin: I am a Danske Bank customer with an ‘offset’ or current account mortgage. I am wondering what is going to happen if they close my current account as the positive cash balance in my account at any time is credited or ‘offset’ on a daily basis against my mortgage balance. If they close my other accounts then there will be no money to offset from my mortgage debt, and it will be much worse situation for me.

I see this as breaking my mortgage contract. I contacted the bank but they said they didn't have any information yet as to how they would handle this, and that I have to wait for their correspondence. Also I was not able to find any information related to similar cases where banks have left Ireland.

There is a presumption that Danske Bank borrowers will continue to make their payments to Danske Bank or its agent (as happened when Bank of Ireland Scotland withdrew) after the company quits the retail banking side of their business next year.  As your mortgage is linked to a current account – which will no longer be available to you at some point next year - this will need a different repayment solution.

There have been precedents: after First Active announced it was to close down in the summer of 2009, the outcome was a merger with Ulster Bank. Current account mortgage accounts were transferred with all their existing terms and conditions honoured.  There has been no suggestion of any kind of transfer to or purchase of Danske Bank mortgage loans like yours by another Irish bank.

You can only wait to see what solution the bank proposes and then decide whether it is acceptable to you or not. Meanwhile, you may want a lawyer to review your existing contract.

 

 

GB writes from Co Tipperary:  What is the current and future status of Irish Life shares? I accumulated in excess of 3,000 over many years, as a retirement nest egg. Now that they have been taken over by Great West Life Co, will anything formal happen to them? Is there any winding up or dissolving process that takes place? Or do we get to enjoy their languishing on the stock exchange for all eternity. I note that some publications no longer mention them in share price listings, while other persist.

Your shares would have been accumulated either as part of the share issue to Irish Life and/or Irish Permanent customers when the companies were privatised or because you purchased the shares yourself over the years.

The share price in IPGH collapsed during 2008. In the summer of 2011, the Irish government became the single largest shareholder in Irish Life and Permanent Group Holdings plc when it had to inject over €4 billion into the company.  Overnight it became the single biggest shareholder of the 135,000 shareholders, with 99.2% ownership. The remaining 134,999, including you, ended up with massively diluted share - just 0.8% of the company value.

The sale of Irish Life by Permanent TSB Group Holdings to Great-West Life of Canada in 2012 ended any connection between the original plc and the business of Irish Life. You are now a shareholder in a company called Permanent TSB Group Holding plc. Your shares are now so diluted that it is inconceivable that they would ever be worth much, even if the company market value was restored to its February 2007 peak of €6.2 billion. This is because instead of there only being 275 million shares in circulation valued at €22.80 each, today there are 36.5 billion shares circulating, with a value of just a few cent each.

While the company is still listed, I’m afraid your ‘nest egg’ effectively disappeared when the share price collapsed five yeas ago and was then forever diluted by the state takeover in 2011.

 

PM writes from Cork: As it is not safe to have more than €100,000 in any single bank, is it safe to have more than one Post Office Savings product – that is more than €100,000 in savings bonds, certificates, prize bonds?

The Irish deposit guarantee scheme insures the first €100,000 worth of deposit savings in banks, building societies, credit unions, ordinary post office deposit accounts. State savings products, such as the ones you have mentioned are 100% state guaranteed and do not come under the deposit guarantee scheme.

That said, there are some limits to the amount you may save or invest in tax free, 100% guaranteed state savings products. Savings certificates and savings bonds limit individual holdings to €120,000 (€240,000 held jointly by a couple) and you may only up to €1,000 a month into Instalment Savings accounts. There is no limit to value of Prize Bond holdings.

The four year and 10 year National Solidarity Bonds have individual investment savings €250,000, or €500,000 from two joint applicants and €750,000 from three  joint applicants.

Correction/Clarification:  Two sharp-eyed readers have pointed out that in my answer to Mr PD from Dublin, regarding inheritance, I failed to clarify that since December 5, 1991, a child can only inherit up to the tax-free threshold amount between a parent and child (at that time) over their entire lifetime. Before that date, the child could inherit up to the threshold from one parent and if the parent died after 1991, still inherit the post-1991 threshold amount from the other parent. My answer incorrectly suggested that this would be possible where both parents were deceased after 1991.

 

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Overpaying wont make you veer off trackers

 

FM writes from Dublin: My husband and I own a small business. In 2008 we took out a modest, 20 year tracker mortgage with the EBS. In June 2012, we were in a position to pay an additional sum of €300 on our monthly mortgage payment in order to bring down the capital sum we owed. We did this on condition that this was not a permanent over payment and we could keep the flexibility of the full 20 year repayment term and be able to raise and lower our payments so long as the capital sum was repaid by 2028.

This past July, we informed our lender we had a €20,000 lump sum that we wished to use to further reduce the outstanding capital. Our understanding with the lender was that we would still have the flexibility of the 20 year borrowing term.

In September we were able to repay another lump sum of €15,000 off the capital (under the same terms as before) but we also informed the EBS that we wanted to end the accelerated monthly payment and revert to – at least - our original payment of May 2012.

Problems have emerged.  A mortgage balance statement that includes columns of figures for the interest rate, the amount of interest and capital being paid, the remaining months outstanding appears to be littered with errors.  It now appears that we no longer have a 20 year mortgage that ends in 2028 but one that the lender insists ends in May 2022.  Now AIB is involved and say if we want to adjust our monthly repayments downwards at any time, we will have to apply for a mortgage extension from 2022. We are afraid we might lose our tracker if that happens.

We have been trying to sort this out for months. The banks say they are still “investigating” our claim that we never wanted to lose the 20 year term of the original loan and that we wanted to be able to adjust our payments instead. We have never missed a mortgage payment. Can you help?

You have sent me your file of correspondence and statements dating back to 2012, when you began accelerating your monthly payments and with your permission briefed Karl Deeter of Irish Mortgage Brokers and Financial Advisers.

According to Deeter, “Your reader’s first query is about her tracker loan. Accelerating payments or making lump sums under the Consumer Credit Act will not jeopardise her tracker mortgage.

“The letters and balance statements from the lender are confusing, contradictory and frankly don’t make a lot of sense. I wouldn’t bother continuing to engage with the EBS/AIB directly and suggest your reader take her case to the Financial Service Ombudsman for investigation and adjudication on whether this couple’s repayment term ends in 2028 or 2022.” 

You need to prepare your case well, with a clear schedule of events, the various calculations regarding new repayments and interest savings and all cross referenced to the relevant documentation and correspondence. You can then decide whether to engage an adviser to help you prepare your case with the Ombudsman or proceed alone. Good luck.

 

PD writes from Dublin: I am a recent widower.  I understand that the amount a child can inherit tax-free from each parent is €225,000. In her will, my wife left me her entire estate, mainly assets jointly held with me. What I would like to know is whether an executor can allocate a parent’s unused tax free inheritance threshold to the surviving spouse so that the €225,000 tax free inheritance limit can be added to the surviving spouses’ when they die?  That way, the full €450,000 could be left to the couple’s child upon the death of the surviving parent?

Unfortunately, the tax-free inheritance threshold between parents and children (or any other category of disponer and beneficiary) is not transferrable. Where a couple wishes to maximise the tax-free benefit to their children, they should plan for each parent to leave the maximum sum permitted under capital acquisition tax (CAT) regulations in their respective wills. 

This strategy only works where there is sufficient realisable assets to both make large bequests and permit the surviving spouse to maintain their lifestyle, which may or may not have been feasible in your case. Had it been possible, your wife could have left up to €225,000 tax free to her child in her will, though not at the expense of disinheriting you; as her legal spouse you would have been entitled to 50% of her estate under the Succession Act 1965.

Your query is the first of its kind that I’ve ever received and I can understand why you would favour it, especially if you only have one child who might otherwise face a very large CAT bill upon your death.  Hopefully it will remind others that it is important to get proper legal and tax advice when preparing a will.

 

GM writes from Kilkenny: I am 60 and only in receipt of a pension worth €30,000 per annum. PRSI is being deducted at 4% from the monthly payments, is this correct?  Last year a total of €1,200 in PRSI was deducted.

If you receive this €30,000 retirement income from membership of an

occupational fund or a private pension fund from which an annuity was

purchased, you should not be paying any PRSI.  However, if your income is

derived from a pension fund that was ARFed -that is switched to an Approved

Retirement Fund from which you are drawing down income, then it will be

subject to tax and PRSI until age 66. Once you turn 66, none of your income

- even unearned income from rents, savings or dividends will be subject to

the 4% PRSI charge.

 

 

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Taxman takes a bite from the bottom of your ARF

 

 
BE writes from Dublin: In a reply last Sunday (November 10) you stated that one is not liable to PRSI on any income, including pensions, when over age 66. You might clarify whether the PRSI exemption applies also to Approved Retirement Fund (ARF) income.

An ARF is not considered a pension by the authorities – that is why it is not subject to the 0.6% pension levy (0.75% for 2014, and 0.15% in 2015).

However, as a post pension investment fund, the holder is obliged by the government to pay income tax on 5% of the asset value of their ARF every year – the technical term is “imputed distribution”, whether they actually want or need to draw down this income. If the ARF holder is over age 66 they will pay no PRSI on the income that is drawn down (whether 5% or more) but they may pay some universal social charge depending on their age.

This is the Revenue.ie Universal Social Charge link:  http://www.revenue.ie/en/tax/usc/

SO’D writes from Dublin: I need some clarification about the inheritance of a mortgaged investment property from a civil partner. The property and mortgage are in the sole name of the deceased partner and the tracker mortgage balance exceeds the market value of the property. The rental income does not meet the mortgage repayments. Can the tracker mortgage be transferred to the surviving partner and will it be on the same terms? Can the mortgage company call for immediate repayment of the mortgage?

From what you write, it appears that there was no mortgage protection insurance in place to clear the outstanding balance of this investment loan. According to Naas solicitor Susan Webster, of Susan Webster & Co, “unless the will otherwise directs, the surviving civil partner inherits the property with and subject to the mortgage.” Civil partners have the same inheritance rights as married couples, she adds and even if there is no will, and no children, the surviving spouse will inherit the entire estate.

The only way a surviving partner will know if the banks’ intention regarding the repayment in full of the mortgage debt or whether it will allow it to continue to be repaid at the same terms is to ask. “Nobody can be compelled to accept an inheritance, but they need to do this before receiving any benefit from it. A surviving partner may disclaim one or more specific gifts but not part of an inheritance.” In other words, there is no picking and choosing which parts of an inheritance to accept, such as a loss-making property in negative equity.

Good legal advice is essential before a meeting is scheduled with the bank.

ECO and LC both from Dublin write:  In relation to the PRSI charge on un-earned income is it all un-earned income combined? My interest will be approximately €4,000. Will it calculated on the difference between €3,174 and €4,000.00 and a 4% charge on €826.00 or is it 4% on the entire €4,000.

From next January, any PAYE worker who earns over €3,174 from unearned income such as rent, deposit interest, investment returns or dividends, and who is not age 66 and over and therefore exempt, will be liable to pay the 4% PRSi on the entire sum.  Calculated under Class K of PRSI, this 4% PRSI payment does not come with any social insurance benefits. You will be required to declare this extra tax in any annual tax return. This income is already subject to your highest rate of income tax and USC.

 

JM writes from Dublin: I have 300 Elan Corporation shares purchased at €12.75 per share. The company is about to be acquired by the US pharmaceutical company, Perrigo. I have two questions: If I accept $6.25 (€4.68) per share offer will it be subject to tax and PRSI? Should I cut my losses and sell them before the merger takes place?

Perrigo have offered to pay $8.6 billion (€6.44 billion) for Elan, and both company’s shareholders will have their say later this month. The merger between Elan and Perrigo involves Elan shareholders getting $6.25 (€4.68) in cash plus 0.07636 Perrigo shares for each Elan share they hold.

Perrigo shares are currently worth about $148.50 (€111.19) and that means that the share swap element of the offer is worth $11.36 (€8.51) to Elan shareholders, making the entire offer worth $17.61 (€13.19) a share to you, which exceeds what you paid for them. 

According to tax adviser Sandra Gannon of TAB Taxation Services in Dublin as far as the Revenue is concerned the cash part of the Perrigo offer “does constitute a part disposal of your reader’s Elan 300 ordinary shares for the purpose of Irish capital gains tax. He will have to file a return to the Revenue, but the amount payable can be offset by some costs involved in this payment and his annual CGT exemption of €1,270.”  A good tax adviser can help you work out what you owe.

Meanwhile, you will only pay PRSI on these shares if your dividends (which may also be subject to income tax and USC) and all your other sources of unearned income exceed €3,174 from next January 1 2014 and you are under age 66. 

If you dispose of your new Perrigo shares some day for a profit, the difference between the acquisition and sale price will be subject to CGT only.

 

ET writes from Dublin: Is there any circumstance in which PRSI is paid by people over 66? I have a state widow’s pension, a very small private pension, a small part time job, and some income from investments.  I am 67 and I think I am paying PRSI.

If you are over age 66 you are no longer liable to PRSi on any income, even your earning from your part-time job or investments.  This is because you are now receiving the benefit of all your years of contributions or your late husbands’ contributions. You are not charged any more PRSi on your part-time earnings because as a pensioner already, you would not benefit from any further contributions paid.

If you bring your pension documents and P60 to either your inspector of taxes, to your local Citizen’s information Bureau office someone will be able to clarify whether or not you are paying any PRSi. You will be able to apply for a refund if you have been making further contributions since you turned 66.

 

 

 

 

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PRSI will trail part time pay till you hit route 66

 

ML writes from Dublin: I am a retired teacher with a pension. I also have a small ARF and I work part time. Does the ARF annual 5% distribution result in the payment of PRSI on rental income and bank deposit interest up to 2014?

If you are a retired person age 66, you are not subject to PRSI on any of your income, whether it comes from your employment pension, your 5% Approved Retirement Fund ‘imputed distribution’, from your part-time PAYE job, or from any rental income or deposit interest you receive. 

Nor will this change for you in 2014, when a 4% PRSI charge is levied for the first time on people who are aged 66 and under with unearned income in excess of €3,174 from the sources mentioned above.  Such people who have buy-to-let properties will almost certainly be caught by the new rule as will anyone with large sums on deposit in a bank, building society or credit union (state savings are entirely tax and PRIS exempt).

For example, a person with €160,000 in a bank (preferably two banks to keep the deposit within the €100,000 bank deposit guarantee) who earns a gross return of 2% will earn €3,200 “unearned” interest. From 2014 this person will be liable to both the new 41% rate of Dirt and the 4% PRSI charge as it exceeds the €3,174 unearned exemption limit.

 

WMcG writes from Cork:  I understand that there is a seven year CGT dispensation for people who bought property up to last year that has been extended in the Budget.  I bought my property in December 2006. I may (just about) make a profit on such a sale. Could you explain how it works? Also, does it apply to foreign property?

I’m afraid you have misconstrued how the seven year holiday from the payment of capital gains tax on certain property works. The CGT holiday was introduced in Budget 2012 for properties bought from December 7, 2011 to December 31, 2013 and then sold up to seven years later. This latest budget extended the deadline for buying such CGT exempt properties to December 31, 2014.

Keep in mind that if you make a loss on the sale of your 2006 purchased property there will be no CGT liability anyway. If you earn a profit, your annual €1,270 CGT allowance will reduce your tax bill.

Finally, and perhaps perversely, the CGT exemption applies both to land or buildings purchased in this state and to those situated in any EU or EEA state, including the likes of Norway or Switzerland, which are not members of the European Union.

 

 

ML writes from Dublin: I am a retired teacher with a pension. I also have a small ARF and I work part time. Does the ARF annual 5% distribution result in the payment of PRSI on rental income and bank deposit interest up to 2014?

If you are a retired person age 66, you are not subject to PRSI on any of your income, whether it comes from your employment pension, your 5% Approved Retirement Fund ‘imputed distribution’, from your part-time PAYE job, or from any rental income or deposit interest you receive. 

Nor will this change for you in 2014, when a 4% PRSI charge is levied for the first time on people who are aged 66 and under with unearned income in excess of €3,174 from the sources mentioned above.  Such people who have buy-to-let properties will almost certainly be caught by the new rule as will anyone with large sums on deposit in a bank, building society or credit union (state savings are entirely tax and PRIS exempt).

For example, a person with €160,000 in a bank (preferably two banks to keep the deposit within the €100,000 bank deposit guarantee) who earns a gross return of 2% will earn €3,200 “unearned” interest. From 2014 this person will be liable to both the new 41% rate of Dirt and the 4% PRSI charge as it exceeds the €3,174 unearned exemption limit.

 

MCC writes from Dublin:  I am sure this is a very common question but perhaps you can still help me. I am 35 and have some savings, not much, €30,000 roughly. It is in a savings account with little return, which will be mostly wiped out by the increased DIRT tax.

I let a pension lapse some time ago. Would you advise to siphon this money towards a pension now? I know the area of pensions is murky but I can carry out my own investigations into that issue.

Contributions to private pensions continue to attract marginal rate income tax relief of 41% (though not PRSI or USC relief) – a rare concession these days where the standard rate is far more common. If you can find a pension fund with low charges and fees and a well diversified choice of assets that produces a steady (tax-free) return, this would certainly be a better home for your €30,000 than a loss-making deposit account.  Pension funds not only grow tax-free, but at retirement allow you to take 25% of the fund tax-free. Any pension income is subject to your highest rate of income tax.

Putting money into a pension is a very sensible choice but only after you weigh up the downsides.  There is no access to the money you contribute until retirement. The state can – and does – arbitrarily change the pension rules, such as tax relief. From 2014 it will confiscate 0.75% of your €30,000 (if you decide to invest the entire amount) which will cost you €225. From 2015 the levy will be 0.15% but could be raised at the Minister’s whim. 

Speak to a good, independent, fee-based adviser before you act. The adviser will review your wider financial position and once they are aware of your needs, expectations and risk profile, will recommend a suitable and affordable pension fund or reactivate your existing one. You should certainly also do your own research and learn as much about how pensions work. The Pensions Board provide this information online: www.pensionsboard.ie

 

 

RM writes from Dublin: I heard you speak at the Over50s Show recently and you explained how the 4% PRSI on deposits would not apply to pensioners over age 66 who are exempt, regardless of the size of their income. I took early retirement at age 58 (a year ago) and I do not pay any PRSI on my income. Should I be?

 

No. PRSI does not apply on any pension income, even if you are in receipt of one under age 66. However, if you have earned income, say from a part-time job you will pay PRSI until age 66. Unearned income that exceeds €3,174 from a rental property, deposits or dividends will be liable to 4% PRSI from 2014.

 

 

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No danger with bonds but beware a euro exit

CC writes from Dun Laoghaire: I have €70,000 in An Post savings bonds and €40,000 in prize bonds. In the event of the bank guarantee being "called in" (save us all!) would both amounts be honoured, or would these be viewed as belonging to one institution, in which case would there be a shortfall of €10,000?

All state savings products continue to be 100% guaranteed by the Irish State, so the €100,000 bank deposit guarantee that applies to banks, building societies, credit unions is not relevant to you.

 

That said, if Ireland defaulted on its debts and/or we were to leave the euro and revert to our own currency, I don’t believe it is unreasonable to expect that the State would honour its contract with its own people regarding the money that the people lent the State in exchange for these savings products.

 

However, if we did return to the punt as our currency, your savings and prize bonds would most likely no longer be denominated as 110,000 euro but as 110,000 new Irish punt and that the new punt would not remain at par with the euro for long. A devaluation would mean that the value of your savings products  would purchase far less goods and services than if they had remained denominated in euro.

 

 

Going Dutch

JG writes from Dublin: I recently queried RaboDirect about whether my deposit and investments with them would be considered Dutch euro in the event that Ireland reverted to the punt.

 

They replied that “This is an unlikely scenario” but “If this situation did arise it would depend on the legislation that would be adopted by the Irish Government to resolve the issue.” They added that they comply fully with Central Bank of Ireland codes of practice, “So if new legislation is passed by the Government to affect all banks operating in Ireland, RaboDirect could potentially fall within the remit of that legislation.” In other words, RaboDirect could come under Irish legislation and deposits could be devalued similar to any Irish Bank.

 

I would imagine the same would apply to other European Banks registered in Ireland. I do not think this is generally understood.

 

I have pointed out many times over the past two years that no one is entirely certain what the outcome would be to euro deposits in non-Irish (but Irish licensed) banks if Ireland left the euro and reverted to the Irish punt.

 

Neither those banks that operate within the eurozone – like the Dutch-owned RaboDirect, nor NIB, the Danish owned, but non-eurozone bank that operates here - have been able to give equivocal guarantees that all deposits would remain in euro.  You’ve now received a similar reply.

 

If you are concerned that the money you placed with RaboDirect with the idea that it would remain a euro deposit might revert to punts, you could try and arrange to open an account with them in Holland.  NIB customers can open savings accounts with their Danske sister bank, Northern Bank in Northern Ireland.

 

Do your homework before you shift your savings to another jurisdiction or into another currency other than the euro. You will need to satisfy money-laundering regulations and there may also be transaction costs and a potential tax liability. You must declare any offshore account to the Irish Revenue.

 

 

Offshore options

RK writes from Dublin: I recently retired. I have €100,000 lump sum savings and a €100,000 tracker mortgage. I am considering paying off €50,000 of the mortgage in the fear that if the euro collapses, which now seems increasingly possible, my debt could be doubled and my savings halved. Is this wise in your opinion? Experts differ in their views about what will happen with debt and with savings in the event of a collapse. What is your opinion? Is there any point in holding some euro in cash if the notes originated in Ireland?

 

I’m a big fan of paying off mortgage debt sooner than later. No matter how difficult your financial position may become, at least the roof over your head is your own (or in your case, most of the roof if you just pay off half of the remaining loan.)  Before you do anything, however, check with your lender to see if making a capital payment forfeits your right to keep the tracker for the duration of the loan.

 

Sorting out euro debt contracts will be a nightmare for any country that leaves the euro and you are correct to wonder if, assuming the worst does happen and we leave the euro and revert to the punt, your mortgage will remain a euro denominated liability.

 

One way to mitigate the risk is not to leave the remaining €50,000 in an Irish-based savings account after paying off half your loan. Moving it to a ‘safer’ eurozone country (where it would still be worth more than the devalued punt even if that country reverted to its own currency some day) means that you will not suffer as great a loss in the spending value of your original savings once you repatriate it back to Ireland.

 

This, of course, also assumes that whatever offshore bank you choose (and its guarantee scheme) survives the fall-out of any country leaving the euro or that currency controls are not introduced that might keep your offshore money marooned.  Meanwhile, absolutely no one knows whether your Irish euro in the ‘safer’ offshore bank (or Greek or Spanish euro) will be singled out for different treatment if these countries revert to their own currencies.

 

I don’t have much faith in the long-term survival of the euro but I don’t expect it to collapse in the next few weeks or months. I think the EU technocrats will try more desperate measures to save it before that happens.

 

That should give everyone some time to consider their options, to get some expert advice and then to do what they believe needs to be done to protect their financial interests and those of their families. (See comment).

 

 

 

 

 

 

 

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Safe havens give peace of mind over euro fears

AW writes from Dublin: I have an instalment savings and a deposit savings account at An Post that I use to pay for my son studying in Britain.  I am a single mum - working hard to keep my job and just about hanging on.  I was horrified to read your reply.  Please could you advise where would be the safest place for my meagre savings?

 

It certainly wasn’t my intention to horrify anyone but if Ireland were to stop using the euro or the eurozone broke up, reverting to individual national currencies again would almost certainly result in devaluation of euro savings in Irish financial institutions. 

The difficulty for everyone who has their ‘precious’ savings here in Ireland, or in Greece, Portugal and other weaker, peripheral eurozone countries is that no one knows for sure if the euro is going to survive or not, or exactly if a country may exit the eurozone club.

Only you can decide the amount of risk you are willing to take with your money in An Post, which is under state guarantee. However, it is possible to open a euro deposit account in another eurozone country.  Germany is considered the strongest one of all, and if the eurozone were to break up, the new deutschmark is still likely to be the strongest new currency.  With your son going to college in the UK you could also move your money to Northern Ireland or the British mainland and not have to worry any more (after the initial currency exchange transaction) about the up and down movement between the euro and sterling.

Moving your savings to any new institution, and especially if you are a non-resident depositor is subject to their terms and conditions and to money laundering regulations. You could end up sacrificing a higher deposit return. Also, you are obliged to declare any foreign account on an annual tax return here and to pay Irish deposit interest retention tax on any return you earn.

 

 

Silver lining

 

TF writes from Navan: I wonder what is your opinion about investing in silver. Are there any silver dealers in Dublin? And how can one be sure if the silver is genuine?

 

Silver is both an industrial and precious metal. Like gold, it has a very long history as money, as well as having widespread use in jewellery and fine tableware production.  It also has many industrial uses and this is why its price tends to be more volatile than the price of gold.

The euro price of silver has fallen by over -14% in the past year, a reflection of the slowing demand for the white metal, whereas the euro price of gold – while also volatile - is nevertheless up over +16% in the past year. Gold, unlike silver is seen as more of a hedge against the growing uncertainty about the strength and sustainability of the euro, dollar and pound. All three are being intentionally debased and devalued by central bankers in order to prop up failing financial institutions and repay their country’s enormous debts.

Do your research carefully before buying silver and gold. Check www.goldprice.org for live and historic prices of an ounce of silver (and gold) in various currencies. Compared to its brief, all time euro price high of €32.71 on April 22, 2011, silver, at €22.62 as I write (28/05/12), a fall of 33%, looks like a bargain.  But if the global economy keeps slowing it could keep falling in price, perhaps even returning to the c€10 an ounce it cost five years ago.

Neither silver nor gold are the bargains they were at the peak of the paper money credit boom. It takes an extra €13.09 or 136% more euros to buy an ounce of silver now than it did in 2007 and an extra €764, or nearly 157% more euro to buy an ounce of gold.

The goldprice.org price charts tell us absolutely nothing new about the precious metals themselves, whose intrinsic nature never changes. They are what they are. But they do show how many extra paper euro, dollars or pounds that it now takes to buy an ounce of these rare and precious metals.

Finally, only buy silver and gold from reputable bullion or coin dealers. Goldcore.com are well known bullion dealers in Ireland and are the European franchise-holders for the Perth Mint Certificate programme of Western Australia. I purchased gold and silver certificates from them in 2006.

 

 

 

Crash Course

 

MMcI writes from Dublin: I read with interest your recent article with on dividing assets across banks. I have a large amount on deposit in one bank following the sale of a house in 2004. I naively thought the deposit was covered by the ELG. I have been renting since, so I am terrified now that if the event of a crash I could lose "my house"!  I am arranging to move funds now but would welcome your advice on moving over €100,000 to Rabobank. I am desperately trying to figure out the credit ratings schemes but these do appear to have the highest at present. Also, what about moving some money to KBC Luxembourg, Deutsche Bank and/or DZ bank.

 

The Eligible Liabilities Guarantee Scheme covers specific short and long-term eligible bank liabilities, including on-demand and five year term deposits, but you need to check to make sure that your deposit and your Irish bank qualify to participate in the scheme before you commit your funds. Under the current scheme, which lasts until end December 2012, a three year deposit made on June 1, 2012, for example, will be extended to June 1, 2015.

 

RaboDirect bank is not one of the ELG participating banks listed here: http://finance.gov.ie/viewdoc.asp?DocID=7049&CatID=78&StartDate=1+January+2012 . However, all deposits up to €100,000 in RaboDirect are covered by the Dutch deposit guarantee scheme.  Luxembourg and German banks also offer a €100,000 deposit guarantee.

 

European banks are being regularly downgraded by the main credit agencies.

Rabobank’s long term rating, which was AAA up until last year, is now an AA from Standard & Poor’s and Fitches and Aaa by Moody’s. Deutsche Bank’s long term rating from the three agencies is now A+, A+ and Aa3. KBC, a Dutch bank is rated A-, A- and A1 from S&P and Fitches while KBC Bank Ireland only has a Baa3 and BBB-rating from Moody’s and S&P.

 

In the event that Ireland were to go off the euro, having some of your savings on deposit in the ‘strong’ core eurozone members like Germany, Austria, Holland and Luxembourg would shelter you from the inevitable devaluation of any new Irish currency.

 

 

 

 

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Bank debt forgiveness will give me fresh start

CD writes from Dublin: I took out a €50,000 loan to start a business in 2005. I further extended this loan to €75,000 to keep the business going in 2007. My sister signed as a guarantor and deposited a sum of money in the bank on which there is a lien to cover my loan.

Unfortunately I had to close the business in 2008 and became unemployed. I was well received by the bank that allowed me a term of grace to pay interest only. I am now on my way back to work through an enterprise back to work scheme and have been managing to pay the bank €1,000 per month and the debt is currently at €57,000. This €1,000 euro is a huge drain on our family as you can imagine.

I have an opportunity to make a settlement with the bank through my sister. What kind of a settlement could I hope to achieve? It would be great if I could get it as close to €40,000 as possible.

 

You need to convince the bank that it is in their best interest to accept the €40,000 that your sister, as your loan guarantor, is willing to pay over as the full and final settlement of your debt, says financial advisor Karl Deeter of Irish Mortgage Brokers & Advisors.

“Your reader should write to the bank offering the €40,000 as a full and final settlement for this debt and wait for their response,” he says. If the bank declines, says Deeter it might be able to take the amount your sister put up as the guarantee if you defaulted on the €1,000 monthly payment but it would have to seek a court judgment against you for the €17,000 balance. Deeter suggests it would be unlikely to succeed “if it is shown that your reader had made every effort to repay them as much as she could” until your deteriorating personal circumstances forced you to seek a final settlement.

The fact that you have been able to repay €1,000 a month, a total of €18,000 so far, may not facilitate a deal if the bank is happy with this arrangement. Their first concern is to get all their money back, not to take a €17,000 loss.

In case your debt settlement offer is refused, you should prepare a detailed summary of your household finances to support your contention that the €1,000 a month payment is increasingly unsustainable. 

“The final move your reader has,” says Deeter “is to consider personal insolvency or bankruptcy next year when the new legislation is brought in”, though this may not prevent your sister’s guarantee from being called in by the bank.

 

A fair share

CL writes from Dublin: I am getting married in a few weeks but unfortunately have been made unemployed. I have about €2,000 worth of Elan shares which I bought nine years ago through a stockbroker – BCP – who are now gone out of business. I have the certificate but am told they need to converted into an electronic form. Another broker said I would have to sell them in the States and said, ‘best of luck with them’. Any suggestions?

 

Elan moved it’s primary stock market listing to the New York Stock Exchange late last year, where the bulk of the trading in its shares is conducted, but it continues to be listed on the Irish Stock Exchange.

There is a lot of paperwork involved in selling shares now and most brokers are not keen to deal with customers with such small stakes. However, Bloxham Stockborkers in Dublin have agreed to sell your Elan shares  - it might cost you €100-€150 in charges – and I have passed on the name of the broker to you who will complete the transaction.

 

Risk Management

SB writes from Dublin: In the event of Ireland having to write down its national debt in a restructuring deal in the future - would state savings be affected?

State savings products include An Post saving certificates and bonds, PrizeBonds and the national solidarity bonds. Before 2001 these were all denominated in Irish punts and were automatically converted, at a rate of £1 to €0.79 when the euro was introduced. If we leaves the euro, a new, Irish currency will replace it and while the conversion price may be one euro to one punt nua, once it floats on the international currency markets its value will likely devalue quite sharply. Euro denominated savings accounts and instruments like state saving products will all be re-denominated in the new Irish currency.

 

Healthy options

RP writes from Cork:  I am retiring shortly on my 65th birthday and my company will maintain my health insurance policy (for my wife as well) until the renewal date which is about three months after I leave. First question:  can I just renew this policy without any waiting periods – also, my wife has developed arthritis in recent years? (We have been covered by a VHI corporate plan called Company Plan Extra.) If it proves to be too expensive, can you recommend a good, affordable policy?

You can maintain your existing policy, if you choose, even if it is a corporate one. Under our community rates pricing system every health insurance plan must be available to consumers. In your case, the only thing that will change is who pays the premium.

As for waiting periods, so long as you renew your health insurance, either with your existing company or with Aviva Health or Laya Healthcare within 13 weeks, you will not have to fulfil any waiting periods for existing medical conditions.

The Health Insurance Authority website www.hia.ie has a comparison site for the hundreds of plans on the market, but I think it’s a very hard slog. By all means go onto it to check out various costs and benefits, but given how expensive your current policies are – at €1,160 each with 76 similar policies on the market according to the HIA comparison site – a better solution is to consult a good specialist health insurance broker who will charge you a fee for reviewing plans and recommend a suitable one for your needs and price range. Check out www.healthinsurancesavings.ie and www.lyonsfinancial.ie.

 

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Will my husbands debt cost me my family home?

AC writes from Dublin: My husband and his father gave a personal guarantee to a bank for a business loan. It's now in default, and with interest ratcheting up is worth nearly €2 million. They have sold a number of properties over the last two years which seemingly put a sizeable dent in the capital owed only to get swallowed whole again by interest due. This happened before we married, and I knew nothing about it until he told me a year later when the worry got too much.

I owned my home, mortgage free, when I met him. After I married, after he told me about his personal guarantee problem, I sold my house and used the money to renovate and extend an old house my parents gave me. This is now our family home. We have two children. This house is in my sole name, it was a gift from my parents, all CAT returns filed etc.

 

“The devil is always in the detail,” says solicitor John Horgan of Leman Solicitors in Dublin, “but if a) the property is in your reader’s sole name, b) the debt is in her husband’s name and his fathers’ and c) she has not signed any documentation in relation to their loans - mortgages, personal guarantees etc then the bank has no contract with her and no security over her house.”

Your question is sure to trigger other readers’ concerns about what happens to the family home when it is owned by both partners and one of them is in serious personal debt, or has used the family home to secure a separate loan or is perhaps even facing bankruptcy. 

In anticipation of this I suggest such readers familiarise themselves with the Family Home Protection Act 1976 and the Family Law Act 1995. At the core of these acts is legislation that prevents one spouse from selling, mortgaging, leasing or transferring the family/shared home without the consent of the other spouse/civil partner. Where that consent has been given under duress or under false conditions, the family home may not necessarily be lost to creditors.

The money website askaboutmoney.com also has a ‘key post’ (http://www.askaboutmoney.com/showthread.php?t=162672) that discusses a number of family home related debt matters, but it includes the caveat that readers also consult a solicitor. 

 

Diminishing return

PS writes from Dublin: Recently you replied to a JO'B from Dublin regarding Irish taxes on UK share dividends. You stated that a UK dividend of €1,800 would have resulted in tax of €200 at source and, if the Irish owner was paying tax at 41%, "their liability on the €1,800 would be €738".

Am I correct in assuming what you meant that the tax was €738 less what was already paid to the UK authorities, leaving a balance of €538 payable in Irish tax? Would you mind clarifying this for me?

 

I’m afraid that you read my answer correctly the first time. The taxing of UK share dividends here is not very generous: first, UK dividends are paid to the Irish shareholder net of a UK withholding tax. The dividend voucher you receive will show a tax credit that is the equivalent of 1/9th of the net dividend, but the withholding tax is not refundable and if you are a top rate 41% taxpayer here, your tax bill on the dividend example I gave of €1,800 (the actual gross dividend being €2,000) is €738, that is, 41% of €1,800.

 

Paltry pension

S McG writes from Dublin: From 1961 to 1965 I worked on and off in England and made National Insurance contributions for a total of 211 weeks treated as insurance periods. I returned to Ireland in July 1965 to take up employment in the civil service where I remained for 41 years. On reaching age 65 I applied to the International Pension Centre in Newcastle Upon Tyne for payment of a pension on the strength of those years of insurance. I was informed that, as I am in receipt of an Irish civil service pension I am not entitled to a pension from the UK, however, I then received an amount of £0.71 per week that arrives as an annual payment each December.

As my period of employment in the UK had no connection with my later employment in Ireland I fail to see how my Irish pension should in any way affect my UK entitlements. Your comments would be appreciated.

 

As a retired Irish civil servant, your civil service and state pension entitlements are combined. A spokesperson for the Department of Social Protection told me that your Irish pension is administered by the Irish Paymaster General, not the Department of Social Protection, but she did add that your status as an ex Irish civil servant should have no effect on whether you are entitled to a UK state pension for the years you were employed in the UK.

However, in order to qualify for even a partial UK state pension, men who were born before 6 April 1945 need to have paid at least a quarter of the required 45 years of qualifying national insurance contributions (NICs) for a full pension; and for those born after that date, a quarter of the 30 qualifying years of contributions. With fewer than 25% of the qualifying years worth of contributions, you will not be entitled to any basic State Pension using your NICs record. (See http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_10014671)

Nevertheless, you are receiving a UK pension payment of £0.71p a week, or £36.92 in total every December. 

The Department of Social Protection spokesperson suggests you contact the Paymaster General about your case. Perhaps they can shed some light on the size of your UK state pension. You may then have to re-contact the International Pension Centre at Tyneview Park, Newcastle Upon Tyne to double check the numbers of contributions they attribute to the period in which you worked in the UK. Their telephone number is 0044 191 218 7777.

 

 

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