Jill Kerby

The Sunday Times MoneyQs – Nov 29 By Jill Kerby

JN writes from Galway:

Over the years I’ve received share options from my employer which I now intend to exercise, I know they are treated as income and liable to tax, my question however concerns in which jurisdiction. I must exercise the options in the US and transfer any proceeds back to Ireland. However, if I do not supply the US institution with a WBEN-8 they will withhold 28% proceeds, far better than the 41% I will have pay in Ireland. Does the dual tax arrangement allow me to pay US tax and then no further Irish tax?

I’m afraid not. According to Sandra Gannon, tax advisor at TAB Taxation Services in Dublin, the correct way for you to realise the gain from your share options is to complete the form to which you refer, the W8 form, which will allow you to be paid your options gross, then to file your return here and pay the income tax. Unfortunately, the return is subject to the income levy but there is no PRSI liability. There should be someone in your company who can help you process the exercise of your share options, or else consult a tax advisor.

JM writes from Co Mayo:

I have lived permanently in Ireland since retiring in 2003 and do not pay Irish tax but instead pay UK tax under the double taxation agreement between Britain and Ireland. Recently the Irish tax authority, whilst agreeing with this, have said nevertheless I am liable to pay a health levy of 2% on my gross annual income for 2007 and 2008 (rising to 4% from 2009 onwards) and, in addition, with effect from 01/01/2009 an income levy of 1.67%, again on my gross income (which is only my pension from my last employer). Liability for payment of the health levy ceases when I reach the age of 70 years. Is this advice correct and, if so, can I obtain a pro rata reduction in the UK tax I pay so I am not paying double for similar services in Ireland and the UK?

The advice you have received is correct, and unfortunately you are not entitled to any reduction in your UK tax as a result of the imposition of the income and health levies. At the moment, you are obliged to pay tax to both the UK and Irish authorities with a tax credit/refund on the "double" tax you pay. Once again this week, tax advisor Sandra Gannon recommends that you should simplify this by applying to the UK tax authorities for the gross payment of your UK pension. You then file your annual Irish tax return, pay the appropriate tax and levies on your income, thus avoiding the complicated business of claiming Irish tax credits and UK refunds on the two sets of tax you are otherwise obliged to pay. Finally, many UK UK pensioners who settled in Ireland in recent years have benefitted from higher value social welfare benefits and services (and even lower tax), but that could now be coming to an end, given the serious financial problems here. We’ll know on December 9th if any of those higher benefits are reduced, or it the levies are increased or new ones introduced.

KM writes from Cork:

I took out a life assurance, sick benefit and pension policy back in the early 1980s when I was working for the public sector part time. When I secured a full time position, I continued to pay into my private pension even though I joined the superannuation scheme. No one ever told me I couldn’t do so. Nor did I realise I could claim tax relief on the contributions. I will be retiring in a few years time and last summer, after a growing concern about how much it was worth, I decided to review my pension plan only to find out that not only had it fallen in value by quite a lot, but that I was not entitled to keep the policy since I was a full-time employee contributing to the superannuation scheme. The life assurance company has offered me only a refund of my contributions with interest, but it falls very short of the contributions I have made which went up steadily every year. I’m not sure if the first few years contributions, which I was allowed to make are included in their sum. There is a lot at stake and I’m wondering if there is some way I can redeem more of my money or even claim tax relief on the first three years of contributions?

I am so very sorry about the situation you have found yourself in, though it is not the first case I, or financial advisors I know have come across. The advice you received when you took out your original policy was not good, in that it was a very expensive all-in-one protection and pension plan with high charges and commissions that would have absorbed at least the first two years of your contributions. The premiums were indexed upwards at 5% each year (as were the benefits on the two protection policies) and this has resulted in a huge monthly contribution of over €800 today. It’s bad enough that the broker did not give you clear instructions on how to claim the tax relief but that when you ended up with a full-time job, that he did not inform you that you could no longer keep the policy if you were part of a superannuation scheme. The pension could have been encashed and cancelled, or at least the pension part of it put into a fully-paid up status for collection at retirement. or put into a fully-paid up status. The reason why your refund and interest is below the amount of contributions is because an increasing portion of your (rising) contributions were diverted every year away from the pension investment into the cost of the whole of life cover and income protection benefits: very simply, the older a person gets, the more it costs to provide cover. Good financial advisors never recommend that you bundle together a pension and whole of life cover (which relies in investment returns) together, or a mortgage and whole of life cover in the form of an endowment mortgage for this very reason. Your case pre-dates the setting up of the Financial Regulator and Financial Ombudsman to whom complaints about private pension plans are directed, and the Pensions Ombudsman who deals with complaints about occupational pension schemes and PRSAs. However the Pensions Ombudsman has kindly offered to review your case. You are not the only public servant who has been funding parallel pensions at a huge expense…and loss.

BK writes from Co Kerry:

I am 51 and have worked in the HSE for the past 15 years and pay into the HSE pension fund. Prior to this I worked for eight years in the private sector where my pension contributions were invested and left in the Irish Life’s Consensus Fund. As well as my HSE contributions, for the past five years I have also been investing in an AVC with Irish Life. Is it possible to transfer both these Irish Life pension funds into my HSE pension now and use them to buy back years of service? I am aware that buying back service is very expensive. Irish Life said it was not possible, but I read somewhere that since the Pension Act it was possible.

According to the Pensions Board it is possible to secure transfer values of your occupational pension fund from your previous, private sector employer and your existing AVC and to then use this value towards the purchase of years of service in your HSE pension. But you must check first with the HSE pension administrator about the rules that pertain to purchasing years of service. This can be a very complicated area, but one that pension consultants, in my experience, is worth considering when compared to the cost of funding AVCs. If the transfer value you are quoted appears much lower than you were expecting, it could be because the one you are working off is not very current, or it could be due to the way the value has been calculated by the scheme actuary. You might also want to consult an independent pension advisor if you have any doubts. If you haven’t already done so, I suggest you open a file, and keep all correspondence and documents in good order so that all parties are fully up-to-date with exactly what terms and conditions apply to both your pension funds and the purchase of the extra service years.

FG writes from Dublin:

I was very surprised to read your recent reply in regarding a medical card for a UK pensioner. My understanding is that receipt of a UK state pension automatically entitles a pensioner living in the Irish state to an Irish medical card regardless of his/her total income as long as it includes no Irish pension and the pensioner is not working in the Irish state. This is due to EU regulations that prevent an individual person in one EU state being worse off when moving to another EU state.  Please research the issue fully and confirm the above.

I have confirmed with the HSE that all medical cards issued by them are means-tested, regardless of the origin of the applicant. However, if you are declined a card, said the spokesman, you may still be granted a card at the discretion of the HSE, depending on your particular circumstances. Since the beginning of this year there has been a big change in the system of allocating medical cards but another reader who also contacted me thinking that means testing did not apply in his case supplied me with a very out-of-date document he received from his Citizen’s Information Centre dated September 2000. If you have any further doubts about your own case, contact the HSE at Callsave 1850 24 1850
or directly at your local health office.

YM writes from Dublin:

I am unemployed living on savings, would I have a tax free allowance that I could claim against DIRT payments as that is my only income?

The only people who are not subject to deposit income retention tax are those who are permanently incapacitated and the over 65s whose income falls below the tax exempt income threshold, which is currently €20,000 for a single person and €40,000. Despite your low income you will still be subject to DIRT and while this is no consolation, even children – who are too young to work – will find that any growth in their savings is subject to the 25% tax.

MNM writes from Dublin:

I'd be most grateful if you could answer the following question, based on the following information: two people own three properties in joint names. Property one is the principal residence of person A. Property two is the principal residence of person B. Property three is used as a holiday home by both people, and NPPR tax has been paid on that holiday property. Is there a liability for NPPR tax on property one or two, with regard to the person not using it as a principal residence?

The Non Principal Private Residence charge of €200 applies to property that you own that is not your “sole or main” residence. You and your friend, person B, each partly own three properties – but the two that are each considered your ‘sole’ residences are exempt and you are only obliged to pay the €200 on the holiday property that you jointly own. It’s a good thing that you paid your tax on the holiday property; the Act provides that if a charge is not paid within a month after the last date for payment, a late payment fee will apply for every month or part of month that the €200 charge remains unpaid. For 2009, this means that the late payment fee will apply to all payments made after 31 October 2009.

DC writes from Dublin:

My wife and I are looking at getting a mortgage for a house we have finally found. We are first time buyers with the deposit accumulated. We both bank with AIB who have are offered a fixed and variable mortgage. The fixed rate is 2.8% for two years and the variable is now 2.4%. I know Europe is now out of recession and the ECB will be increasing rates over the next year. Would the rate of the variable increase rapidly over the next year or would it be a slow process? AIB would like us to take a fixed rate mortgage. We would like to know what your thoughts are on the benefits of both types of mortgage.

That two year fixed rate is very low indeed. And while economic recovery is going to be tenuous and not at all consistent, either in its strength or in the number of countries involved, there is plenty of consensus that the ECB rate isn't going to go any lower than 1%.You need to keep in mind too that the Irish lenders are not constrained by the ECB rate when it comes to setting their own mortgage lending rates. The only thing that is stopping the likes of AIB and Bank of Ireland, for example,from raising their mortgage rates is the Government's share of their businesses: in return for the billions in bailout money the two received, they gave a mortgage lending commitment, and for the moment, that seems to include no increase in the interest rate.  If you do accept this 2.8% fixed rate, you must also accept that the variable rate could be higher in two years time. Stress-test your ability to pay over the longer term by raising the 2.8% interest to at least 4.8%.  Could you still afford to pay your mortgage?  Even if you can, will you still be happy to pay a higher rate if the value of your property was to fall into negative equity? You don’t say how much your down payment will be, but if it is just 8% to 10% of the purchase price, negative equity is a real possibility.  I wish you good luck in your new home, but the most important thing is to accept that this is your home, not an “investment” or a future pension.  If you have serious doubts about your ability to comfortably repay this debt every month, keep renting.

WO’S writes from South Dublin:

I worked in an academic institution for 33 years.  During this period I also purchased seven years pension contributions before retiring in 2004. Prior to joining the institution I worked in industry for 13 years in the UK thus entitling me to a UK  social welfare pension. I’ve been granted a credit of one year by the D I T  due to the system which it applies because of  how I achieved my qualification prior to joining it . However , I’ve been notified that because of my UK  Social Welfare Pension I  will forfeit this extra year of entitlement. The information was not available to me prior to retiring. I would be most grateful on any clarification of  the validity of the reduction of one year of pension. 

This is an unusual case and not one that I have ever come across.  I have heard about circumstances in which the integration of an occupational and state pension has resulted in disputes over the size of the final pension, but in each case these have been Irish pensions in both instances (and not a UK or EU state pension benefit.)  I contacted the Pensions Board on your behalf and was told that based on the details you supplied me, it would appear that they are the agency to investigate your complaint. “If this doesn’t turn out to be so we will ensure that he is directed to thecorrect one,” - perhaps the Pensions Ombudsman. You should send a letter expaining as clearly as possible the time-line of events and include any documentation you may have to support your complaint.  I’ve passed onto you the name of the Pensions Board official who will receive your correspondance. 

HB writes from Dublin:

I’m writing with a question concerning the management fees on managed funds.  I have three modest funds and a very small personal pension plan.  The funds have taken a big hit this year and recently I calculated the actual amount of the management charges and was quite shocked.  I’m aware that there has to be some charge as I expect that professionals will do a better job than I could do myself.   I’m currently unemployed and living on unemployment benefit so to see an annual amount of €2,500 leaving my funds – regardless of performance - is very worrying.  If the funds were to remain at their current value, fees of 1.5% or 1.75% would eat up a large chunk of money over 10 – 20 years.  I’m happy enough with my financial advisor, as far as I can tell they are doing whatever they can in difficult times.  My portfolio was changed in 2006 therefore there would still be early encashment charges if I switched to a different scheme now. I’m wonder if you would have any suggestion how I might reduce these fees?

Most pension funds allow for a couple of free switches between funds every year and this might be a way to reduce annual costs:  cash and other fixed interest funds usually carry lower annual management fees, but you want to make sure that this is a suitable asset for your needs.  (It may not be possible to switch out of a property fund as easily.) Before you do anything, speak to your advisor – or better still, to a new, fee-based one if yours is not - to review your existing asset mix and your schedule of charges.  Hopefully this person can make some suggestions to improve both. It seems scandalous to me that fund managers and their sales agents don’t take some of the pain, in the form of lower annual management fees or commission rebates, when they consistently lose their client’s money through poor asset allocation and advice, as has happened with typical Irish managed pension funds for the past decade.  It’s certainly a subject to which the new Financial Regulator should give some attention when he takes office next January. 

YM writes from Dublin:

I am an unemployed lady in my fifties and am living on savings.  I have not been in PAYE employment for about seven years.  I believe I have paid enough contributions over the years for a 75% contributory pension, someone has told me I could sign on for more credits towards a pension. (If there is any money left in the country to pay anyone a pension!) Is this correct and how would I go about it?

You should contact the pension section of the Department of Social and Family Affairs at Social Welfare Services, College Road, Sligo, Tel: (071) 915 7100 or Locall: 1890 500 000 or by e-mail at http://www.welfare.ie/ to establish exactly how many PRSI contributions you have made and the size of your state pension at age 66. They can then advise whether you should make some voluntary contributions or not towards securing a maximum state benefit. Since you will reach your pension age after April 6 2012, you will need to 520 paid contributions (10 years paid contributions) and not more than 260 of the 520 contributions may be voluntary contributions. 

KK writes from Carlow:

I will be 65 and retiring in September 2010 and I have a pension with New Ireland worth approximately €8,000 invested in a safe fund. Would you please advise me if it would be worth my while investing the maximum amount in AVC's for 2009-2010 and if so what percentage of my pension and AVC's can I take as a lump sum on my retirement. I earn approximately €40,000 per annum.  

I’m not entirely clear if the €8,000 you quote is the investment value of your pension fund with New Ireland or the size of the actual pension you expect. Either way, your pension fund/income is quite small. Had you qualified for a full, 40 year service pension at retirement, with sufficient funding by both you and your employer and satisfactory investment returns if yours is a defined contribution scheme, you could have ended up with a pension €26,666 per annum or two thirds your final €40,000 salary. As it is, says Dublin investment advisor Liam Ferguson of Ferguson and Associates, you personally can still make AVC contributions in 2009 and 2010 worth 40% of your total net realisable income which would boost the value of your tax free lump sum, which can amount to no more than one and a half times the value of your final income, or your final pension income.  This percentage contribution must include any normal contributions you already make into your pension fund.  Your employer could, if he wanted, fully fund your pension, but this is an option usually only reserved for very senior employees or executives who have a funding shortfall.  If you are a married person and sole earner, you are unlikely to pay any tax on the higher income that is produced by topping up your AVC, says Ferguson, as your total income, “even including a state pension, is unlikely to exceed the tax free, €40,000 per annum income threshold for married couples. The Commission on Taxation has recommended that a higher than standard rate tax relief replace the current tax relief rates for pension contributions and if this is introduced in the Budget, it will give your final pension value another boost, says Ferguson. Just make sure your fund is protected against any investment risk between now and then.  

MP writes from Kildare:

My husband, who is 80, spent all of his working life in England and has a UK company and state pension, but not an Irish state pension.  He has lived in Ireland since 1987 and received an Irish medical card at age 65 and earlier this year was informed by the Department of Social Welfare that he was entitled to hold his medical card. Am I correct in believing that my husband's UK state pension gives him automatic entitlement to an Irish medical card under EU rules?  At age 60 I became eligible for a small UK state pension on the strength of my husband's contributions (I am now 68).  I am not in receipt of an Irish social welfare pension.  When I retired from teaching in January 2004 I was advised I was eligible for an Irish medical card under EU rules. I applied for and received a medical card in February 2004. I have had two review dates since then. My next review date will be in February 2010.  Again, am I correct in believing that my UK state pension gives me automatic entitlement to an Irish medical card?

First, it is the Department of Health and the HSE that determines who is eligible for a means tested medical card, not the Department of Family and Social Affairs. The fact that you have UK state pensions is not relevant. Irish medical cards are available to the holders of UK pensions, but they are means tested. Your husband clearly has passed his means test. If you are concerned about whether your qualification for a card is still valid, I suggest you contact your local health board or get onto the HSE in Co Kildare at the following number: 045 876001.

HFQ writes from Dublin:

We hold a "qualifying account" with I. Nationwide. Can any benefit accrue from a possible demutualisation in the future?

I doubt it.  My husband once had a similar qualifying account, which he opened a number of years ago in the hope of a carpet-bagger’s windfall, but the chances of Irish Nationwide ever being demutualised are, I suggest, slim to zero.  This bankrupt institution is either going to be subsumed into some other creation of the Department of Finance as a ‘third force’ in banking here, or it will remain on life-support from the taxpayer as a zombie bank or be simply wound up.  Your ‘qualifying’ account is now redundant, and you might want to fashion an exit plan for your cash from it, at some point. 

The Sunday Times 

MoneyQs

November 1/09

DL writes from Dublin:

I've read that it used to be possible to buy a property as a means to a future pension. Is this still an option? If yes, please can you explain who I should contact if I want to proceed with this? Should I approach any financial adviser or are there specialists in this area? Does the property have to be based in Ireland? My partner and I are both employed. Our combined salaries are approximately €110,000. One of us has a private pension the other does not. Our primary residence is mortgage free. We already have two investment properties with mortgages and these are paying for themselves. We are both in our late forties. Can you please clarify how much we could pay towards a property pension annually? Is it possible to purchase a property for €100,000 (approx) and obtain tax relief via pension contributions towards the purchase of this.

I think it would be a very good idea indeed for you to consult with a 

specialist pension consultant about your idea of buying yet another property. 

I passed your letter onto independent, fee-based financial advisor, Vincent Digby of Impartial.ie who said, “Before jumping directly to the ‘which property should I buy ’ conversation, I recommend your reader review his overall pension strategy and planning especially since he is already materially exposed to the property market for pension and non pension assets. Concentration of investment in one asset class is particularly risky and not something I would recommend.”  Digby says that if you buy another property for pension purposes, you need to be aware of how current and future risks like rental voids, falling rents and oversupply and the fact that there is no guarantee about capital appreciation could affect the value of your pension and retirement. “If he is determined to increase property exposure in his pension, he should consider not just a single property, funded either through a self-administered pension, if it applies in his case, or in a self-directed life assurance based pension into which you can include a residential or commercial property, but also a property fund based investment that can reduce the negative impact of rental voids via a larger diverse portfolio.”   This is a complicated issue:  your advisor can explain all the details, including the size of the contributions you each can make and the tax relief you each claim. 

BC writes from Co. Dublin:

I am writing about my daughter who has lived in London for two years. On July 10th she had her handbag robbed while sitting in a restaurant with her boyfriend. Along with her brand new expensive handbag, her phone, MP3 player and makeup was her Barclays Bank ATM. She telephoned the bank within 40 minutes to cancel the card but by then the thieves had used it several times and had taken 350 pounds.  She has a job that only pays minimum wage and can ill afford to lose this money. She has written to the bank but they have refused to refund the money as her Pin number was used. She had withdrawn some cash earlier from an ATM which was known to be subject to tampering and she assured me she did not have the pin number written down anywhere in her bag. I am positive my daughter was not to blame. Is there anything you can do to help?

Just like here in Ireland, when there is a dispute over card fraud, your daughter should write to her bank with an explanation about the theft (and ideally include a copy of a police report) and request a refund.  If this is unsuccessful she can make a formal complaint to the Financial Service Authority Ombudsman and ask them to investigate her complaint.  She can download a complaints application form at www.complaint.info@financial-ombudsman.org.uk which must them be posted back, or she can speak to someone directly on their consumer help-line: 0300 123 9123. 

RMcC writes from Dublin:

Is now a good time to start paying extra off my tracker mortgage. At 1.75% I pay €700 with 18 years left to run.  Is now a good time to sell the house, which is in Dublin and either invest in something else like equities, seeing as house renting is pretty cheap or move to the south east? How can I find out about price drops in various areas?

I always think it’s a good time to pay off mortgage debt – if only for the peace of mind – but now is an especially good time because the value of your property is falling while the debt is not.  You’re very lucky to have such a cheap tracker rate, but interest rates are more likely to go up than fall going forward.  As for selling up and renting, that entirely depends on how much you are willing to accept and how much rent you can afford.  The latest Daft.ie house price report for the third quarter of this year might help you make your decision: it show by how much both residential property prices and rents have fallen so far this year.  Most commentators seem to agree that there is some way to go on both counts, so if you are determined to sell up, you might want to do so, sooner than later. 

BC writes from Dublin: In your column "A Question of Money" under the heading Landlord's Levies you stated that in making a tax return, allowances include the interest paid on your borrowings. I was of the understanding that rented properties are excluded from these tax exemptions i.e. claiming interest on borrowings only applies to one's residential home. I'd very much appreciate if you could clarify this point for me as I have a rented property and have never claimed interest.

According to the Revenue, as a landlord you are entitled to claim “for interest paid on loans to purchase, improve or repair a residential premises” in order to offset the income tax you are obliged to pay on the rent you earn. As a result of the April mini-budget, however, only 75% of the interest relief on borrowings can be claimed from this year, and not the usual 100%. Also, you can only go back four years to collect your unclaimed relief on all your qualifying expenses.

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OS writes from Dublin:  I have just received my redundancy money and have about €70,000 for deposit. This will be our nest egg for the future. Having read the about the Irish banks instability, which are now the safest banks to lodge this money and still get a reasonable return percentage wise, without having to leave it on deposit the bank for a long period. 

All six Irish owned Irish banks (and the Post Office and PostBank) carry a 100% guarantee on deposits until the end of next September.  Other retail banks (and credit unions) come under the €100,000 deposit guarantee scheme, as well as, in some overseas banks, their own government deposit guarantee schemes.  These non-Irish banks (and An Post and PostBank) do not offer the higher risk premiums that the Irish ones do for the simple reason that they are not insolvent or in receipt of government bail-outs. An Post and Postbank have no debt liabilities; the Dutch-based RaboDirect is the only triple A rated bank operating here; the Danish-based NIB and the UK-based Leeds and Nationwide UK (Ireland) building societies are profitable and have not been bailed out by their government. You should be seeking a safe, secure return not just ON your money, but OF your money. 

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NG writes from Dublin:  I moved to Ireland in March 2007 and I commenced renting a property (with a tenancy agreement confirming payment of €1,400 - one month’s rent and deposit after which I paid €700 a month. in July, 2007 I moved to another property. The landlady gave me just a hand written note confirming payment of €2,100 for one month’s rent and deposit and for a year I paid €1,050 a month. When I moved into my current property in August 2009 I was informed that I could claim rent tax relief. The problem is that I paid my previous landlord/Landlady via bank standing order, I never asked for a receipt but I have bank statements to prove payment and I never had their PPS no’s because I wasn’t aware of the Irish tax laws. (I am a UK citizen).  Can I still claim back these rent tax relief?

You certainly can claim back four years worth of rental relief in the form of a tax credit from the Revenue.  I am told that your bank statements, deposit receipts, and rental contracts will be sufficient proof of your tenancy.  Your landlords should have been registered with the Irish Tenancy Board.  As a single person under age under 55 you are entitled to a tax credit of €400 for 2008 and 2009 or to €800 if you are a widowed person.  Married couples can claim €800.  The tax credits double if you are over 55.  In 2007 the tax credit amounted to €360 for a single person under 55, and in 2006, €330.  (The amount, again, is double for widow(er)s and couples under 55 and twice as much again for claimants over 55. You can download a claim form at http://www.revenue.ie/en/tax/it/credits/rent-credit.html  and make your claim on-line if you wish.

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SS writes from Dublin: I am a recent Masters graduate and am currently unemployed. I have a €21,000 student loan built up over the past four years. The bank have agreed to restructure the loan but are still taking €86, (almost half) from my benefit payment every week.  The interest rate they are charging is 11.1%. Can you advise on how best to service this loan while maintaining my other commitments, child maintenance, rent, bills etc.

It’s clear from your letter that you are not happy with the deal you’ve cut with your lender.  Have you considered visiting your local MABS office to see if they could help you get even better repayment terms, or to see if it is possible to transfer your loan to your local credit union, which may offer better repayment terms?  Also, have you secured all your benefit entitlements?  I’m assuming that in addition to your jobseeker’s allowance (if that is your benefit payment) you should be receiving the monthly child benefit of €166 (or €38.30 per week) and the child dependent increase of €26 a week.  Are you also receiving supplementary rent allowance? A medical card? Your local social welfare office or citizens information centre can help you apply for all these welfare entitlements. Is your family in any position to help you out financially? I’m afraid the only way you are going to be able to pay off this huge debt over a reasonable amount of time – under the existing repayment deal your will be repaying this loan for the next 61 years - is by securing a full-time employment.  I’m sure you’re already doing the best you can on this front, so I wish you luck.  

ends

Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/oMoney Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

MS writes to Dublin: I was self-employed for 15 years. I ran a retail shop and employed 4 people. I paid my taxes (VAT, PRSI, income etc...) in a timely manner on a yearly basis. Unfortunately I had to close my business last year as it was no longer viable. I am married to a PAYE employee and am in my mid-thirties. Am I entitled to any social assistance (as of today) and/or a state pension when I reach pension age?

Unfortunately, the Class S level of PRSI that you paid as a self-employed, sole trader (or perhaps as a company director) only entitles you to receive a very limited number of benefits, the most significant of which are a contributory state pension or widow’s pension and maternity benefit. This assumes that you have sufficient PRSI contributions.  You may be entitled to Jobseeker’s Allowance, but this payment is means tested and is reduced on a euro for euro basis against your spouse’s income, based on a quite complicated formula which you can check out on the government’s information website, www.citizensinformation.ie .  Depending on your total income, your local social welfare or citizen’s advice centre will be able to inform you about any other supplementary welfare benefits to which you, or your family, may be entitled.  

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RO’C writes from County Dublin: I am retiring on the 31st October 2009, aged 61, with 39 years’ continuous service in the public sector.  I have been advised that I should take out maximum AVC single premium contributions for the tax years 2008 and 2009 to best take advantage of existing tax and PRSI reliefs. I am in a position to make the maximum contributions allowable but wonder if there are any pitfalls I should be aware of.  Apart from the mandatory 3% annual amount I must draw down after retirement I don’t feel I will have any need to make substantial withdrawals in the foreseeable future.  However, one never knows and this situation may change.  If I do make an AVC contribution I was thinking of playing safe in the current economic climate and investing in a cash fund - but I’m open to suggestions!

According to Michael Leahy, actuary and CEO of Global Pension Options, a Dublin fee-based pension consultancy, if you have not paid AVCs to date then it is likely that you can get tax relief for contributing to an AVC and get some and maybe all of the money back tax free when you retire in October.  This clearly makes financial sense. If, however, you have contributed AVCs in the past, given the way the public sector scheme works, “any additional AVC contributions that your reader pays will not entitle her to any additional tax free cash.  Instead, the AVC fund will likely end up in an Approved Retirement Fund and she will have to pay tax at her marginal rate on any money withdrawn from the ARF. If her tax rate in retirement is lower than her current tax rate, AVCs generally make good sense even where she has already maximised her tax-free cash sum. But if she ends up paying a similar rate of tax in retirement as she currently pays, be that the basic or higher rate, case for paying AVCs is much more finely balanced.” There is little advantage, he says, in getting 2008/2009 higher tax and PRSI relief on the way in, but paying 2010/2011 etc. tax and PRSI (health levy only) on the income coming out, a tax rate that will probably be even higher than today’s top rate of tax. Also, purchase charges – even on a more secure cash fund - could amount to as much as 5% of the AVC contribution plus a 1% annual fund management charge.  Even if tax rates stay the same as now, says Leahy, “you will have made no major gain. Doing the maths in a case like this is crucial."  Make sure you take genuinely independent advice before you make any final decision. 

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EC writes from Waterford: My husband and I only ever worked in the UK and both of us paid our full national insurance contributions. We are now retired here on UK state and company pensions. Our problem is that our accountant is trying to make us pay the health levy. As I understand it we are not liable for it as we are paid UK pensions.  It took us quite a while, but we now get Irish medical cards on our State Pensions from the UK.  We were entitled to the Irish free medical cards. If we were entitled to medical cards by right then surely we are not liable for the health levy?

A spokesperson for the Department of Social and Family Affairs assured me that any pensioner, whether living on Irish or UK pension income and already receipt of a medical card is not liable for the health levy.  No doubt your accountant can also confirm this with the department.

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Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/oMoney Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

KO writes: I purchased an apartment in Bulgaria in 2008. However, I was wondering if I could now "cash in" some of my pension fund and pay off the apartment mortgage and then subsequently add the apartment to the pension fund?

There is currently no real facility to “cash in” part of one’s pension pre-retirement.  Private pensions can consist of any combination of Occupational Pension Plan, Personal Pension Plan, Personal Retirement Savings Plan (PRSA), Self Invested or Self Administered Pension Trusts and each of these structures may have different retirement benefits options, says Joan Garahy, Managing Director HBCL Investments & Pensions.  Your age, and employment situation – employed or self-employed – determine when you can take retirement benefits, with a PRSA contract probably the most flexible because benefits are available in certain circumstances from age 50.  Anyway, under current pension rules and legislation, selling the property to your pension is prohibited since assets must be held at ‘arms length’ from the scheme member or their relatives.  Garahy suggests that you get independent advice for a definitive answer about your Bulgarian property, but adds that the tax-free part of your matured pension funds can certainly be used to pay off your Bulgarian mortgage. 

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PS writes from Co Offaly: A member of my family has just realised he has a bad credit rating, after being in dispute with a courier company and then a debt collection agency. It started with goods ordered on the internet which were marked COD, the item was left in his post box while he was at work, he never got an invoice, he did receive requests for payment from the debt collection agency, the invoice was paid direct to the courier company. How can he contest the claim of a bad debt on his credit record?

To find out that your credit record is impaired – usually by being turned down for a loan or a credit card - can be an awful shock, especially if you have never been refused credit before.  However, before anyone can challenge a bad credit score they must get a written report from the Irish Credit Bureau, which costs €6. This can be done online at www.icb.ie.  As for challenging an unfavourable credit score, according to the ICB, “All lenders must provide an honest and truthful report of your loan repayment pattern. So a Financial Institution is not obliged to change or remove details from your report unless they are inaccurate.” If your relative believes there has been a mistake in recording the way this purchase and repayment was recorded by the debt agency, and that it was just an unfortunate mix-up – they need to write to the debt collection agency and request that they in turn amend the credit report they made to the ICB. Hopefully this will be sufficient to repair the impaired credit score, but if he is still not satisfied at the outcome, they can make a formal complaint to the Office of the Data Protection Commissioner  

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JC writes from Dublin: I am a PAYE worker who became a landlord for the first time in January.  I need to file a tax return in October but I'm not sure how to go about doing the accounts up. As I pay tax at the top rate, does that mean I must pay tax on all the rent at that rate? Is there any easy guide to working out any allowances? I would appreciate any advice on this matter.

First of all, any return you make this October is for income earned in the 2008 tax year, not 2009. If, as you suggest, you only earned PAYE income in 2008, you will have no liability payment to make on the pay and file deadline. Next October 31st 2010, however, you will have to file and pay for any balance of tax you owe for 2009 and make a payment ‘on account’ for 2010.  However, because there are a number of allowable expenses you can claim against your rental property income, you may end up with a very small tax bill.  The allowances include your insurance costs, including mortgage protection insurance, repairs, cleaning and maintenance costs, and the interest you pay on your borrowings, though that was reduced in the April budget to 75% of the interest paid, not 100%.  The TAB Guides (which I co-author) covers investment property tax allowances and how to fill out a tax return, but you might also want to consult a tax advisor, or even your inspector of taxes, to ensure that you claim all your allowances and pay the correct tax, if any.  This year’s tax deadline might also be a good opportunity to make sure that you are paying the correct amount of PAYE and are claiming all your other tax reliefs and allowances, such as medical and dental expenses, local authority bin charges, trade union fees, uniform allowances where applicable. If you can, you might want to make a pension contribution:  this might be the last year that you will be able to claim top rate tax relief on the contributions. 

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Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/o Money Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

AT writes from Dublin: I'm in the final year of an undergraduate degree and was considering post graduate programs for next year. In particular I’m wondering how I’m going to fund further study. Discussing this with a friend, I remarked that my parents would contribute to the cost and could claim tax relief on the tuition fees thus reducing the total cost. He stated that I wouldn't be able to claim any tax relief on tuition fees for graduate study because my primary undergraduate degree had been exempt from tuition fees. I have searched various tax websites and so far have found no reference to this restriction. Can you shed any light on if it is true or not?

If your parents pay all or part of certain, qualifying tuition fees, they will be entitled to claim tax relief at the standard rate of tax. The fact that you didn’t pay any fees for your primary degree is of no relevance. According to the Revenue, which publishes a leaflet  - Leaflet IT 31 on this tax relief - the maximum limit on such qualifying fees for the academic years 2008/2009 and 2009/2010 is €5,000. The postgraduate course you take must be carried out in an approved college, be of at least one academic year but no more than four academic years in duration and lead to a postgraduate award based on either a thesis or examination. The list of approved colleges, as well as the leaflet can be downloaded from the www.revenue.ie website. 

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MH writes from Dublin: I am 52 and live in Dublin but wish to sell my house and then use the capitol to buy an apartment in Portugal and if possible live off what money is left. I was a sole trader for 18 years and have only about eight years PRSI payments. Will I be eligible for a non contributory pension when I am 65 if I live abroad? After paying off my mortgage and buying the apartment I should have approximately €120,000 left to bring me up to 65. Also, if I get a pension will it be an Irish one?

You will be entitled to an Irish non-contributory pension if you do not have sufficient PRSI contributions for a contributory pension but only the contributory state pension will be paid to you if you move to Portugal so you must check, before you move there, if you will be entitled at age 65, to the Portugese equivalent of a non-contributory pension if you do not qualify for the Irish contributory one.  As an EU resident and pensioner from age 65, you should be able to claim whatever other social welfare benefits Portugese pensioners receive, such a free bus pass or fuel allowance, if such benefits exist (as they do here).  The Irish Department of Social and Family Affairs do not provide this information so you will need to contact their equivalent in Lisbon (you will most likely need a translator.) An EU website, www.missoc.org provides information in English about Portugese social welfare benefits but it has not been updated since 2006.  Meanwhile, I also suggest you get some independent financial and taxation advice before you move:  €120,000, or €9,230 gross per annum, is a very small amount of money to live on for the next 13 years, even in Portugal, and especially if this is your sole source of income until retirement. Aside from the physical cost of moving and selling and buying two properties (your one in Dublin and the other in Portugal), you will also have to factor in the cost of utilities, insurance, local authority and property taxes and your capital may be subject to the equivalent of DIRT tax.  Other living expenses are lower in Portugal than here, but you might end up running out of capital faster than you expect.

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CR writes from Dublin: I am a 10% shareholder and director of a small company. We are going through rough times but in order to help save on overheads, I can live on my savings for a number of months without drawing a salary. However I am concerned about what should happen if the company did not survive. Would my undrawn salary rank as being ‘preferential’, ahead of all other claims?  In what manner should my salary be undrawn? Would it be considered a ‘loan’ to the company? Could I ‘minute’ the fact it had not been drawn down in the company records so that it could be available to me in the event that worst happened?

According to Sandra Gannon, tax advisor with TAB Taxation Services in Dublin, your deferred salary – for argument’s sake, €100,000 - should be noted as a Director’s loan outstanding to the company.  If your firm was to become insolvent or be wound up, this debt would then be broken down as the gross and net sum of €59,000 to you and €41,000 marginal income tax.  Since the Revenue are invariably considered to be preferential claimants, this tax would need to be paid before you were repaid the deferred income. Hopefully, says Gannon, there would be sufficient funds left in the company to meet both the tax and deferred income payments.  She suggests you discuss this matter carefully with your company accountant or tax advisor. 

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Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/oMoney Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

JED writes from Limerick. Along with a number of siblings I inherited my mother’s house last year. Since then the house has been on the market, but we have been lucky to have a tenant for the past eight months. Will the estate be liable for this new property tax? Some of the family members have their own family homes, others are in rented accommodation. 

There is increasing speculation that the government will not risk introducing the property tax while the economy is in such a poor condition and unemployment rates are so high.  It looks like we might all ‘dodge that bullet’ for now.  Meanwhile, however, you and your siblings have until the end of the month to pay your local authority the €200 second home tax if you have not already paid since this house is not occupied as anyone’s principal private residence and you are all co-owners.   An interest penalty of €20 per month will apply if you miss the deadline.  Check here for more details:  www.nppr.ie .

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DN writes from Dublin: I bought a significant amount of gold about 18 months ago indirectly from the Perth Mint and transacted at whatever the euro/dollar price was at the time. I bought it mainly to protect me from the financial chaos I thought was coming down the line and also because I believed the dollar would weaken considerably. History usually tells that when the dollar goes down the price of gold tends to go up. However, what I didn't fully appreciate at the time was that the gold I have is priced in dollars and that I have a currency equation to my investment: if the dollar goes down I might win if the price of gold goes up, but I also lose because my gold is priced in dollars. My question is, does this make sense to you and what are the options, if any, to negate the dollar downside equation?

First, I think you are quite correct to have bought gold as a hedge against the risk of future inflation as a result of the weakening dollar and other fiat currencies including our own. Gold is always a safeguard of value when the money supply is being inflated and there is a real threat of future price inflation. You are also right that when the value of the US dollar, the world’s reserve fiat currency weakens, the price of gold (and oil) usually goes up.  And while the price of gold is typically quoted in dollars, it is sold in many other currencies, including the euro. That’s the price you should be watching.  Gold priced in euro has not gone up as much as it has priced in dollars or especially in sterling, because the euro is currentluy a stronger currency, says Mark O’Byrne of Goldcore.com the Dublin gold dealers who sell the Perth Mint certificates. “However, if your reader bought €10,000 worth of gold 18 months ago it would be worth nearly €10,900 today, a 9% rise. Anyone buying their gold with sterling is looking at an even better return of about €12,460 or 24.6%.”  He adds that “Irish, Spanish and UK investors are not buying gold simply because of the dollar risk – they are buying because of the risk they perceive in their homes, homes, stock market investments and their savings in banks that are ‘guaranteed’ by near insolvent governments.”  Unlike the pieces of paper that represent the euro, gold has a tangible, intrinsic value all its own that doesn’t need to be ‘guaranteed’ by anyone.

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MB writes from Dublin: I am a British subject living and employed in Ireland since the 1970s. Is it possible for me to open a bank account in the UK without residing there?

Yet it is. Like anyone else residing here in Ireland, you are free to open an account in the UK, or other EU countries, but as a number of readers have discovered in the last few years, not all UK banks are very willing to allow for the opening of such accounts.  I’ve been told by a few of them that this is because of the controversy over the bogus non-resident accounts.  The Irish based UK banks, like AIB and Bank of Ireland and Ulster Bank have been more helpful, especially if you already have an account with them here in the Republic but you must satisfy all their money laundering conditions. The advantage of a UK (Northern Ireland) bank account may be that interest rates will be higher and of course, that any interest is paid DIRT free. However, you must still declare your account to the Irish authorities and pay income tax on your UK interest income.  If you pay tax at the higher marginal rate, there’s hardly much point in holding the UK account, unless the interest is very attractive. 

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AP writes from Dublin: I am 59, single and a retired teacher. I receive a pension from the Department of Education and Science. If I move to Spain on a temporary basis will my pension be affected?  Secondly, I have paid 520 stamps towards a contributory old age pension. I am now signing for credits. How will this pan out if I move? Will I lose out? 

A spokesperson for the Department of Education told me that your existing teacher's pension can be sent to you in Spain. All you need to do is advise the department of your new address “in sufficient time to enable payroll to effect the change”. Likewise, the Department of Social Welfare says that there is no problem having your contributory state pension delivered to you in Spain, on condition that you have the sufficient number of PRSI contributions/credits by the time you turn 65.