The Sunday Times - Money Questions 29/11/09

Posted by Jill Kerby on November 29 2009 @ 12:54

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.

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