Jill Kerby

Safe but sorry returns from German State bonds 

 

MM writes from Dublin: Could I ask you about German government bonds? Specifically the minimum purchase amount, investment periods, are they fixed rate, what are the Irish/German tax considerations, where in Ireland can I buy these bond, and finally your views on them as a safe investment?

German government bonds, just like those of other countries and the corporate variety, are sold as a form of IOU to institutional and private lenders.  In return, they receive an annual ‘coupon’ or rate of interest and the return of their capital investment at an end of an agreed term. Also known as gilts, or fixed income securities, government bonds are sold by stock-brokers who place your order on the bond market, based on the term of the bond and the amount you wish to spend. 

You can deal directly with a stockbrokers or use the services of a fee-based authorised advisor, who can also explain the somewhat complicated pricing method used for bonds, the yields they pay, and any tax liability you may have on both the yield and the sale or trade of the bonds, says independent financial advisor Vincent Digby of Impartial.ie  “Minimum purchases from a stockbroker can sometimes be as high as €10,000 - €25,000,” says Digby.

Since Germany is regarded as the strongest economy in the EU, and is far more creditworthy and likely to repay their ‘sovereign’ bondholders than say, Greece, Portugal, or even us, German bond prices are comparatively high at the moment, he says, and the yield is very low. This could change in the future, which is why some people trade in and out of different bonds to try and improve the income that they generate.

Your money may be safer in a German government bond than a Greek one, but all medium to long term bonds can be susceptible to the effects of inflation that can eat away at the spending power of both the fixed annual rate of return and the long term value of your capital.

The excellent motleyfool.co.uk financial website has an archive of educational articles about bonds. This one is a good place to start: http://www.fool.co.uk/news/investing/2010/09/27/a-brief-history-of-bonds.aspx?source=isesitlnk0000001&mrr=0.25

SS writes from Dublin:  We are British citizens living in Ireland since July 2010 after taking early retirement ages 59 and 55. Our only income is our occupational British pensions.  We now pay Irish income tax, PRSI, etc., because our occupational pensions are classed as income and we are not classed as pensioners until we reach the age of 66. We have no income generated in Ireland and do not claim any benefits.

We will both qualify for full British state pensions at ages 65 and 66 as we both had a full working life but they are worth about half the Irish state pension!

We recently read that under EU rules we might be able to receive an Irish state pension based on our Irish contributions since moving here and British national insurance contributions combined - is this correct? 

As we now live permanently in Ireland and have paid all the contributions required we feel that we should at least be paid the pension rate for the country we reside in.

Under bi-lateral social security agreements (European Regulation EC No 883/2004) your Irish and UK social security contributions can be combined and possibly result in you and your spouse each qualifying for an Irish contributory old age pension from age 66.

The application forms you will be asked to fill out for the Irish state pension includes a section that asks if you have ever been employed in an EU country other than Ireland and ask you to provide the relevant details. If you have paid sufficient social insurance contributions here, the Department of Social Protection with then calculate if and how much of an Irish or combined Irish and UK pension you will receive. 

The formula they use, and a case study can be found here on the excellent Citizen’s Information website: http://www.citizensinformation.ie/en/social_welfare/irish_social_welfare_system/claiming_a_social_welfare_payment/social_insurance_contributions_from_abroad.html#l7320b or you can visit your local Citizen’s Information Centre.

 

NM writes from Dublin: My son, who lives in England owns 14,000 shares. He wants to sell these shares in order to purchase a family home in England. Four years ago, I organised the sale of some of his shares through AIB with absolutely no difficulty, since last year new regulations have been brought in and it is proving much more difficult. I have been told that he will have to set up a bank account here that will take time and effort. Is there any quick way of getting over this problem?

I spoke to NCB Stockbrokers who told me that share dealing regulations have tightened up in recent years and that they cannot sell your son’s shares on your instruction. He would need to have an account with them, and to do this he would be required to satisfy identification and anti-money laundering terms and conditions.

Because your son lives outside the state, NCB would also require that he furnish them with a letter of introduction from their own bank in the UK.

If your son wished to sell the shares himself, he could open his own on-line, execution only brokerage account. He should check out sites like TDWaterhouse.com.  He just needs to make sure he has all the necessary documentation, such as the share certificate, to prove that he is the actually owner of these shares.

 

 

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 Wifes pension payout depends on tax position

 

EO’D writes from Dublin: I will qualify for a contributory pension, but if my wife does not qualify for a contributory pension  -  she may not have enough contributions - can I claim her as a dependant? 

She has recently started part time childminding. To qualify for a contributory pension, what would she need to do, if she registered as a sole trader, and did annual returns would this qualify her? If the family she works for were to tax her, would they need to register as an employer, how would that work.

We want to be above board, but the money is small - approximately €200 per week - and we are wondering is the whole thing worth-while.

Without knowing the details of your wife’s social insurance contribution record or her age, it is impossible to tell if she will qualify for a contributory or part-contributory old age pension when she reaches retirement age. 

If she does not qualify, then you will be able to claim the Qualified Adult allowance for her which, for qualified transition/contributory pensioners is currently worth an additional €153.50 a week to the qualified adult on top of the pensioner’s own €230.30 payment. This €383.80 total weekly payment rises to €436.60 if the qualified adult dependent is over 66.

There are slightly different rules that pertain to the transition year pension at age 65 and the state contributory pension. To qualify in her own name for the latter, that is, if she reaches retirement age on or after 6 April 2012, your wife would need to become insured before age 56, have paid at least 520 full rate employment contributions or make up the balance with high rate voluntary contributions provided she has previously paid at least 260 full-rate employment contributions.

She must also have paid a yearly average of at least 48 paid or credited from 1979 to the end of the tax year before she reaches 66 or a yearly average of at least 10 full-rate or credited contributions from 1953 (or the time she started insurable employment if later to the end of the tax year when she turns 66. (This year average of 10 may qualify her for a minimum contributory pension.)

If your wife earns €200 every week, exclusively from a single family, it may not be appropriate for her to register as a sole trader. The Revenue can certainly advise her and her prospective employer about whether she is a direct employee or a self-employed service provider.

As an employee earning less than €352 gross a week, she would be exempt from PRSI but her employer would pay an 8.5% contribution. As a sole trader, earning up to €500 a week she will pay 4% PRSI contributions on all her income. In both cases she will have to pay the universal social charge but now that the earnings cut-off amount has increased to €10,036, she will only pay 4% USC on the €364 balance of her annual earnings or just €15.

Aside from your wife’s PRSI position, you should also check out how her earnings might affect your current tax position. Most couples are jointly assessed for tax and this could push you into a higher tax bracket, affect means tested social welfare benefits, or, on the plus side if your earnings are sufficiently high, even reduce your total tax liability by allowing you to enjoy the higher income tax band and rates that apply to married couples with both partners working.

Finally, opting out of the income tax system is not discretionary. If your wife takes this job, she has to pay her tax and other liabilities, as does her employer. The Department of Social Protection website provides downloads on PRSI at www.welfare.ie.  A good tax advisor or accountant can advise all of you about your tax and PRSI obligations, whichever way her new job is arranged.

BO’S writes from Dublin:  Every year I claim a refund for medical expenses from the revenue. Last year, in 2011 I received 20% back on my 2010 medical expenses. I submitted a medical expenses claims for last year, 2011 and to my astonishment Revenue said I have an under payment of €1,658 for 2011 and as such they will reduce my credits by €844 for 2013 and the same again for 2014.
 
I did nothing wrong and cannot see for the life of me how I could have an underpayment of this amount. Every year up until now I have always received money back for medical expenses etc. They are the one's that made this mistake and I cannot financially afford to pay them back this amount in two years as my wife is job sharing next year and money will be tight enough. Plus, I availed of the 'cycle to work scheme' last year for the full amount€1,000 and as such entitled to a tax credit for this.
 
Surely someone in the Revenue has made a big mistake.

 

Mistakes happen,  TAB Taxation Services advisor Sandra Gannon has suggested that if the claw back of the €1,658 in your 2011 tax bill is correct, it is because the Revenue have discovered some discrepancy in your income tax position and the tax band and credits you are entitled to. Your medical expenses claim is what prompted the wider review.

You need to get a full explanation for this underpayment notice and how many years for which it pertains. Your inspector of taxes at your local tax office or an independent tax advisor will be able to provide this.

If the €1,658 is correct, and it is to be repaid in two equal amounts of €844 in 2013 and 2014, you should also find out how it is repaid so you can budget accordingly. It is possible that €70 will it be deducted every month, directly from your salary for the two years.

 

MS writes from Dublin:  Is it necessary to claim a deduction for losses against a capital gain liability at the first opportunity or can a loss claim be carried forward to future years.

I have a capital gains tax bill to pay for 2011 and will also have one for 2012. I have a capital loss for 2011. Would it be best for me not to claim the 2011 loss for 2011 but leave it for 2012 when the CGT rate will be 30% as opposed to 25% for 2011.

Unfortunately you can’t choose when to pay the tax you owe on a gain.

If you made a gain from the sale or transfer of an asset between January and the end of November, you are obliged to pay your CGT (less your personal CGT allowance of €1,270) by December 15thof that year.  Any gain you earned in December has to be paid by the next January 31st.

The CGT rate for any gains you made between January and the 6thof December 2011 was 25%; after December 6th2011 the rate increased to 30%.

However, capital gain losses can only be offset against another CGT gain which occurs in the same year as the CGT loss, or they can be carried forward and used against any future capital gain.

 

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Taxing issue of my wife's adult dependant payment

 

CC writes from Dublin: I receive the Contributory Old Age Pension. I also receive the increase for a Qualified Adult (my wife).

On 15/03/2008 in Document SW118, the Dept. of Social Protection stated as follows: "From 24th September 2007, by law we must pay the Increase for a Qualified Adult directly to the spouse or partner concerned unless the qualified adult wants to have someone else collect it for them". From this it appears that the Increase for the Qualified Adult forms part of the income for income tax purposes of the Qualified Adult (spouse or partner).

Can you confirm that this is correct? The answer to this question is important in calculating our Rate 1 Band (taxed at 20%) and, therefore, the amount of income tax we must pay. We are assessed jointly for income tax. 

 

The increased payment may be paid directly to your wife, but it is considered, for tax purposes, as the income of the Contributory Old Age pension recipient under their PPS number.

How your income tax is calculated is complicated and you have not furnished me with any figures, but I am going to assume that the reason you are asking this question is because you have received a letter from the Revenue suggesting that you have underpaid your income tax.

If there is an underpayment, it hasn’t been triggered by your €11,976 contributory payment plus your wife’s €10,728 which amounts to less than the €36,000 tax free income you can earn as a married, pensioner couple over age 66 but under age 80.

Instead, an underpayment may have occurred if your total income from all sources exceeds this tax free threshold any you were treating your wife’s payment as her own income under the tax individualisation rules for married couple.

Couples in which both partners are earners, enjoy a standard rate tax rate of 20% on income up to €65,600 with any balance subject to 41% tax. Income of up a maximum of €41,800 can be transferred between the working spouses, subject to the lower earning spouse declaring income of at least €23,800.

If, however you are a single income couple, as you appear to be, the first €41,800 of income will be taxable at the standard rate of 20% and any balance at 41%. If you have assumed in the past that your wife’s Qualified Adult payment of €10,728 allowed your joint income to be treated under the married couple, two earner tax band arrangement, you may have underpaid your taxes. 

I suggest you speak to a good independent tax advisor or your Revenue Inspector of Taxes to establish exactly your correct band and tax liability.

DO’C writes from Wexford: I am a 57, a married man and have been in receipt of a monthly payment from an income continuance scheme for ten years. This is paid by an insurer and is administered through my former employer. I am also in receipt of a social welfare invalidity pension including a payment for my wife.

My contribution rate for PRSI is class A1 but I have been advised by the wages clerk with my former employer that he thinks that I should be on class M. My understanding is that this would offer me a considerable saving but would this be in my interest or would it leave me at a disadvantage regarding my contributions towards the old age pension?

Also, is it possible to have part of my invalidity pension paid to my wife so that she would then be entitled to a PAYE tax credit?

I’ll answer your last question first. A spokesperson for the Department of Social Protection said that in exceptional cases, they have paid part of social welfare payments, to the recipient’s spouse, giving the example of a chronic alcoholic. The Department can also pay the invalidity pension allowance you receive for your wife to her directly, if you agree.

However, the current PAYE tax credit of €1,650 is only available to each spouse or partner in a marriage or civil partnership if both pay PAYE on their earnings. If your wife has no independent earned income – a portion of your pension is not her income, it is still yours - she is not entitled to the tax credit.

Class M is the PRSI band for occupational pension recipients who no longer make PRSI payments. The wages clerk is correct in saying that you would save money transferring to this band but if you want to ensure that you receive a state contributory pension at age 65, you may need to keep paying your PRSI contributions on the Class A1 band, depending on how many you have already accumulated.  You can check the number of contributions you will need on this latest DSP brochure:  http://www.welfare.ie/EN/Publications/SW14/sw14_jul11/Documents/sw14_jul11.pdf

 

 
KH writes from Dublin:  My wife and family will be emigrating to the US this summer. We have lump sum of €10,000 that we want to convert to dollars to secure the current interest rate (though with it climbing, it might be best to wait and see).
 
The problem we’re having is the best way to set this up. Should we just get cash (though I think we will be limited on the amount we can bring into the US) or a US bank draft or traveller’s cheques? (Are they even used anymore?) Would we need to declare it? Should we get a dollar bank account here, which would then have to be converted back into euro if we encashed it to bring it to the US, thus losing the benefit of the hedging? We can’t open a bank account on the other side until we get a US address.

 

The advent of electronic banking means that you can eliminate most of the transfer methods you’ve mentioned and their associated risks –like losing the bank draft or traveller’s cheque (the latter can be replaced at another cost), or carrying the cash safely through the airports and perhaps having to explain its presence to the nosy security or custom’s officials.

So first, open a US dollar account in your own bank and convert the €10,000 into dollars, locking in the favourable euro/dollar exchange rate, on whatever date you wish. There will be a currency exchange transaction cost but you may earn a little interest on your dollar account until you are ready to electronically transfer it to your new bank account in the States. NIB told me that the electronic transfer cost of the equivalent of €10,000 in dollars to a US dollar account would be just €10.

The transfer of a sum this size shouldn’t cause you any difficulties, the NIB official said, once you have satisfied your new bank’s money laundering terms and conditions and alert them to the date of the cash transfer.

 

 

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I need the best route out of my freeway SSIA fund

 

NH writes from Dublin: I contributed €254 per month into an SSIA (Special Saving Investment Account) which I did not cash when the scheme ended. In fact, I put more into the fund, the Quinn-Life Euro Freeway fund, which is now well down from its heights. The value is now less than the amount I’ve put in.

 In light of ongoing problems with the Quinn Group, albeit not, they say, with Quinn-Life – they say this fund is “ring-fenced” and completely safe - do you think it would be better to cut my losses and cash-in?

 I am, thankfully, not in pressing need of cash right now and would be happy to leave things as they are in the hope that they may come good eventually: the niggling fear is that I may lose all if Quinn-Life collapsed.

Quinn-Life is still owned by the Quinn Group and is neither for sale, nor in any danger of ‘collapse’, said a spokesman for the company. However, there is no compensation scheme for life assurance investment holders (unless you are a customer of Standard Life, which comes under the UK investment compensation scheme.)  If Quinn-Life were to collapse you could lose all or some of your investment.

As to whether you should encash your fund or not, this is something you should decide upon only after weighing up the actual loss: Quinn-Life’s website shows that the Euro-Freeway fund has lost -36.8% over the past five years, the period in which you have increasing your contribution to the fund. However, during the previous five years of the SSIA scheme, 25% of all your contributions were a gift from the state, and the fund produced a positive return. Also, if you do encash right now there won’t be an exit tax to pay if there is a loss, but because it is a life assurance investment and not say, an equivalent exchange traded fund (ETF) that trades directly on the stock market, you won’t be able to carry forward your losses to mitigate other capital gains tax liabilities.

Instead of crystalising your losses – you admit you don’t need the money and “things might come good some day” – you could consider a free switch to a different Quinn-Life fund.

Past performance is just that, but over the same five year period to 13 January, 2012, since you started adding more money to the Euro-Freeway fund, to 13 January this year, the Biotech Freeway fund produced a cumulative gross return of +58.3%, the Latin American Freeway Fund, +39.9% and the Technology Freeway fund, +25.2%. Only the Celtic Freeway fund, at -64.4% produced even worse returns than the Euro-Freeway.

 

MG writes from Dublin: Is it possible for a parent to loan his son money to clear his mortgage without the son incurring a tax liability?

There is a lifetime tax-free gift threshold between a parent and child that is currently €250,000 before any capital acquisition tax of 30% must be paid.  So long as your son’s mortgage is below this amount, and he has not received a previous gift that would be liable to CAT, he will have no tax liability to pay.

 

PM writes from Dublin: My brother-in-law, 65, is an citizen and resident of Ireland and has been advised by the UK state pension fund of his British pension entitlement as he worked for a few years in the UK. They also advised him that he could practically double his pension by making a payment to cover some missing years of contributions. If he does this, the pension his wife receives will also be increased though she never worked in the UK. He has a small pension fund currently invested with Acorn Life Galway which he intends to continue as he will need to carry on working for the foreseeable future.  He would like to use part of his Acorn pension fund to finance the amount required to enhance his UK pension. To avoid any tax complications Acorn will need to make payment direct to the UK State Pension Fund.  This appears to be covered under the Revenue rules, however Acorn are dragging their feet. Perhaps this is the first time they have come across this opportunity. Is it possible for you to confirm whether it is acceptable to make such a transfer as envisaged above?

According to pension consultant Clive Slattery of Friends First, a former senior Revenue pension official, there is no Irish Revenue rule that allows a private pension fund holder to part-encash their fund or for their pension provider to do so in order to transfer the money to the UK state pension fund in order to purchase an enhanced state pension payment (the latter of which is possible in the UK.)

The financial advisor and pensioner trustee Eddie Hobbs of FDM Ltd added, “Perhaps your reader is confusing this idea with the 25% of his pension fund that he can take tax-free, that he might then be able to pay to the UK state pension authorities to enhance his and his wife’s pension benefit.”

Your brother-in-law needs to speak to his Acorn Life representative again or write to the company for clarification on this matter.  Given his confusion over what is possible, he should also consider engaging an independent pension advisor when dealing with Acorn, who could also help him decide what to do with the remainder of his pension fund if he does use the tax free portion to buy additional UK state pension benefits.

 

 

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Pensioners grapple with PRSI and USC challenges

 

WO’S writes from Co Kerry: As a pensioner, who worked in the UK for 13 years, I qualified for a medical card in Ireland, I was exempt from paying PRSI or health levies on earnings prior to 2011. Since January 2011 I have been subject to USC but I am wondering if it is correct that from January 2012 I will be subject to both PRSI on all income and also to the USC?

 

The universal social charge (USC) does not apply to any Irish social welfare pension payments (or to any income on which you have paid deposit interest retention tax.)  However, it does apply to any other ‘relevant’ private occupational pension or other private income that exceeds €10,036 per year (€193 per week) whether the pension holder has a medical card or not. The relevant income threshold was raised in the last Budget from the 2011 limits of just €4,004 annual relevant income (€77 per week).

If you are over age 70, and your non-social welfare income, or deposit income qualifies for USC, the first €10,036 of income is taxable at 2% and the remainder at 4%.  Anyone over age 70 with relevant income in excess of €100,000 will pay USC of 7%.

If you are over age 66, all pension income is exempt from PRSI payments.

If you are unsure of your USC or other tax liability, you should have it checked out, either by your inspector of taxes or an independent tax advisor.  Given how many errors have been reported, and how confused they have left so many pensioners’, double-checking all the figures will provide you with peace of mind, if nothing else.

 

FM writes from Kildare:  My mother signed over a piece of agricultural land with no site value to me several years ago. I am a part-time farmer and have another job. I did some work on this land and spent €30,000 - €40,000 on it.  In 2011 the value of the land is now worth between €10,000-€20,000 more than I spent on it and due to a previous arrangement this sum must be paid to my brother. Is there any tax liability arising out of such a transaction?

 

You write that the land had no site value, but the Revenue would maintain that every asset has a value, and in the case of a land transfer, the owner – your mother – would be liable to capital gains tax for the original owner if it’s value has increased since they first owned it, and a possible capital acquisition gift or inheritance tax liability to the person who receives it, in this case, you.

Now that you are transferring this land to your brother in the form of a gift, you will need to determine its value when you received it and its current market value. If the price has risen, and it sounds as if has, if only due to the amount you have spent enhancing its value, you may have a capital gains tax liability of 30% to pay on the difference (after taking into account your annual tax free allowance of €1,270).

Depending on whether the land is worth more than €33,208, the tax-free threshold between siblings, your brother may have a CAT liability on the difference, also taxed now at 30%. (The CAT limit between a parent and child when the land was first transferred to you was approximately €500,000; today it is just half that sum.)

I suggest you speak to a tax advisor or your Revenue inspector or taxes about any potential liability this piece of land has raised for you and your relatives.

 

DK writes from Co Donegal: A few months ago I switched €50,000 to Australian dollars. My questions are, in the event of a euro breakup, Irish sovereign default or our reverting to an Irish currency, with any of these three events resulting in an Irish default of say 30% or 40% devaluation in the currency, how safe would my Australian dollars be from devaluation? What control would the Irish government and EU have over my dollars? Would I be better with my savings in a bank and currency totally outside the eurozone and finally, what effect would a devaluation like this have on new car prices in Ireland?

 

None of the Irish banks are able to predict what will happen to foreign currency deposit accounts in the event that Ireland were to revert to its own currency, presumably, the new punt. However, there is plenty of evidence to suggest that when a currency defaults – the depegging of the Argentine peso from the US dollar in 2002 is such an example – the new currency is usually devalued quite soon to boost exports and economic growth. Such would be likely to happen here as well. Again, no one can say how a non-Irish bank, especially one operating outside the eurozone would respond to such a ruling by the Irish Central Bank.

If you are concerned about the risk of our leaving the euro, you are perfectly entitled to move your euro or non-euro currency savings to another EU or non EU jurisdiction, subject to the terms and conditions set by the particular deposit institution.  Only you can decide whether the extra costs involved and the currency exchange risk is worthwhile.  You must also inform the Revenue of you offshore account in an annual tax return and pay Irish DIRT or income tax on any interest you earn, where applicable. 

Finally, if we go off the euro and back onto the punt which is then devalued, all imports, including cars will be much more expensive, at least until our economy recovers and our currency strengthens.

 

 

 

 

 

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Forget saving for your child and pay your debts instead

 

ST writes from Dublin: I have recently started saving the child benefit of €140 per month to use for the education of my daughter who is one year old. Could you please advise on the best accounts for regular saving over the long-term. I currently put it in her credit union account, but am sure that we could be getting a better interest rate elsewhere. 

You don’t say how much of a dividend your credit union is paying but chances are it isn’t as much as the fixed deposit rates on offer from many high street banks or An Post.  We post the best rates on the market in our weekly ‘Best Buys’ column.

However, I think you need to consider more than just the best yield. Deposits are subject to 27% DIRT tax, which is likely to rise, and price inflation will erode the long term spending power of your savings. Leaving your children’s savings in an Irish bank, under the management of the Irish state (like the Solidarity Bond) or entirely in euro currency also carries certain risks in these turbulent times.

Do you have expensive credit card balances, with high double digit interest rates, that could be cleared faster if you used the child benefit money? Eliminating expensive debt at 18% or 20% makes more sense than getting a mere 2%-3% return from a savings account, even one ostensibly for the children.

If you are fairly debt-clear, it might be worth taking time now to find out more about the merits of buying precious metals or, when the markets settle down again, a low cost investment fund (like an ETF) made up of great, global companies into which you could pay on a monthly, cost-averaging basis.

Research these options yourself, or use the services of a good fee-based financial advisor.

 

 

Immobile shares

 

EC writes from Dublin: I am writing seeking advice on Vodafone Shares.  My mother passed away in August 2009 leaving 34 of Vodafone Shares.  We have looked at the option of transferring these shares over to one of the charities she supported.  However, the cost of the stockbroker's fees are greater than the value of the shares, the charities I have contacted are not in a position to accommodate this request. Surely there must be lots of people who find themselves in this situation, i.e. a holder of shares dies and it's left to the executor to dispose of them.  Would you have any suggestions?

 

It is unfortunate for the charities that the cost of transferring the 34 shares, worth only about €1.82 each now, is about €60. It would be helpful if the share registry company and your bank, which is also required to facilitate such a transfer – would waive their fees if the shares are being donated to a registered charity.  Perhaps you could ask them, and if that doesn’t work, offer to lobby for such a change on behalf of the charities.

Meanwhile, you might as well hold onto the shares in the hope that their value enough to someday justify the cost of the transfer.

 

Silver lining

 

GE writes from Dublin:  I have been researching a little buying silver instead of gold. While I am no expert or have anything to do with finance, I have discovered that silver is in lower supply than gold, because it has industrial uses as well as money and there has been huge demand for both in places like China. Many articles say it is underpriced compared to gold.  Any views?

 

Silver prices shot up over the year, peaking in early May at about $50 or €33 an ounce and then fell back sharply, mainly due to substantial profit taking. As I write, it is now selling for just under $38 or €26.50 an ounce (down 4% in 24 hours – a big swing.) You can follow the live price of silver, as well as gold at www.goldprice.org.

Silver prices are said to be more volatile, compared to gold, because it has both industrial and monetary uses and is affected by supply and demand. For example, industrial silver for the photographic industry effectively disappeared with the advent of digital cameras and computer photo files, but demand is growing strongly as an essential metal in the bio-medical industry and for high technology goods.

Silver is also a form of money – or could be again, which is the other reason why its price has soared during these uncertain times.  I was lucky enough to be persuaded back in 2005 to buy silver as well as gold:  the price of silver has risen by 186% since then compared to 139% for gold. 

Will it repeat this performance?  No one knows, but people who think pure silver (and gold) has more intrinsic value than paper and ink money issued by central banks and subject to being debased or devalued by them, prefer to keep some of their savings in precious metals.   

 

 

 

 

 

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Son may move to Australia if mortgage not forgiven

 

AH writes from Waterford:  Is there a chance that the government will intervene to reduce mortgage debt for people who can show that they were missold their mortgage at the peak of the Celtic Tiger?

 

My son and his wife were given a mortgage offer – in writing, by their lender for €340,000 mortgage in early 2006.  They then went to a well known mortgage broker – they were following advice to shop around for the best rate – and the broker got what they were told was an even better deal of a €440,000 tracker mortgage from the same lender.  They took it but now due to my son losing his job (they also now have a baby) they are now unable to pay their loan.  My husband and I are helping them meet the mortgage, but the house is only worth €250,000, even if they could find a buyer and they are keen to emigrate to Australia where they both lived before the got married.  We don’t want them to emigrate, but unless they can reduce this debt, I can’t see how they can stay.

 

 

Your son’s case may be of interest to the New Beginning group of solicitors who are interested in taking legal action against the banks for reckless lending. Their website is www.newbeginning.ie.

 

Meanwhile, there has been a great deal of speculation recently about whether there will be a programme of mortgage debt forgiveness introduced by the government and banks and whether, as UCD economics professor Morgan Kelly has suggested, that there is already a €5-€6 billion write down built into the capitalisation of the banks.

 

With concerns about moral hazard risk still being expressed, many commentators are now suggesting that the case by case review of distressed mortgages will continue, with lenders providing some forbearance to homeowners who can cope over the course of a year with a revised repayment schedule, as laid down by the Revised Code of Conduct on Mortgage Arrears,

 

In some cases, the banks will undoubtedly agree to some debt forgiveness, perhaps if the alternative is for the mortgage holders to hand back the keys and decamp to the other side of the world. I’m not suggesting that this is what your son and his wife are about to do, but where there is a small shortfall/or arrears between the sale price of a house and its market price, it isn’t unthinkable to imagine that the lender will settle for the lower value.

 

If your son and daughter-in-law believe they have no choice but to seek work abroad, they should speak to their lender (and perhaps to New Beginnings) now and explore their options:

Can the house be rented and the mortgage repaid?  If they have no arrears (because you are helping them with repayments) but will if your support ends, can they seek the sanctuary of the Mortgage Arrears Code, qualify for more reasonable repayment conditions and STILL rent the property out if they find work in Australia? Can the house be sold and would the bank accept and write off a loss if they emigrate? If the bank declines to write off the shortfall could they afford to repay it once they find work in Australia? This would help safeguard their Irish credit record, should they want to return home some day.

 

German muscle

I am wondering about an advertisement from PNI Mortgages in the national press advising that if a person wanted to open a German bank account, that they would do the paperwork. The costs are €150 for a current account and €200 for current and deposit account.  I am interested and the set up costs are not an issue, but I am wondering who PNI mortgages are and more importantly who is the German bank and if they are regulated?

 

 

PNI Mortgages are based in Delgany, Co Wicklow and is regulated the Central Bank to sell mortgages.  The German current and deposit bank accounts they are offering to help people open, is with HypoVereinsbank, a German subsidiary of the largest Italian bank Unicredit. You will need the services of a notary to complete the paperwork. I didn’t find PNI’s website particularly helpful, but it does provide a telephone helpline.

 

The e-banking account comes with a HVP Maestro card, with which you can withdraw funds. Variable rate interest of between 0.25% and 1.05% is paid, but the latter only on sums of €25,000 or more.

 

You should know that UniCredit, the Italian parent bank of HypoVereinsbank was one of the banks, along with the giant Societe Generale of France that the markets sold off heavily earlier this month over concerns about the vast amounts of sovereign debt they are carrying. Since the end of February, Unicredit’s share price has fallen from about €2 to just 89 cent at time of writing, which reminds me of the huge fall in bank shares prices that the Irish banks experienced throughout 2007 and 2008.

 

Anyone thinking about opening an account in another country should always choose as financially sound bank as possible and only deposit up to the sum guaranteed by the bank’s deposit guarantee scheme.

 

The third estate

GP writes from Carlow: My sister died leaving an estate worth €895,000 to be divided equally between myself and my two surviving sisters. I was the nominee for her credit union account and received from the CU a cheque for the €14,700 in her account plus a Death Grant of €1,300 for a total of €16,000.  I cashed the cheque, but later her solicitor wrote to me and asked me to return the Death Grant portion saying this was to go to the estate and not to the nominee.  (The Credit Union manager said he never heard of this before.)  I returned the €1,300 to the solicitor and this was included in the estate which was divided equally between the three of us.  When the solicitor returned my IT38 Form he had included in it the funds that were nominated to me in the Credit Union as well as my share (1/3) of the estate.  Probate tax was paid on the total amount of these.  After reading Larry Breen's recent article in your pages about how Credit Union accounts, up to a specified limit, are not subject to normal probate rules but are paid out based on a member's signed nomination I now think that I should have paid Capital Gains Tax on the money that was nominated to me in the Credit Union some of which I could have written off against share losses. I also think I was entitled, as nominee to the Death Grant of €1,300.

 

First, the tax that you and your sisters have paid on your inheritance is capital acquisition tax (CAT), not probate tax, which no longer exists, though there is a probate process.

According to Sandra Gannon of TAB Taxation Services in Dublin, the money nominated to you by your sister that was in her credit union account may be described as ‘shares’ by the credit union, but it is considered savings for inheritance tax purposes and is subject to CAT, not CGT.  As for whether you had to share the credit union savings insurance with your sisters, you should have this clarified in writing by your Revenue Inspector of Taxes and then, if applicable, ask your sisters to refund the amounts they received, less the CAT. 

 

 

 

 

 

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By all accounts its easy to set up a euro exit strategy

 

MS writes from Dublin:  For some time you have highlighted  the possible danger to holders of Irish Euro accounts if Ireland exits the single currency in the future. Please advise how an Irish citizen can open a euro account in another 'euro' country.

 

Irish people who own holiday homes or investment property abroad – in Spain, Portugal, France, Italy  – are able to open euro accounts with no difficulty (aside from the usual bureaucracy and the fulfilling on anti-money laundering requirements.)  There is no EU restriction on EU citizens opening bank accounts in a member state, but it is left to individual banks (and they sometimes leave it to individual branches) to decide whether they want to accept your business.

One of the easiest ways to open an ‘off-shore’ euro account is to do so by travelling to Northern Ireland. Ulster Bank and National Irish Bank both have sister banks in the north – Ulster Bank and Northern Bank respectively and they will both open accounts for their own Republic of Ireland account holders as well as non-customers.  You need to bring all the required anti-money laundering identification with you and NIB, which is owned by the Danish Danske Bank (which is outside the eurozone altogether) recommends that you get a letter of introduction from your own bank to bring with you; because it is a cashless bank, it will impose a 1% charge on the value of cash deposits.

Finally, If you have a sizeable sum – at least €200,000 - that you want to deposit in another EU country – you can use the services of the fee-based, independent financial advisor Vincent Digby of Impartial.ie.

It can arrange for the setting up of DeutscheBank euro deposit accounts in Germany that pay 1.9% interest without the client having to travel. The minimum cost for this service is €500, he says. 

 

 

Cheque it out

 

AB writes from Dublin: Can you explain why the banks in Ireland take five days to clear a cheque?  They bleat on about preventing fraud, which they should well be able to do without taking five days. This is this is simply customer unfriendly. Is it true that in Sweden it just takes one day to clear a cheque?

 

I called my own bank, and asked them how cheque clearance works and this is what they told me:

A friend gives you a cheque over the weekend. You lodge it into your account in your own bank, on Monday, Day 1.  On Tuesday, Day 2, the cheque arrives at your friends’ bank. By Tuesday your bank will start paying interest on that cheque if it has been deposited in an interest bearing account. On the Wednesday and Thursday, Days 3 and 4, your friend’s bank has the right to withdraw the cheque he wrote if they are not happy to verify it.  If they do verify the cheque, on Friday, Day 5, you can start spending it. All this assumes there are no glitches and that the weekend doesn’t intervene.

By the way, on top of clearing delays, cheques cost 80 cent each,including a 50cent government stamp duty.

 

 

Ditch the dirt

 

 

PW writes from Waterford:  My mother died leaving my two children, aged 11 and 14, €10,000 euro each. I was told there was no inheritance tax to pay.

We decided to use your Best Buys list to find a good fixed rate account for the money and decided to go with the PTSB account where the interest in paid upfront for one year. However, I then found out that 27% DIRT is payable on this account, even though neither of the children have any income of their own. Is this correct?  Also, is it correct that no DIRT would be payable in a credit union account? (I know Post Office savings are tax free.)

 

It is indeed correct that children pay DIRT on interest earned even if it is their only earnings.  Only pensioners with earnings below the income tax threshold, disabled people or their trustees, charities and non-residents are exempt from DIRT. Certain longer term credit union accounts, called special share accounts, that only earn up to €480 or €635 of dividend interest are DIRT free.  Over those amounts and the interest is subject to DIRT and will be deducted by the credit union.  If they open an ordinary regular share account the DIRT on any dividends must be declared to the Revenue in an annual tax return.  Post Office three year bonds and five year certificates pay all returns tax-free.

 

 

 

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Who is liable when joint asset is at risk?

 

CD writes from Dublin: My sister and her husband jointly own an apartment in the south of France that was bought with her family inheritance. However at the moment her husband has a number of other large property loans worth about €1.5 million to pay back that he bought with two other men and he is negotiating with the bank to alter and reduce the repayments. He is self employed and the repayments are unsustainable for him and he has knowingly begun to skip payments. There is a possibility that the husband and wife's foreign property may be at risk of going to the bank in the future as they do not know how things are going to work out.

Should my sister put the property in her own name to protect it from the bank seizing it if things were to reach that point?   

John Hogan of Leman Solicitors in Dublin has suggested that any attempt by the husband to shift his portion of the French property to his wife in order to prevent it from being part of his assets that are taken into account for the settling of debts is unlikely to be successful. Such an action contravenes, he suggested, Section 74 of the 2009 Land & Conveyancing Reform Act which sets out to prevent any action that could be considered a way to defraud a “sub-purchaser or creditor” from the kind of transfer you describe.  

 

That said, your sister’s portion of the French property could not be claimed by the bank though she might have to buy out her husband’s share of the value that he owes the bank if she wants to keep the property.

 

There have been some very high profile cases of developers transferring property to their wives in the last few years. Your sister may wish to consult a solicitor to establish exactly what her property rights are in this case.

 

Right or wrong?

 

TB writes from Cavan: I was wondering what your thoughts were on the forthcoming rights issue from Bank of Ireland. Do you think taking up the rights is throwing good money after bad or do you think that in the long term Bank of Ireland will survive? I know you will probably recommend talking to a advisor but any help would be gratefully appreciated.

 

I wouldn’t recommend that you seek the advice of a stockbroker about this rights issue – they will be keen for you to buy the shares so they can collect their commission.  They are hardly impartial.

 

As I have written before, unlike so many stockbrokers who make endless, usually incorrect predictions about stock movements, I don’t have a crystal ball on my desk, so I have no idea if Bank of Ireland will survive as one of the ‘pillar’ banks the government is so keen to see established.  However, I think it’s a good guess that if it does survive, it could be some time before the bank rewards its shareholders with attractive, sustainable profits. That will only happen when the Irish economy recovers and that will only happen when the Irish state is taken off EU/ECB/IMF fiscal life support. Even without a crystal ball that doesn’t look very imminent either.

 

Since you have spare money to invest, you might want to first secure its integrity by not leaving it all in euro, let alone using it to buy more Bank of Ireland shares.  You might want to consider converting some of it into gold and silver which is finally being acknowledged as a store of value in these uncertain times. A proper, fee-based advisor can also help identify other defensive options like index-linked bonds, and strong, income yielding shares and funds that are undervalued right now. 

 

Many genuine speculators (as opposed to gamblers) have bought bank shares that have been propped up by governments or central banks on the grounds that it makes sense to follow the money, but even they usually do so on the condition that the government or central bank involved isn’t about to go bust. That’s the additional risk you take putting your money in this latest rights issue.

 

Pension fears

AOC writes from Dublin: I have approx €700,000 in my company defined contribution scheme. I am aged 55 and can retire at any time. Three questions: 1) In the event of Ireland defaulting, leaving the euro, returning to the punt and the resulting inevitable devaluation, will pension funds retain their euro value or be devalued pro rata to the national currency. Will my €700,000 become €350,000 if the new punt is devalued by 50%?


2) In the event of the above, would funds held in Ireland, in foreign owned/guaranteed accounts also be devalued and 3) If I convert my DC fund to an ARF, at what stage must I draw down the annual 5%?

 

Let me answer question 3 first. The 5% annual, taxed, ‘imputed distribution’ from an approved retirement fund (ARF), only begins at age 60. Nor does it attract the 0.6% pension levy, which is why taking early retirement, 25% of your fund tax-free and ARFing the balance might be an attractive option for you.

 

As for questions 1 and 2, no one knows for sure what exactly would happen if Ireland were to leave the euro, including whether euro held in non-Irish banks would be devalued. To be on the safe side, you might want to assume that it would be and act accordingly.  

 

Meanwhile, assets in pension funds that are not held in euro – say, American shares, British property, Canadian government bonds, even Perth Mint gold certificates which qualify for Irish pension and ARF investments, would presumably remain outside the euro until retirement when they would be liquidated in order to purchase an annuity in the new currency or be transferred into a new Irish currency denominated ARF. 

 

If your entire pension fund was invested only in Irish shares, bonds, property or (Irish) euro, and we went off the euro, then the devaluation of your pension assets would immediately coincide with the devalued new currency.

For this reason, you may wish to have your pension fund assets reviewed sooner rather than later.

 

 

 

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Private health insurance viewed as luxury abroad

AMcC writes from Dublin: Like many parents of 24 year olds, our daughter has gone to work in England and we are wondering about private health insurance for her. She has been insured in Ireland since birth. We have been advised if you spend more than 180 days outside of Ireland you are not covered by Irish health insurance and if you stop paying here there is a waiting period for re-entry, but this may only be relevant if the person already has a medical condition and needs immediate treatment. With so many young people moving abroad at the moment, who were previously insured in private health insurance by their parents in Ireland, I am surprised there has never been a discussion on the subject.

 

The Irish middle classes – all two million of us, nearly half the population - have become so accustomed to private health insurance membership and the way it facilitates the jumping of long waiting times for both urgent and elective medical treatment, that it has become a ‘necessity’ and not a luxury as it is in the UK.

Your healthy (I presume) 24 year old daughter, however, is moving to a country with far more comprehensive and free access to medical care and treatment, including general practitioner services once she registers with one. Yes, waiting lists can be quite long in the NHS, but it appears to deliver most of its promised services to the vast majority of UK residents. 

 

Unlike here, private ‘medical’ insurance  or PMI as it is known in the UK, is not community rated, so the price of premiums is based on age and health and the choice of benefits. Plans include exclusions as well as no-claims bonus and excess payments that will also influence the price you pay. As a result it isn’t very easy to establish how much a similar plan to the one your daughter may have here. Bupa UK, for example, told me that “we do not have any set or rough prices” and “the individual would need to contact us directly as the quotations are tailor made, so we would need to know things like her address, weight, height, occupation, lifestyle and past medical history going back at least 7 years.”

 

When your daughter gets to London she should contact a number of providers or specialist health insurance brokers for quotes for the sort of coverage she wants.  There are dozens of providers ranging from big insurance firms to smaller, specialist insurers as well as providers of simple, cash-based plans.

 

To get started, she should download Are you buying private medical insurance?’- a 2008 guide produced by the Association of British Insurers, which you can find on their website www.abi.org.uk.

 

 

Transfer Loss

 

JD from Galway: On Tuesday 5th July I sent €55,000 to my 90 year old mother’s account in Lloyds TSB in the UK via electronic money transfer, from my account in Ulster Bank.
 
The sterling/euro market rate on the computer that day was 90.35 cent and I paid €44.44 for a quick transfer before the rate dropped. On Wednesday 6th July my mother rang to say that her account was only credited with £48,192 approximately £1,500 less than the rate before bank charges, which raises the question of "how much do the banks actually charge"?
 
What is the cheapest way to transfer money besides carrying it on the plane, which in my case, would have saved over £1,000?

 

 

 

There is no simple answer to your query, which is frequently discussed on websites like www.askaboutmoney.com and www.boards.ie .  Most of these suggest electronic transfer with some banks charging less than others; using private currency exchange dealers, especially for larger sums, though you must also shop around for a best price since they too vary their charges; converting the money by way of simple bank drafts and then using a courier or registered post to deliver the money to the end recipient.

 

I spoke to Ulster Bank on your behalf and they told me that the best value way to transfer euro into sterling, which automatically costs more than transferring money inside the eurozone, is to ….     The cost of sending the money, once converted, via a simple bank draft in your mother’s name is ….

 

Growing Concern

 

CL writes from Dublin: I invested in the 2nd Irish Forestry Fund in 2001 and every year received their positive investment statements and new investment opportunities.

 

In December 2010 I received an end of year report valuing the shares at €1,250. This June I was informed that the Second Irish Forestry Fund had been sold, with a per share maturity value of €1,027, an 18% drop in value.  I was subsequently told by one of the directors that ‘the price they received was the price they received’ when they tendered the company.  The Second Forestry Fund was sold to their sister companies.

 

I understand from their 2010 report that Forestry Investment experienced slightly lower prices in 2010 based on both land values and sales values due to lower construction activity, but that this would have been captured in the 2010 share value I received last December. I am still awaiting an explanation as to what caused such a dramatic fall in the share value in the five months from when I received the dividend.

 

Trevor McHugh, a Forestry Investment director, who said that last December’s statement was only a projection of the share value, not its actual market value of your shares.

The formulas used to determine a projected share value and an actual market value, which is what buyers use to determine the price they will bid when the Fund term matures and it is put up for sale, are not the same, he said. The market value takes into account real-time factors on that particular day, and these can – as with any commodity or asset – affect the sale price.

The Forestry Funds are not regulated investment products like life assurance investment or private pension funds and so can make share value projections that would not be permitted for the likes of life assurance funds.

This is only the second of the Forestry Funds to be sold, but my understanding is that the First Fund, which matured in 2010, did not deliver earlier share projections either, though it did achieve an 8.3% annual return for its investors.

All Forestry Fund investors are invited to contact the company, at any time, to discuss their shareholdings, or any investment statements they receive, Mr McHugh said.

You should arrange a meeting with the directors to discuss your disappointment in the return you received.

 

 

 

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