Jill Kerby

No danger with bonds but beware a euro exit

CC writes from Dun Laoghaire: I have €70,000 in An Post savings bonds and €40,000 in prize bonds. In the event of the bank guarantee being "called in" (save us all!) would both amounts be honoured, or would these be viewed as belonging to one institution, in which case would there be a shortfall of €10,000?

All state savings products continue to be 100% guaranteed by the Irish State, so the €100,000 bank deposit guarantee that applies to banks, building societies, credit unions is not relevant to you.

 

That said, if Ireland defaulted on its debts and/or we were to leave the euro and revert to our own currency, I don’t believe it is unreasonable to expect that the State would honour its contract with its own people regarding the money that the people lent the State in exchange for these savings products.

 

However, if we did return to the punt as our currency, your savings and prize bonds would most likely no longer be denominated as 110,000 euro but as 110,000 new Irish punt and that the new punt would not remain at par with the euro for long. A devaluation would mean that the value of your savings products  would purchase far less goods and services than if they had remained denominated in euro.

 

 

Going Dutch

JG writes from Dublin: I recently queried RaboDirect about whether my deposit and investments with them would be considered Dutch euro in the event that Ireland reverted to the punt.

 

They replied that “This is an unlikely scenario” but “If this situation did arise it would depend on the legislation that would be adopted by the Irish Government to resolve the issue.” They added that they comply fully with Central Bank of Ireland codes of practice, “So if new legislation is passed by the Government to affect all banks operating in Ireland, RaboDirect could potentially fall within the remit of that legislation.” In other words, RaboDirect could come under Irish legislation and deposits could be devalued similar to any Irish Bank.

 

I would imagine the same would apply to other European Banks registered in Ireland. I do not think this is generally understood.

 

I have pointed out many times over the past two years that no one is entirely certain what the outcome would be to euro deposits in non-Irish (but Irish licensed) banks if Ireland left the euro and reverted to the Irish punt.

 

Neither those banks that operate within the eurozone – like the Dutch-owned RaboDirect, nor NIB, the Danish owned, but non-eurozone bank that operates here - have been able to give equivocal guarantees that all deposits would remain in euro.  You’ve now received a similar reply.

 

If you are concerned that the money you placed with RaboDirect with the idea that it would remain a euro deposit might revert to punts, you could try and arrange to open an account with them in Holland.  NIB customers can open savings accounts with their Danske sister bank, Northern Bank in Northern Ireland.

 

Do your homework before you shift your savings to another jurisdiction or into another currency other than the euro. You will need to satisfy money-laundering regulations and there may also be transaction costs and a potential tax liability. You must declare any offshore account to the Irish Revenue.

 

 

Offshore options

RK writes from Dublin: I recently retired. I have €100,000 lump sum savings and a €100,000 tracker mortgage. I am considering paying off €50,000 of the mortgage in the fear that if the euro collapses, which now seems increasingly possible, my debt could be doubled and my savings halved. Is this wise in your opinion? Experts differ in their views about what will happen with debt and with savings in the event of a collapse. What is your opinion? Is there any point in holding some euro in cash if the notes originated in Ireland?

 

I’m a big fan of paying off mortgage debt sooner than later. No matter how difficult your financial position may become, at least the roof over your head is your own (or in your case, most of the roof if you just pay off half of the remaining loan.)  Before you do anything, however, check with your lender to see if making a capital payment forfeits your right to keep the tracker for the duration of the loan.

 

Sorting out euro debt contracts will be a nightmare for any country that leaves the euro and you are correct to wonder if, assuming the worst does happen and we leave the euro and revert to the punt, your mortgage will remain a euro denominated liability.

 

One way to mitigate the risk is not to leave the remaining €50,000 in an Irish-based savings account after paying off half your loan. Moving it to a ‘safer’ eurozone country (where it would still be worth more than the devalued punt even if that country reverted to its own currency some day) means that you will not suffer as great a loss in the spending value of your original savings once you repatriate it back to Ireland.

 

This, of course, also assumes that whatever offshore bank you choose (and its guarantee scheme) survives the fall-out of any country leaving the euro or that currency controls are not introduced that might keep your offshore money marooned.  Meanwhile, absolutely no one knows whether your Irish euro in the ‘safer’ offshore bank (or Greek or Spanish euro) will be singled out for different treatment if these countries revert to their own currencies.

 

I don’t have much faith in the long-term survival of the euro but I don’t expect it to collapse in the next few weeks or months. I think the EU technocrats will try more desperate measures to save it before that happens.

 

That should give everyone some time to consider their options, to get some expert advice and then to do what they believe needs to be done to protect their financial interests and those of their families. (See comment).

 

 

 

 

 

 

 

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Safe havens give peace of mind over euro fears

AW writes from Dublin: I have an instalment savings and a deposit savings account at An Post that I use to pay for my son studying in Britain.  I am a single mum - working hard to keep my job and just about hanging on.  I was horrified to read your reply.  Please could you advise where would be the safest place for my meagre savings?

 

It certainly wasn’t my intention to horrify anyone but if Ireland were to stop using the euro or the eurozone broke up, reverting to individual national currencies again would almost certainly result in devaluation of euro savings in Irish financial institutions. 

The difficulty for everyone who has their ‘precious’ savings here in Ireland, or in Greece, Portugal and other weaker, peripheral eurozone countries is that no one knows for sure if the euro is going to survive or not, or exactly if a country may exit the eurozone club.

Only you can decide the amount of risk you are willing to take with your money in An Post, which is under state guarantee. However, it is possible to open a euro deposit account in another eurozone country.  Germany is considered the strongest one of all, and if the eurozone were to break up, the new deutschmark is still likely to be the strongest new currency.  With your son going to college in the UK you could also move your money to Northern Ireland or the British mainland and not have to worry any more (after the initial currency exchange transaction) about the up and down movement between the euro and sterling.

Moving your savings to any new institution, and especially if you are a non-resident depositor is subject to their terms and conditions and to money laundering regulations. You could end up sacrificing a higher deposit return. Also, you are obliged to declare any foreign account on an annual tax return here and to pay Irish deposit interest retention tax on any return you earn.

 

 

Silver lining

 

TF writes from Navan: I wonder what is your opinion about investing in silver. Are there any silver dealers in Dublin? And how can one be sure if the silver is genuine?

 

Silver is both an industrial and precious metal. Like gold, it has a very long history as money, as well as having widespread use in jewellery and fine tableware production.  It also has many industrial uses and this is why its price tends to be more volatile than the price of gold.

The euro price of silver has fallen by over -14% in the past year, a reflection of the slowing demand for the white metal, whereas the euro price of gold – while also volatile - is nevertheless up over +16% in the past year. Gold, unlike silver is seen as more of a hedge against the growing uncertainty about the strength and sustainability of the euro, dollar and pound. All three are being intentionally debased and devalued by central bankers in order to prop up failing financial institutions and repay their country’s enormous debts.

Do your research carefully before buying silver and gold. Check www.goldprice.org for live and historic prices of an ounce of silver (and gold) in various currencies. Compared to its brief, all time euro price high of €32.71 on April 22, 2011, silver, at €22.62 as I write (28/05/12), a fall of 33%, looks like a bargain.  But if the global economy keeps slowing it could keep falling in price, perhaps even returning to the c€10 an ounce it cost five years ago.

Neither silver nor gold are the bargains they were at the peak of the paper money credit boom. It takes an extra €13.09 or 136% more euros to buy an ounce of silver now than it did in 2007 and an extra €764, or nearly 157% more euro to buy an ounce of gold.

The goldprice.org price charts tell us absolutely nothing new about the precious metals themselves, whose intrinsic nature never changes. They are what they are. But they do show how many extra paper euro, dollars or pounds that it now takes to buy an ounce of these rare and precious metals.

Finally, only buy silver and gold from reputable bullion or coin dealers. Goldcore.com are well known bullion dealers in Ireland and are the European franchise-holders for the Perth Mint Certificate programme of Western Australia. I purchased gold and silver certificates from them in 2006.

 

 

 

Crash Course

 

MMcI writes from Dublin: I read with interest your recent article with on dividing assets across banks. I have a large amount on deposit in one bank following the sale of a house in 2004. I naively thought the deposit was covered by the ELG. I have been renting since, so I am terrified now that if the event of a crash I could lose "my house"!  I am arranging to move funds now but would welcome your advice on moving over €100,000 to Rabobank. I am desperately trying to figure out the credit ratings schemes but these do appear to have the highest at present. Also, what about moving some money to KBC Luxembourg, Deutsche Bank and/or DZ bank.

 

The Eligible Liabilities Guarantee Scheme covers specific short and long-term eligible bank liabilities, including on-demand and five year term deposits, but you need to check to make sure that your deposit and your Irish bank qualify to participate in the scheme before you commit your funds. Under the current scheme, which lasts until end December 2012, a three year deposit made on June 1, 2012, for example, will be extended to June 1, 2015.

 

RaboDirect bank is not one of the ELG participating banks listed here: http://finance.gov.ie/viewdoc.asp?DocID=7049&CatID=78&StartDate=1+January+2012 . However, all deposits up to €100,000 in RaboDirect are covered by the Dutch deposit guarantee scheme.  Luxembourg and German banks also offer a €100,000 deposit guarantee.

 

European banks are being regularly downgraded by the main credit agencies.

Rabobank’s long term rating, which was AAA up until last year, is now an AA from Standard & Poor’s and Fitches and Aaa by Moody’s. Deutsche Bank’s long term rating from the three agencies is now A+, A+ and Aa3. KBC, a Dutch bank is rated A-, A- and A1 from S&P and Fitches while KBC Bank Ireland only has a Baa3 and BBB-rating from Moody’s and S&P.

 

In the event that Ireland were to go off the euro, having some of your savings on deposit in the ‘strong’ core eurozone members like Germany, Austria, Holland and Luxembourg would shelter you from the inevitable devaluation of any new Irish currency.

 

 

 

 

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Bank debt forgiveness will give me fresh start

CD writes from Dublin: I took out a €50,000 loan to start a business in 2005. I further extended this loan to €75,000 to keep the business going in 2007. My sister signed as a guarantor and deposited a sum of money in the bank on which there is a lien to cover my loan.

Unfortunately I had to close the business in 2008 and became unemployed. I was well received by the bank that allowed me a term of grace to pay interest only. I am now on my way back to work through an enterprise back to work scheme and have been managing to pay the bank €1,000 per month and the debt is currently at €57,000. This €1,000 euro is a huge drain on our family as you can imagine.

I have an opportunity to make a settlement with the bank through my sister. What kind of a settlement could I hope to achieve? It would be great if I could get it as close to €40,000 as possible.

 

You need to convince the bank that it is in their best interest to accept the €40,000 that your sister, as your loan guarantor, is willing to pay over as the full and final settlement of your debt, says financial advisor Karl Deeter of Irish Mortgage Brokers & Advisors.

“Your reader should write to the bank offering the €40,000 as a full and final settlement for this debt and wait for their response,” he says. If the bank declines, says Deeter it might be able to take the amount your sister put up as the guarantee if you defaulted on the €1,000 monthly payment but it would have to seek a court judgment against you for the €17,000 balance. Deeter suggests it would be unlikely to succeed “if it is shown that your reader had made every effort to repay them as much as she could” until your deteriorating personal circumstances forced you to seek a final settlement.

The fact that you have been able to repay €1,000 a month, a total of €18,000 so far, may not facilitate a deal if the bank is happy with this arrangement. Their first concern is to get all their money back, not to take a €17,000 loss.

In case your debt settlement offer is refused, you should prepare a detailed summary of your household finances to support your contention that the €1,000 a month payment is increasingly unsustainable. 

“The final move your reader has,” says Deeter “is to consider personal insolvency or bankruptcy next year when the new legislation is brought in”, though this may not prevent your sister’s guarantee from being called in by the bank.

 

A fair share

CL writes from Dublin: I am getting married in a few weeks but unfortunately have been made unemployed. I have about €2,000 worth of Elan shares which I bought nine years ago through a stockbroker – BCP – who are now gone out of business. I have the certificate but am told they need to converted into an electronic form. Another broker said I would have to sell them in the States and said, ‘best of luck with them’. Any suggestions?

 

Elan moved it’s primary stock market listing to the New York Stock Exchange late last year, where the bulk of the trading in its shares is conducted, but it continues to be listed on the Irish Stock Exchange.

There is a lot of paperwork involved in selling shares now and most brokers are not keen to deal with customers with such small stakes. However, Bloxham Stockborkers in Dublin have agreed to sell your Elan shares  - it might cost you €100-€150 in charges – and I have passed on the name of the broker to you who will complete the transaction.

 

Risk Management

SB writes from Dublin: In the event of Ireland having to write down its national debt in a restructuring deal in the future - would state savings be affected?

State savings products include An Post saving certificates and bonds, PrizeBonds and the national solidarity bonds. Before 2001 these were all denominated in Irish punts and were automatically converted, at a rate of £1 to €0.79 when the euro was introduced. If we leaves the euro, a new, Irish currency will replace it and while the conversion price may be one euro to one punt nua, once it floats on the international currency markets its value will likely devalue quite sharply. Euro denominated savings accounts and instruments like state saving products will all be re-denominated in the new Irish currency.

 

Healthy options

RP writes from Cork:  I am retiring shortly on my 65th birthday and my company will maintain my health insurance policy (for my wife as well) until the renewal date which is about three months after I leave. First question:  can I just renew this policy without any waiting periods – also, my wife has developed arthritis in recent years? (We have been covered by a VHI corporate plan called Company Plan Extra.) If it proves to be too expensive, can you recommend a good, affordable policy?

You can maintain your existing policy, if you choose, even if it is a corporate one. Under our community rates pricing system every health insurance plan must be available to consumers. In your case, the only thing that will change is who pays the premium.

As for waiting periods, so long as you renew your health insurance, either with your existing company or with Aviva Health or Laya Healthcare within 13 weeks, you will not have to fulfil any waiting periods for existing medical conditions.

The Health Insurance Authority website www.hia.ie has a comparison site for the hundreds of plans on the market, but I think it’s a very hard slog. By all means go onto it to check out various costs and benefits, but given how expensive your current policies are – at €1,160 each with 76 similar policies on the market according to the HIA comparison site – a better solution is to consult a good specialist health insurance broker who will charge you a fee for reviewing plans and recommend a suitable one for your needs and price range. Check out www.healthinsurancesavings.ie and www.lyonsfinancial.ie.

 

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Will my husbands debt cost me my family home?

AC writes from Dublin: My husband and his father gave a personal guarantee to a bank for a business loan. It's now in default, and with interest ratcheting up is worth nearly €2 million. They have sold a number of properties over the last two years which seemingly put a sizeable dent in the capital owed only to get swallowed whole again by interest due. This happened before we married, and I knew nothing about it until he told me a year later when the worry got too much.

I owned my home, mortgage free, when I met him. After I married, after he told me about his personal guarantee problem, I sold my house and used the money to renovate and extend an old house my parents gave me. This is now our family home. We have two children. This house is in my sole name, it was a gift from my parents, all CAT returns filed etc.

 

“The devil is always in the detail,” says solicitor John Horgan of Leman Solicitors in Dublin, “but if a) the property is in your reader’s sole name, b) the debt is in her husband’s name and his fathers’ and c) she has not signed any documentation in relation to their loans - mortgages, personal guarantees etc then the bank has no contract with her and no security over her house.”

Your question is sure to trigger other readers’ concerns about what happens to the family home when it is owned by both partners and one of them is in serious personal debt, or has used the family home to secure a separate loan or is perhaps even facing bankruptcy. 

In anticipation of this I suggest such readers familiarise themselves with the Family Home Protection Act 1976 and the Family Law Act 1995. At the core of these acts is legislation that prevents one spouse from selling, mortgaging, leasing or transferring the family/shared home without the consent of the other spouse/civil partner. Where that consent has been given under duress or under false conditions, the family home may not necessarily be lost to creditors.

The money website askaboutmoney.com also has a ‘key post’ (http://www.askaboutmoney.com/showthread.php?t=162672) that discusses a number of family home related debt matters, but it includes the caveat that readers also consult a solicitor. 

 

Diminishing return

PS writes from Dublin: Recently you replied to a JO'B from Dublin regarding Irish taxes on UK share dividends. You stated that a UK dividend of €1,800 would have resulted in tax of €200 at source and, if the Irish owner was paying tax at 41%, "their liability on the €1,800 would be €738".

Am I correct in assuming what you meant that the tax was €738 less what was already paid to the UK authorities, leaving a balance of €538 payable in Irish tax? Would you mind clarifying this for me?

 

I’m afraid that you read my answer correctly the first time. The taxing of UK share dividends here is not very generous: first, UK dividends are paid to the Irish shareholder net of a UK withholding tax. The dividend voucher you receive will show a tax credit that is the equivalent of 1/9th of the net dividend, but the withholding tax is not refundable and if you are a top rate 41% taxpayer here, your tax bill on the dividend example I gave of €1,800 (the actual gross dividend being €2,000) is €738, that is, 41% of €1,800.

 

Paltry pension

S McG writes from Dublin: From 1961 to 1965 I worked on and off in England and made National Insurance contributions for a total of 211 weeks treated as insurance periods. I returned to Ireland in July 1965 to take up employment in the civil service where I remained for 41 years. On reaching age 65 I applied to the International Pension Centre in Newcastle Upon Tyne for payment of a pension on the strength of those years of insurance. I was informed that, as I am in receipt of an Irish civil service pension I am not entitled to a pension from the UK, however, I then received an amount of £0.71 per week that arrives as an annual payment each December.

As my period of employment in the UK had no connection with my later employment in Ireland I fail to see how my Irish pension should in any way affect my UK entitlements. Your comments would be appreciated.

 

As a retired Irish civil servant, your civil service and state pension entitlements are combined. A spokesperson for the Department of Social Protection told me that your Irish pension is administered by the Irish Paymaster General, not the Department of Social Protection, but she did add that your status as an ex Irish civil servant should have no effect on whether you are entitled to a UK state pension for the years you were employed in the UK.

However, in order to qualify for even a partial UK state pension, men who were born before 6 April 1945 need to have paid at least a quarter of the required 45 years of qualifying national insurance contributions (NICs) for a full pension; and for those born after that date, a quarter of the 30 qualifying years of contributions. With fewer than 25% of the qualifying years worth of contributions, you will not be entitled to any basic State Pension using your NICs record. (See http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_10014671)

Nevertheless, you are receiving a UK pension payment of £0.71p a week, or £36.92 in total every December. 

The Department of Social Protection spokesperson suggests you contact the Paymaster General about your case. Perhaps they can shed some light on the size of your UK state pension. You may then have to re-contact the International Pension Centre at Tyneview Park, Newcastle Upon Tyne to double check the numbers of contributions they attribute to the period in which you worked in the UK. Their telephone number is 0044 191 218 7777.

 

 

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Follow Aussie rules to move fund down under

JK writes from Australia: I have moved permanently to Australia. My pension fund is with Mercer in Ireland. My last estimate was worth approx €40,000.   I have been paying into an Australian fund for two years.   

How should I approach Mercer regarding the transfer of my Irish pension fund to my Australian fund?  Would I have to pay tax/penalties if I take this course?

 

As a large pension administrator Mercer handles regular queries from former Irish pension fund members who have emigrated and want to know the best way to proceed with their accumulated pension fund.

The Mercer official I spoke to told me that the successful transfer of a fund to another country usually depends on how similar or different are the pension fund rules of the new employer and new country. Irish and Australian pension funds rules regarding pre-retirement access to funds, are quite different, said the official.

He suggested that you contact the Mercer ‘JustAsk’ telephone helpline at 1890 275 275 or email it to JustASK@mercer.com&subject=Query for JustASK where you will be put in touch with your employment pension scheme administrator. This person will provide you with a short checklist of questions, including your new company’s equivalent of our Revenue registration number that will help determine whether the fund transfer is possible or not. 

Any costs involved in a successful transfer, said the official, will be paid by your former employer here in Ireland and not by you.

 

 

Keeping track

AH writes from Dublin: My husband and I took out a mortgage in 2007. I’m not sure if we were fixed or variable back then but in 2010 we fixed it for two years as my husband became unemployed. A few weeks ago we received a letter from Bank of Ireland to say we were shortly coming out of the fixed rate and they offered us a tracker mortgage, which we obviously have accepted.

My query is, are we part of the couple of thousand customers that BOI didn’t offer a tracker to when they should have, and would we be due back any money which we might have over-paid when we fixed again in 2010?

 

Karl Deeter of Irish Mortgage Brokers & Advisors suggests that the first thing you do is check your original mortgage contract and letters of offer from the bank to determine what kind of mortgage you took out in 2007. You can do this by checking the mortgage contract and letters of offer from the bank.

“For your reader to be offered a tracker now, as her 2010 fixed loan expires, suggests to me that she and her husband were probably tracker mortgage holders back in 2007 but ended up opting, for some reason, for a three year fixed rate. In 2010 they decided to go onto another fixed rate because of the husband’s employment circumstances.” Bank of Ireland are not offering trackers anymore, he said, unless they are obliged to under an existing mortgage contract.

Just over 2000 tracker loan customers were compensated by the bank last year, at the instruction of the Central Bank after it was found that they were not permitted to revert to their tracker mortgages after going onto fixed rates for a period and were put onto more expensive variable rate interest repayments instead.  But before you – or even a mediator like the Financial Services Ombudsman - can determine if you too overpaid your mortgage before 2010 you need to be absolutely clear about the repayment terms of the original 2007 mortgage – was it a fixed, variable or even a tracker loan?

If you can’t find all the mortgage correspondence from the bank for 2007 and 2010 in which any reference to a tracker rate will be noted, says Deeter, you can request copies from the bank compliance officer under Section 4 of the Data Protection Acts 2003 and 2008.

Once that’s done, you should be in a better position to decide whether you have a case to pursue with the bank or the Financial Services Ombudsman.

 

 

Joint venture

CO’S writes from Dublin:  My wife and I are both working as teachers. Next year she will be job sharing. I earn €43,000 and she earns €53,000. Will I be able to transfer any of her allowances to me? We both are taxed separately as a married couple. What can we do to reduce my tax and can I benefit from any of her allowances? She will be earning around €27k or half of her present income.

 

 

Since you are separately assessed for income tax, you each have a standard rate cut off point of €32,800 in 2012. This means that you both pay standard rate tax of 20% on your first €32,800 and 41% on the balance of your individual earnings.

From next year your wife will only earn €27,000, therefore you should opt for joint assessment. As a couple, your 20%, standard rate income tax cut-off point will be €65,600, (a maximum €41,800 for one spouse, provided the lower earning spouse has income of at least €23,000.) You can then split the €65,600 as follows: €27,000 to your wife and €38,600 to yourself. The balance of earnings will then be taxed at the marginal tax rate of 41%.

As a separately assessed married couple you cannot transfer allowances between each other this year, but you will be entitled to a refund at the end of the year if you pay more tax under separate assessment than you would have paid under joint assessment. This is another good reason to be jointly assessed next year.

 

 

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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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With Mortgage relief comes responsibility

 

MF writes from Limerick: In 2007 I purchased a house for my daughter. The house was legally transferred to her and I have continued to pay the mortgage. I have a house of my own and it is mortgage free. Would I be able to claim mortgage relief from the Revenue for her house?

I’m afraid not. This property is not your principal private residence so you are not entitled to claim any mortgage interest relief; nor is it an investment property that you own that you could have offset up to 75% of any mortgage interest paid against the rental income (along with other qualifying expenses).  Instead, this is a second property that you bought with a mortgage only to put your daughter’s name on the deed of ownership.

I asked tax advisor Sandra Gannon of TAB Taxation Services in Dublin to comment on your letter and she raised an interesting point: “From the information provided it appears that a separate mortgage was taken out in order for your reader to buy this property for his daughter. He says that his own home is mortgage free, but perhaps it was never mortgaged.

“Either way, it would have been very unusual for the bank to allow the ownership of this second property to be transferred to the daughter while the mortgage remained with him, unless it was secured against his own home.

The only way mortgage relief can be claimed on this property is if your daughter becomes the legal owner of the mortgage, says Gannon. “However, the lender would need to be satisfied that she had sufficient income and independent means to pay the loan herself; only then would the father’s home be released from acting as security, if that is how the loan was arranged.”

Assuming the transfer of the mortgage to her is possible, there would be nothing stopping you from continuing to pay this mortgage for your daughter if you so wished. 

But it might be a nice gesture for your daughter to at least refund you the annual mortgage relief to which she would now be entitled as a first-time buyer in 2012. The relief could be worth up to 25% of the interest paid up to €3,000 reducing thereafter to 22.5% and 20% until it is abolished for everyone in 2017.

Finally, you may want to ask your own tax advisor about the fact that you have gifted her this property and continue to gift her the cost of the annual mortgage payments.

CAT free gift exemptions between a parent and child have fallen by half in the last few years and the annual CAT gift threshold is just €3,000. Depending on the value of these gifts, and any other inheritances or gifts she may receive from you or other sources she may have a potential CAT liability to pay.

Separate issue

Terry L writes from Dublin:  On the death of my parents some years ago, I recieved a sum of money close to the then maximum tax-free threshold for parent-child inheritance.  

My spouse's elderly parent is in poor health and, when she passes away, my spouse will inherit a sum in the region of €150,000.  What is our tax position on this second inheritance, given that we are jointly assessed?  Will the value of both inheritances be added together to calculate the tax payable, or is the tax-free threshold separate for each partner's parental inheritance?   

Also, if both inheritances are added together for tax purposes, would it be better for us to opt to be assessed separately for tax for the next few years?

Inheritances and gifts are the individual's alone and liability is that of the beneficiary, even if the person is jointly assessed with a spouse for income tax purposes.

The €150,000 inheritance your wife may receive will therefore be capital acquisition tax (CAT) free, assuming the tax free threshold between a parent and child does not fall below that amount when the inheritance is received and if your spouse has not previously received inheritances or gifts that would trigger a CAT lifetime threshold being exceeded.

Calculating aggregated sums for CAT purposes can be complicated and a tax advisor should be consulted.

 

Seeking relief

AB writes from Dublin: I purchased our home in 2004 jointly with my wife for €500,000. It was not my first mortgage but my wife was a first time buyer. Does she qualify for the relief announced in the December budget to help people who bought during the peak?

The December budget introduced enhanced mortgage relief for people who bought their homes as first time buyers between 2004 and 2008. Your wife, as the first time buyer during this period, is now entitled to claim 30% mortgage tax relief on her half of the mortgage repayment for the next five years to 2017 when it will be abolished for everyone.

 

Safe for Summer 

PW writes from Navan: My son is returning to the same summer job at a hotel in America that he had last year under the student visa programme. However, he is pretty sure that another, better paying job will be available a month later.  It took nearly a month last year for the hotel to sort out getting him off emergency tax and his worry is that he’ll be gone to the next job before that happens. First, is there anything he can do to avoid emergency tax or get it back quickly before the summer is out? (Otherwise his father and I will have to send him the money.)

Students are often put on emergency tax rates when they take up summer employment, though most employers, here and in the US or Canada, will try to sort it out quickly.

It might be worth you or your son contacting Taxback.com before he goes to the States this year to find out what he might be able to do himself to avoid being put on emergency tax or at least to know what will be involved in claiming the tax refund when he gets home at the end of the summer. There is a section devoted to tax refunds for students: http://www.taxback.com/usa-tax-refund-j1.asp

 

 

 

 

 

 

 

 

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Check the numbers before you sell Vodafone shares

 

PS writes from Dublin: I am left with about €3,000 worth of Vodafone shares from my – failed - original investment of €8,000 in the Eircom share flotation. Are they worth holding onto and what would the tax situation be if I sold them now? Your advice would be greatly appreciated.

 

Only you can decide if you have the time and inclination to hang onto your shares in the hope that they may someday reward you sufficiently. If you check Vodafone’s five year share performance on financial websites like Yahoo Finance, you will see that their price has ranged from about Stg137p to171p (as I write) with some huge highs and lows. Over the past 52 weeks alone the range has been between about 154p and 185p.

If you decide to sell your shares, you can offset any loss you’ve made on them against any other capital gains from other shares, less your personal capital gains tax allowance of €1,270.You can carry any remaining loss forward to the next year.

Working out exactly how much of a loss or gain has been made by Eircom/Vodafone shareholders is complicated, because of how a pat of he company was sold off (Eircell) and how bonus shares were also issued at a rate of one Vodaphone share for every two Telecom/Eircell shares held. 

Vast amounts of space have been dedicated to the formulas and calculations on Askaboutmoney.com and other consumer boards, but I suggest you hand over your query to an accountant or tax advisor and let them do hard lifting for you.

 

GK writes from Dublin: I have become a resident in Ireland for tax purposes.  I own a rental property overseas that has a tax year from April to March.  The tax year in Ireland runs from January to December.  Can you advise how I partition the rental income and expenses across differing tax years and apportion the credit for tax that has been paid in another country that has double taxation agreement with Ireland. Can you refer me to a document that I can use to understand my tax obligations with regard to rental income.

 

You also need to consult a good tax advisor about your overseas property, its tax treatment here and in the other country and whether your wider tax position also comes into play.

Meanwhile, the Irish Revenue Commissioners produces a useful leaflet, ‘A Revenue Guide to Rental Income – IT 70’ that you can download from its website here: http://www.revenue.ie/en/tax/it/leaflets/it70.html  It should provide everything you need to know about what expenses can be deducted, how profits and losses are calculated, when any tax is due and the records you need to keep. It even includes a section about foreign rents.

 

KC writes from Co Wicklow: Due to a period of unemployment, overspending and robbing Peter to pay Paul I have a credit card debt of €26,280.26. I have been paying the minimum payment up until November when it became impossible to service the €650 per month. I’m back in employment, as is my wife but we’re struggling with our bills having no money for food near the end of month. On top of a €6,500 overdraft, direct debits are bouncing every month, but we’re still paying the mortgage, though interest only for the past six months.

The credit card has been revoked after I asked the bank to freeze the interest last December. Now they are (finally) offering me three options: to get a loan to pay the balance; send in a budget plan of what I can afford and they will send it to their controllers or make them a settlement offer of 85% of the debt, but the balance will stay on my record as a bad debt for five years.

The credit union will approve a loan for €23,000 and I will then have to find the remaining €3,280. I would appreciate your opinion on these options.

 

Two financial advisors I spoke to about your debt problem both agree that because your credit record is probably already impaired you should not immediately take the third option and make your card provider the 85% settlement, but rather try to negotiate an even larger write off.

“Your reader stands to lose little by having a worse credit record than he already has,” suggested Karl Deeter of Advisors.ie . “The upcoming Debt Settlement Arrangement which will engage with lenders via a personal insolvency trustee may get him a better result, if he can wait it out until the DSA is in place, probably sometime next year.” 

Vincent Digby of Impartial.ie advisors, also believes the write down “is not a large enough carrot” but thinks you cannot possibly know the true extent of all your debts, arrears and any interest penalties and what you have left to live on every month “until you do a proper and realistic budget for monthly expenditure.”

Even though you are employed again, Digby isn’t convinced that a credit union/bank loan will be sufficient to restructure your credit card debt at affordable monthly repayments given how you are struggling to pay your interest only mortgage, the overdraft AND put food on the table.

“If the sums don’t add up then it may be time to call in MABS and/ or start negotiating with the Bank for a more substantial settlement.”

You should also make an appointment to see your mortgage lender about further forbearance measure for those payments. Good luck.

 

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Negotiate before you fall into negative equity trap

 

CP writes from Westmeath: I wonder if you could help us get out of a mortgage with a sub prime lender?  We took out a €270,000 interest-only mortgage in the good times at a rate of 6.5%.  We are now unable to pay the full amount each month and, although we are not in negative equity at the moment, if we carry on being charged the interest on interest I fear we could get into negative equity.  Of course our credit rating is now bad.  Can you suggest any way out of this?  We are very happy to look at alternative types of mortgages.

You may not be in negative equity – yet - but it certainly sounds as if you are quickly moving in that direction as your arrears and interest penalties add up.

Unfortunately, lenders are not remortgaging properties with mortgage arrears and very few are doing so if the property is in negative equity, says Rachel Doyle, the head of mortgage services at PIBA, the Professional Insurance Brokers Association.

She strongly recommends that you write to your subprime lender and request a meeting with them so that you can try and work out an affordable mortgage payment schedule.  I suggest you also contact MABS, the free money advice and budgeting service that can help you evaluate your total debt position.  They may also be able to assist you in presenting a financial statement to your lender and other creditors.

 

AE writes from Dublin: We returned from England in 2005 to care for my elderly mother and bought a €600,000 house, borrowing €320,000. It is now worth, possibly, €350,000. Having lived through two recessions in England I knew at some time something would happen here, albeit not to such an extent.

My husband is 62 and will be 79 before the mortgage is paid off. I do not think this is feasible, least of all because he is freelance and I can't see him still being able to work at that stage. We are struggling as it is. It is unlikely that a carer’s allowance I have applied for will be successful.

Did PTSB act in an irresponsible manner by giving us such a large mortgage and do we have any redress in this matter? (I thought you could only issue a mortgage up to age 65?) At the time, my main concern was my mother and children and it was a year before the penny dropped as to the extent of our mortgage. I know neither of us will be capable of working so long and I'm constantly worried about what will happen to us.  

First, you do not say if you are in mortgage arrears, although your letter suggests that you don’t believe the mortgage is sustainable over the next 17 years.  Nor do you say what outcome you are seeking in questioning the legality of the approval of your mortgage application. Is it to have a portion of your debt written off or to have it nullified? By your own admission, you seem to have been aware of the impending financial difficulties here before you applied for the loan.

The Free Legal Aid Centre and New Beginning are two lobby groups acting on behalf of consumers who are facing repossession, who in many cases did not have suitable incomes and should never have been sold a mortgage and now do not have the means to defend themselves against a lender’s legal action. They prioritise cases where there is already a court date for the repossession order. 

You may or may not qualify for their help – yet. But if you believe you were missold this mortgage on age grounds, you could seek legal advice or take your case to the Financial Regulator. Good luck.

 

 

EOK writes from Dublin: I bought some shares many years ago in both Bula Resources and Waterford Wedgwood. Both companies are now gone and my money is lost but I do have some profits on some other shares and I want to offset the capital losses. However I can't find all the share certs and don’t know exactly how many shares I own in each company. The stockbroker I originally bought the shares from is no longer in existence and I am wondering if there a simple way I can find out for sure how many shares I own.

The best place to start looking for your lost share certificates is Computershare Investor Services (Tel 01 447 5566) or Capita Registrars (Tel 01 810 2400), two companies that may have your defunct and current certificates on file. You should contact them by telephone first. If they hold the certificates you will be sent out an ‘indemnity for lost certificate(s)’ form that will also need to be countersigned by a bank or insurance company or by Computershare itself. Both processes involve fees that vary according to the value of the shares. 

Recovering lost share certificates can be a costly and time-consuming event. All important documents, including pension and life insurance contracts, mortgage deeds, loan agreements, birth and marriage certificates, wills and passports should be kept in a file case or document box, where everything is properly labelled.  Let your next of kin know the location.

 

JC writes from Dublin:  I am considering how to leave my estate in the most tax efficient manner to my three children. I am aware that the tax threshold has been reduced in recent years.

I have a joint bank account with the children who were added onto the account some years ago. In the event of my death how would the Revenue deal with such an account? Would I be deemed to have a quarter share of this account and would the revenue compute a quarter of the account as the inheritance from it to one of my children?

 

Some financial assets are allowed to pass outside of a will or intestacy and so can be paid out right away.  These include the proceeds of joint bank accounts. However, a Revenue clearance certificate may be needed by the personal representative of the deceased person in order for the financial institution to release the funds to the other account-holders, or to the deceased person’s estate, where, as in your case a quarter of the money is yours.  The Revenue also note that in the absence of this letter of clearance, the financial institutions “are prohibited by law from releasing monies (other than current accounts) lodged or deposited in the joint names of the deceased and another person or persons” and where the total amount held in the joint account exceeds €50,000.”

You should discuss all of this with your solicitor when preparing your Will.

 

 

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How to reach the heights with your summit funds

MD writes from Dublin: I have two EBS Summit Funds, one is Mutual, the other is Investment. Both funds are in Growth. What is a Mutual fund? What is difference between Mutual and Investment funds? Q3: Which is the best to be in?

 

A ‘mutual’ fund is another description of a pooled, unitised investment fund that people with a regular amount of money or a lump sum can purchase that is then managed on your collective behalf by professional fund managers.  In your case, Irish Life Investment Managers (ILIM) manages the Summit Funds on behalf of the EBS. 

There are four EBS Summit funds - Summit Balanced, Global Leaders, Growth and Technology, each one targeting a different group of sectors, assets and geographical areas. They also represent different degrees of risk. You need to double check in which fund or funds your money is invested, but the Summit Growth Fund includes a wide range of global consumer goods and services, mostly located in Europe and the USA. 

I suggest you speak to an independent, fee-based financial advisor about your holding.  Better-late-than-never this person can properly explain to you exactly what it is that you have bought, how much the investment is now worth and whether the fund (s) are suitable for your needs. If it isn’t, the advisor will be able to present you with other options.

 

NJ writes from Dublin: Last year I purchased shares in a French company listed on the Paris stock exchange. On receipt of my dividend from the Irish broker I discovered that both French tax of 27% and Irish tax of 20% had been deducted. Can I apply for an exemption for either of these deductions?

On your annual Form 11 income tax return you will be asked to record the gross dividend you were paid by this company, the French withholding tax and the Irish "Encashment’ tax, says Barry O’Donnell, a director of Foreign Tax Returns Ltd, a Dublin tax services company.

“There is a complex formula used in order to work out whether a further credit is due in Ireland in respect of the French withholding tax already suffered on the dividend,” says O’Donnell. “But you will be able to claim a full credit against your tax liability for the Irish encashment tax paid by your broker on the receipt of the dividend. If you have no tax liability you will be given a full refund of the encashment tax.”

A tax advisor can help you correctly claim a refund.

 

JC writes from Dublin: I have a cash offer of €160,000 on my house, my principal private residence. I owe Bank of Scotland €113,000 on a tracker mortgage with a 21 year remaining term. The interest rate is 0.6% above the ECB rate, or 1.6%.

I am wondering if the bank will settle for less than I owe them to clear this mortgage, which I believe is unprofitable for them. If you believe they will, what should I offer them? I didn’t talk figures but they have asked for my offer in writing. I realise it has to be an attractive offer to them as well as for me.

 

The banks that have a particularly heavy exposure to tracker mortgages – like Bank of Scotland Ireland, the PTSB and Bank of Ireland, are certainly keen to get these loss-making mortgages off their books and to put their customers onto better value (for the bank) standard variable rate ones for the duration of the loan terms.

If you were offering to trade in your tracker in exchange for an standard variable rate (SVR) mortgage, you might be able to convince them to give you a very competitive interest rate or maybe even write-off part of your outstanding balance, but Karl Deeter of Irish Mortgage Brokers in Dublin is not very optimistic the bank will do so once they find out that you already have a buyer for your property.

“If your reader had a bank account full of cash ready to clear the loan, that might be one thing. But if they find out there is a buyer, which they will because you can’t show them the cash upfront, then they will likely refuse. The bank will probably be of the view that they don't really need to give a discount to someone who is going to sell anyway.”

“Still,” says Deeter, “there’s nothing to lose from trying.”  Good luck.  

 

SC writes from Galway: I have a question about fire brigade charges for domestic homes: is there a specific levy on insurance policies of 1.5% for fire charges, which is not being passed onto local authorities?  Also, imagine my shock upon checking my home policy and finding out that I'm only covered for €1,500 (buildings and/or contents). This is totally inadequate cover for any standard sized domestic home. If I had a domestic fire incident, then two fire brigades would be likely to attend that's €460 x i2 = €980 and God forbid the incident wasn't dealt with within 60 minutes, the bill would rocket to €1,840! Surely it is in the insurance company’s interest to have realistic fire brigade cover considering their action and professionalism would minimise the size of the insurance claim.

 

It is not correct, says Sean O’Connell of the Insurance Shop in Fairview, despite such a claim last year by Dublin’s Lord Mayor, that insurers designate a 1.5% of the buildings insurance value to the cost of fire brigade call-outs. Some home insurance policies simply state that they will cover the cost of valid claims for call-outs, “without specifically stating the amount or a ceiling, while others will indicate the amount they cover.” he says.  Royal Sun Alliance, for example, fall into the former category, says O’Connell, and Zurich Insurance, the latter with a €1,500 payment limit.

“The best thing to do is to always check the contract carefully,” for exactly the reason you state: a large fire with multiple fire tenders could leave you with a very large bill and a much higher renewal premium the next year.

 

 

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