Posted by Jill Kerby on March 20 2011 @ 09:00
Stay in Spain's too short to avoid capital gains tax
FR writes from Dublin: My brother has a shop to sell here in Ireland. He now lives in Spain, for the last two years. Does he have to pay capital gains tax here in Ireland?
“If your reader’s brother has only been living in Spain for two years he is probably still ordinarily resident in Ireland,” says tax advisor Sandra Gannon of TAB Taxation Services in Dublin. “He will be liable to pay Irish capital gains tax on any profit from the sale of his shop. You only stop being considered ordinarily resident until after the third year.
“He may also be liable for CGT in Spain,” says Gannon, “but because of the double taxation agreement between Spain and Ireland he will get a tax credit for any payment he makes in Ireland. He should check with a Spanish tax advisor.” If the property is sold between January and the end of November, the CGT payment date will fall due in mid-December; if it sold in December, the CGT must be paid no later than 31 January.
An Post risks
PC writes from Dublin: As a regular reader, I note that in your advice to the retired civil servant with €130,000 to invest, (Sunday Times 6 March) you did not advise investing in An Post Savings, the interest of which is DIRT free. I have noticed that you never advise on this investment. Am I missing something?
An Post is a wholly owned subsidiary of the Irish state. It has an exemplary record in providing tax free interest bearing products to the Irish people, its deposits are 100% guaranteed by the state and it carries no debt of its own to my knowledge. However, my concern is more about the ‘state of the State’, and not so much the ‘state’ of An Post. Between our huge and growing sovereign debt and what we owe our bank creditors, the liability is now in the region of €250 billion.
I have asked the NTMA about the size of the deposit base of An Post and am still waiting for an answer, but what bothers me even more is how the state is exploiting its unique position in the wider savings market, first by promoting the 10 year National Recovery Bond and more recently, the new four year version.
Not only is this a complicated product, but the 10 year version is an especially unappealing one in my opinion, with a mere 1%, taxed, annual return and a bonus that is only paid at the 10 year maturity date. I think it is very foolish indeed to voluntarily hand over any more money to the Irish state, given the continuing uncertainty about our finances and its ongoing commitment to raise more taxes, but not to tackle its own spending, to keep filling the black hole in the banks.
Until our wider solvency issues are properly addressed, I think you need a great deal of faith to put your hard earned money into An Post, even if the return for conventional savings certificates or savings bonds is tax-free.
Three or five?
PG writes from Dublin: We currently have a three year fixed rate mortgage with AIB (at 3.65%). We can switch to a five year fixed rate deal at 4.39% without incurring any penalty charge. The repayments at the moment are approximately €925 per month. If we decide to go for the five year deal the payments will be approximately €985. Therefore the extra we will be paying will be €60 per month. At the moment we have approximately two years and three months left of the three year fixed deal. In your opinion does it make sense to change to the five year deal to try to offset the interest rate rises which are imminent?
I hope you accepted this offer in time. On Tuesday raised all its fixed rates, and the five year fixed rose nearly 1% to 5.35% from 4.39%. That extra €60 a month that you would have paid at 4.39% would go up another €52 per every €100,000 borrowed. You don’t say what size mortgage you have, but it will certainly cost you more than €720 if you haven’t secured the lower offer.
A fixed rate – whether at the cost of an extra €720 or even more – is, in effect, an insurance payment against the chance that the variable rate would rise even higher over the next five years.
To judge whether that ‘premium’ is worth paying or not, you need to satisfy yourself that the cause for concern at the European Central Bank – price inflation in the wider eurozone, but especially in Germany, is real or not. The ECB has been guilty of printing too much money and buying up too much toxic debt from banks (like ours) and along with the US Federal Reserve, which has been pumping up the global money supply for the last decade, is now realising that this policy has finally resulted in the rise in commodity prices and a consequent rise in the price of food and fuel, in particular. They have left interest rates too low for too long and must now try to squeeze the inflation genie back into the bottle by raising rates.
If you are confident that the politicians and central bankers have a magic formula to keep bond prices high (and yields low) and can keep inflation at bay without raising interest rates, then there is no urgency to fix your mortgage interest. If you believe higher interest rates are inevitable, you will share my view that paying the higher monthly repayment will be well worth the five years of peace of mind you will hopefully get in exchange.