Jill Kerby

AMcC writes from Dublin: I am considering cashing in a small occupational pension that I earned while I worked in America and I have been told that I am obliged to pay US taxes of 20% on the lump sum.  As I am now tax resident in Ireland, would I also be liable for additional Irish taxes if I then repatriate this cash to Ireland. 

As an Irish tax resident you are obliged to pay tax on all your worldwide income – in this case, capital gains tax of 22%.  The double taxation agreement with the United States means that you do not pay tax twice on this encashment and you can claim a tax credit for the 20% US payment. 

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EC writes from Co Kildare: I hope that you might be able to guide me because I don't know whether to encash my policy or hold on and hope for a good return on maturity date.  I took out an Irish Life, indexed linked Treasury Plan starting with the equivalent of €110 (£86.66) a month back in January 1995 and it matures in 2015. I now pay €48.25 per week.  Last September 25th my fund was valued at €22,873.79. The lady I spoke with suggested that unless I needed the cash, she would encourage me to hang on in there.

You still have six years before this policy officially matures but chances are that its value has continued to fall since last September.  Your contributions have probably exceeded the fund value at this stage so you need to decide for yourself whether the growth prospects going forward will be positive enough to make up for your current losses and produce a decent profit (after the 26% exit tax on profits is also taken into consideration.) This was almost certainly an investment plan that carried substantial fees and charges and one thing you certainly should consider doing at this stage is stopping the index linking of your contributions. Most of the indexing every year is probably being paid to the salesman, and not into the fund.  If you do cut your losses, you could use the €2,500 you are paying in every year to pay off your mortgage or other debt, as a tax deductible contribution to a low risk, low cost pension fund, or to save it or invest it in assets that will hopefully survive the recession intact and/or come out the other side having paid you steady dividends or interest – physical gold and silver, consumer durable shares, oil stocks, good farmland, etc.  Before you make any decisions make sure you have all the facts, and that includes urgently finding out exactly what the fund is worth today and your contributions to date. 

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EB writes from Dublin: Since the US is in so much debt and the federal reserve is printing vast amounts of money do you think there will be a collapse in the dollar? I have some cash available for investing for the long-term and I would like to take advantage of some low stock prices. I would like to buy shares on the NYSE but I believe a collapse in the dollar is inevitable. Would I be right in saying that if I use euros to buy shares quoted in dollars and the dollar subsequently collapses, will my investment be devalued? I understand that if I buy shares in, for example, a Brazilian company quoted on the NYSE, and the dollar loses half of its value against the Brazilian currency, then the price of the stock will double on the NYSE to reflect the true price in Brazil. If I buy this stock with euros, will my investment still be devalued by a collapse in the dollar? 

Predicting currency movement is a mugs game and not even the professionalsalways get it right.  That said, the contrarian view of the dollar – which has recovered some of its strength since the credit crisis began – is that the creation of trillions of dollars of new loans, credit and cash (printed out of thin air by the Federal Reserve) will inevitably result in the devaluation of every dollar already in circulation, and ultimately in the long-term viability of the dollar. (You can read more about the Austrian School theory of economics here:  www.mises.org).  If you buy shares on the US stock exchange, first converting euro into dollars, and the dollar collapses, it means your share will be worth that much less.  If you buy Brazilian stocks and the dollar collapses and the Brazilian currency strengthens against the dollar, but the dollar remains weak against the euro, your loss may be less when you sell the Brazilian shares.  The thought of these permutations is giving me a headache however, so I’ll just repeat what I’ve written many times in this column: The only reason to buy any shares, anywhere these days, is because they represent sound, long term value relative to their assets, management, cashflow and dividend payments. You have to accept that the moment you invest outside the eurozone, you take a currency exchange risk and incur extra costs.