Question of Money - 22 April, 2012

Posted by Jill Kerby on April 22 2012 @ 09:00

Foreign share dividends can be a taxing problem

JO’B writes from Dublin: I receive dividends from foreign shares, Great West Life in Canada and Aviva Insurance in Britain. Tax is deducted at source in Canada and the UK on these dividends.  I am not sure what percentage is deducted and why. How do I declare this income for ROI (Republic of Ireland) tax returns? Do I get any credit for having already paid tax abroad on these dividends? I cannot find the answer to my question anywhere.

The Canadian tax authorities impose a 25% withholding tax on Canadian share dividends held by non-residents. (See http://www.cra-arc.gc.ca/E/pub/tg/t4058/t4058-e.html#P141_13999 )
You are obliged to report those dividend payments in an annual Irish tax return and to pay any Irish income tax due. Irish share dividends automatically include a 20% withholding tax so you can apply for a tax credit for the 25% tax you already paid to the Canadian authorities, but if you are a 20% standard rate taxpayer you will not be credited with the additional 5% tax paid in Canada. If you are a higher rate (41%) taxpayer, you can apply for a tax credit on the 25% Canadian withholding tax paid against your 41% Irish income tax liability on the dividend income.

UK dividends are treated differently. When you obtain a dividend from a UK company whose shares you own, it will normally show the net dividend and a tax credit which is equivalent to 1/9thof the net dividend. Only the net dividend is taxable in Ireland, that is, the cash amount received exclusive of any tax credit.  For example, if you received a UK share dividend worth €1,800, the dividend voucher will show a tax credit of €200 (1/9th). Assuming your tax rate is 41% you will pay 41% tax on the €1,800 or €738.

In order that you complete your tax return correctly, you might want to seek the help of a tax advisor before the pay and file tax deadline of end October, or mid-November if you file online.


Fickle fund

MM writes from Co Tipperary: In 1998 I received a IR£50,000 (€63,000) insurance settlement for a bad personal accident and it was put into an investment fund with AIB but fell in value so much that we could not encash it without further loss. By 2007 it had increased substantially, but I found out too late after which it fell in value again. The fund is now worth about €50,000. I don’t know whether to leave it any longer or cash it in. It has been 13 years now without anything to show for it.

The conventional view is that stock market related investments need at least a decade to absorb set up costs and charges and to allow that time to work its magical compounding effect on your money. That’s the theory and it does sound like it worked in your case, with your fund performing well by 2007.  The markets are fickle, however and it sounds like your fund plunged with the late 2008 crash and still hasn’t fully recovered.

However, you haven’t revealed any purpose or plan for your money and perhaps this is where you should start, before you make any decision to keep it invested or to cash it in.  Do you need or want this money to buy something like a house or further education?  Is it going to boost a pension or other retirement plans?  Does the investment itself, specifically the assets it has purchased, suit your age and risk profile after all this time?

Once you’ve answered all these questions then it might be time to speak to a qualified, independent, fee-based advisor to help you answer whether or not this investment fund is appropriate to your needs and plans, how high are the ongoing costs and what investments might be more suitable.


Tax break

CH writes from Co Wexford: I am a UK citizen permanently resident in Ireland since 2000. My income consists of a UK local authority occupational pension of approximately €775 per month and the UK state retirement pension. I have no income originating in Ireland.  I pay £150 income tax per month to the UK Revenue on this income.  I am not liable to income tax on any of my income in Ireland as our income (my wife and I) is below the tax-free threshold. I used to file an Irish tax return but was told I no longer had to about three years ago.

I have been recently been told by the local Irish Revenue Commissioners that I am liable for the universal social charge (USC) on my UK occupational pension. I would contend that as the USC is a tax on income, the double taxation rules should apply. I would be most grateful if you could help to clarify this matter with the relevant department.

I asked the Revenue Commissioners to comment on your tax position. First they noted that “Where an individual is resident in [this] State [Irish] income tax is chargeable on both his UK occupational pension and his UK state pension. An occupational pension is chargeable to the USC, in Ireland, whereas a social welfare type payment is not.”

However, as a UK local authority pensioner, your occupational pension is “only taxable in the country in which the pension arises, in this case the UK. Where such payments are chargeable to income tax in the UK, then they are not chargeable to income tax in [this] State and consequently the USC would not be chargeable.”

It would appear from this explanation that both your UK occupational and state pension will be exempt from the USC, but you should consider meeting with your local tax official to confirm your exemption.


Phone Charges

MO’L writes from Dublin: What would be the least expensive way of selling infamous Vodafone shares for someone not used to share-dealing?

The cheapest way to buy and sell shares is to have an on-line, execution only trading account and to bypass the stockbrokers. But there are usually set up or annual charges so if this is a once-off transaction, it might be worth dealing with the lowest cost broker you can find. Sharewatch, for example, offers an execution-only telephone transaction charge in the region of €40 (see http://www.sharewatch.com/sw2011/tradingfees.html).



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