Money Times - July 12, 2016

Posted by Jill Kerby on July 12 2016 @ 09:00

MORE letters…as the Brexit fall-out continues


BMcC writes:  I read your answer last week about the converting a euro inheritance to Sterling. I have a pension lump sum that could clear a mortgage that I took out 10 years ago when I lived in Glasgow. The apartment is rented and I was thinking of keeping it. But now that the euro is worth 10% more and there’s so much uncertainty about what will happen in Scotland, I’m wondering if I should clear the loan.


Right now you know that clearing this mortgage early – especially if you can do so without a penalty – will result in a 10% cash bonus due to fall in the sterling/euro exchange rate. However, the rent will now buy you 10% less if you are redeeming it home. Ditto for any capital gain from a sale. You need to weigh up the uncertainty of the Brexit fall-out with the certainty of an immediate exchange rate savings if you pay off the mortgage tomorrow. This is the only event you can control. Whether Scotland separates from the UK and joins the EU is anyone’s guess. 


MC writes: My defined benefit pension scheme was wound up in 2011. I was 66 in February and was advised to take a tax free lump sum instead of buying a pension.  I received a cheque worth just over €57,000 but I don’t really know what to do with this money to get the best return. I want access to some of this money, but want the rest as a pension top up.


If the €57,000 is your entire pension-related payment from your job, then I will assume that the pension to which you refer, is your state pension, worth €12,220 a year. What is less clear is by how much you want to top up your pension income of €235 a week. Do you need an extra €50 a week? €100? (ie €2,600 to €5,200 after tax, charges)  This represents a net (after tax and charges) annual return from €57,000 of c4.6% or 9.2% respectively.


Returns like this require considerable risk to the capital, which you don’t appear to be able to afford. As I have written a number of times before, deposit returns are so low these days, with even the best longer term fixed accounts only paying c2% per annum (or €1,140 on a €57,000 balance) you may have to draw down your capital sooner than you expect. To avoid depleting it entirely, you should start thinking of ways to earn more, whether from direct employment or self-employment. If you own your home, the tax-free Rent-a-Room scheme should be investigated or even down-sizing.




MF writes:  I would like to know what happens to my husband’s occupational pension if he predeceases me?


You might be entitled to either a lump sum payment or a pension for life if your husband dies while in service. If he is already getting his pension and predeceases you, then you may be entitled to a widow’s pension.  This is usually half the value of his pension, but it will depend on the rules of his pension scheme and whether or not he opted for such a benefit to be paid to you when he retired. You and your husband need to check the retirement beneficiary options available at retirement and/or speak to a pension scheme trustee if you do not have this information to hand.

DL writes: In 2004 we bought a leaseback apartment in France. The rental income was fine until the 2008 crash. Even though my husband lost his job (he’s back working now) we managed to scrape together the repayments to the French bank until two years ago when we asked them for a payment break. We ended up missing three payments and they handed our loan to a debt collection agency that is now demanding the outstanding €50,000. My husband wants to raise an Irish loan – that’s if we get one - because he thinks the property will be worth more in a few years. I think we should sell -  our children start college in two years and we need to pay this expense. 


You don’t say how much the apartment is worth, or your own home in Ireland, but unless you have a huge amount of equity in these properties, your chance of getting a €50,000 loan from an Irish bank to clear your French arrears are probably quite slim. Unless you can find the money you owe from somewhere else, you may have no choice but to sell the French apartment. You can then start working on repairing your impaired credit record.


Finally, leaseback holiday properties often included VAT subsidies that could be clawed back if you sold the property before the repayment contract ended. You might have to pay the French government such a refund. Any capital gain will be subject to 33% tax in Ireland, less your annual CGT allowances of €1,270 and sales costs.



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