Jill Kerby

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.

Pressure Fine Gael over unfair PRSA tax change

JH writes from Dublin: I wonder could you confirm if the following is true? I have been told my employer’s 5% contribution to my PRSA is now considered a benefit-in kind and is subject to tax and the universal social charge but a private pension scheme is not treated this way. Unfortunately I changed moved to a PRSA on the advice of our company broker who said there was no difference between the PRSA and the private scheme we were in, except there would be onerous new rules for the trustees of our scheme and high training costs.

Unfortunately, as a result of changes in the 2011 budget and Finance Act, an employer who contributes to an employee’s personal retirement savings account (PRSA) will have to now deduct PRSI and universal social charges from the employee for the PRSA contributions the employer makes, whereas no such deduction applies if the employee is part of an occupational pension scheme or is a recipient of a public service pension.  This is deeply unfair to people like you with a private PRSA, or anyone who works in a company where there is a group PRSA to which the employer contributes. If your employer stops making contributions to your PRSA you might consider rejoining the company scheme, but be careful about costs, charges or penalties.

The government has spent a great deal of money promoting PRSAs and especially in making them mandatory for companies without an occupational plan.  At a great cost, the Pensions Board has to pursue employers who don’t comply with the law. Now the government is undoing this work and expense by imposing a tax penalty only on PRSA contributions made by employers.

Unfortunately the Pensions Board, despite their other mandate to advise the government has taken no position on this matter, their spokesman confirmed. You could formally complain to your TD or the new pensions minister, though the pensions industry warned the previous government this PRSI/USC charge could destroy the PRSA market but it went ahead with it anyway. The new coalition programme makes no reference to it either.

Spread the risk

TR from Wicklow writes: I have received letters from Anglo Irish Bank, AIB and Irish Nationwide B/soc re my deposits being transferred and that they will still be covered by the Deposit Guarantee Scheme.  However, none of them mention the situation if I already have a decent sum deposited with the receiving institutions.  Say I had €60,000 with Anglo Irish, now transferred to AIB, but already had €60,000 with AIB.  I was covered before but am I now €20,000 over the guaranteed limit in the one institution or has the guarantee been re-written?

 You are correct that the deposit guarantee only covers sums up to €100,000 on an aggregate basis.  I suggest you shift amounts in excess of the €100,000 as a result of the transfer of your Anglo Irish deposit, into another institution.  Or, you could open a fixed rate account before the end of June at AIB with a sum in excess of €100,000 and avail of the Eligible Deposit Guarantee scheme.

Home truths

GM writes from Wexford: I have a home worth €320,000, and an outstanding mortgage of €45,000. I had started to build a new family home close by and had a mortgage offer in place from Bank of Ireland. I had invested €410,000 on the site and part construction of my new house when my business failed due to withdrawal of funds from the bank. I have run my own small building company for the past 30 years, never getting into any difficulties. My business and my life was destroyed by decisions of people who had made bad mistakes. I have tried to raise the capital to finish my partly built home but have failed to do so. Could you advise on anyone that could help? I require €200,000 for five years to finish it and pay off the existing mortgage at interest only, for, say, five years. I will then let out the existing property to fund the interest only mortgage or until the current climate changes. As it stands at the moment my new home is starting to fall into disrepair, unless something is done soon, my hands are tied.

I am very sorry that your business has failed and that you now left with an existing home that you are unable to sell – or rent – until you can secure the additional €200,000 loan. However, without a verifiable, steady income with which to pay off the new loan (and your existing €45,000 mortgage) I doubt if any bank would consider lending you the money.

This is little consolation, but you are not alone.  There are thousands of people in a similar situation to your own, each despairing in their own way about their debt problems, the uncaring position of the banks and the ineptitude of the government to act in the interests of its citizens and not just bankers and our paymasters in the EU and IMF.  I’ve spoken to a number of very good financial advisors about this debt/capital dilemma, but none of them believe there are any easy solutions. They do all say that you must speak to your creditors and provide them with a realistic assessment of your personal financial position. You should also share your anxiety with family members who may be in a position to help you and with your local priest or minister if you have one.  Is there anyone in the family who would ‘buy’ a share of your new house and let you repay them in the future when your income or the property market picks up and the other one can be sold?

If you are at risk of falling into arrears on your family home, contact MABs and their help, seek protection under the new Code of Conduct on Mortgage Arrears.  Good luck.

If you want to play safe, pay off your mortgage

OS writes from Dublin: I am a retired civil servant with a reasonable pension, savings of €130,000 and a 1.6% interest rate tracker mortgage with monthly repayments of €1,232, €75,000 outstanding and five years remaining. Like a lot of other people I am extremely worried about the current financial situation and fear for my savings if anything should happen to the euro. Should I pay off my mortgage and if so, what advice can you offer regarding the remainder of my savings. If I continue with the tracker mortgage how can I then safeguard my lifetime savings?

My personal view about mortgages hasn’t changed in 20 years:  if you can afford to pay off your home loan, do so, especially by your retirement, if only for the peace of mind it gives you.  My husband and I cleared our mortgage nearly 10 years ago with a voluntary redundancy settlement he received when we were only in our 40s. We haven’t regretted it for a moment. We could have used the windfall to buy a second property mortgage or other investments, but we decided that it was wiser to clear the mortgage and all our other debts first. (We still don’t have a second property.)

 While you don’t have a large outstanding mortgage balance, as a retired person you are living on a fixed income from the state that looks set to be further reduced by higher taxation.  Also, if the ECB does increase its base rate this year this will in turn raise your tracker repayment. (With just €75,000 left to repay, every 1% rate increase will cause your mortgage repayment to rise by about €45 a month.) 

If you clear your mortgage, you will still have approximately €55,000 to invest.  There are many offshore, non-euro based investment and assets that you could consider and there is nothing to stop you from putting some or all of this money into non-euro currency account or short term bonds (or even in ‘real’ money like gold and silver) until you choose one that suits your age, risk profile and expectations.   Since you now have the time, start doing your own research.  Read up on the various options; find a good fee-based advisor to help you in your search.   Good luck.

Road to Arrears

AC writes from Co Mayo: I have a mortgage with Ulster Bank for a property that was originally my home but is now rented out (as I have moved elsewhere and married). I lost my job in July 2009 and the bank agreed to interest-only payments ever since. Now they are only offering me an 11% discount on my repayments. I still can't afford their offer, as I am still unemployed and my husband cannot afford to pay on my behalf as he has three mortgages in his own name (including our family home). He would sell at least one of his properties and I would sell mine if the market allowed it. Has the bank the right to insist that my husband's income be considered in this matter? What options do I have if I cannot afford repayments? I presume the Code of Conduct on Mortgage Arrears does not apply.

First, according to John Hogan of the Leman Solicitors in Dublin, unless your husband’s name is also on the mortgage deed of your rental property, he cannot be held legally responsible for your debt, nor, from what you write, does it appear that he has much leeway either to cover another repayment.

The arrangement you have in place with your bank since July 2009 pre-dates the introduction of the Code of Conduct on Mortgage Arrears, but unfortunately the code doesn’t apply to you because it is no longer your principal private residence. This is too bad because the code not only sets out the mortgage arrears resolution process that the banks must follow for customers who have fallen into arrears, but also ‘pre-arrears’ customers.

I expect Ulster Bank wants a higher payment from you, as they do from all their standard variable rate customers, because, even though you are unemployed, you have been making your interest-only payments and they must believe that you have further resources at your disposal, including your husband’s income.

If you have not already done so, says John Hogan, you should contact the bank and explain that by demanding a higher repayment, they are risking you becoming yet another customer who could fall into arrears on their debt. mortgage. Ask for a meeting to discuss your case and bring with a budget statement that will outline exactly your financial circumstances and the efforts you and your husband are making to meet all your debt repayments and essential personal expenditure.

Until the property market recovers, so that some of your properties can be sold, or until you find another job, coming to a mutually satisfactory arrangement with the bank is in your and their interest. A spokesperson for Ulster Bank told me said that they have done 27,000 mortgage and debt ‘flex reviews’ since the summer of 2009, which include non-principal private residences. “I urge your reader to contact us,” she said.

Ends  

To claim or not

BC writes from Dublin.  I am the secretary of our tennis club that has suffered some roof damage this winter. I got a quote for €450 to repair the damage, but there is a €250 excess on the policy. Should we bother claiming?  There has also been some minor damage to the court lights that will be a separate claim.

Your club is better off paying for the damage out of the club’s contingency fund and only claim against your insurance policy for higher value events, says Sean O’Connell of The Insurance Shop in Fairview. A small €200 claim like this – even with the €250 excess – could make it more difficult for you to challenge next year’s premium increase or to get the best deal from a new insurer if you decided to switch providers. He also recommends that you review your policy to make sure that it will delivers the proper level of coverage, and that you have the right security in place. “Too often these days, the cost of damage done to the premises during a break-in is greater than the goods that are stolen,” says O’Connell.

Finding a negative equity mortgage is improbable

JK writes from Dublin: I want to buy a bigger house but am in negative equity of €100k plus. My present mortgage provider has informed me that although I qualify for a new mortgage, they will not provide cover for the negative equity. Do you know of any provider that will include negative equity in a new mortgage? Do you have any advice for the lots of people who are in my position?
 

To my knowledge, no lenders will extend credit to owners of property in negative equity, especially in a market where property prices still haven’t bottomed out.

One financial advisor I spoke to said that KBC and Permanent TSB might consider, on a case by case basis, a mortgage application involving negative equity but the ideal applicant would most likely be a young professional with high future earning capacity, buying a property that the bank would consider to be very competitively priced indeed.

Fine Gael proposed in its election manifesto that it would introduce new banking provisions that would allow people with negative equity to trade down to a property with a lower market value than that which they originally bought. 

But this only locks in the losses, which is hardly an adequate solution if you are still stuck with a very sizeable loan that may be unpayable during a normal working lifetime.  Frankly, only debt forgiveness or hyperinflation will reduce the huge mortgage liabilities taken on by many thousands of buyers since c2003.

Anglo write-off

TC writes from Meath: I owned shares in Anglo Irish Bank when it was nationalised on the 21st of January 2009. Can I write this loss off against other gains I have made from investments? If so, how long do I have to enact this readjustment of finances?

Revenue has acknowledged that AngloIrish shares are worthless, allowing shareholders to use their losses to reduce capital gains tax. You can offset your share losses against capital gains from other assets – say, from other shares or the sale of a property that is not your principal private residence. There is no time limit for offsetting losses, so for example, if you lost €20,000 on your Anglo Irish shares, you can offset that loss against future gains for as long as it takes to make up the €20,000.

Smart moves

TG writes from Co. Mayo: On my retirement, my wife and I investment in a portfolio in Bank of Ireland Life Smart Funds.  With all the talk going on regarding the viability of Irish banks, we are getting concerned about our investment. What is the situation if the Bank of Ireland gets into deep trouble? Since, the funds are only managed by the Bank and the investments are external to the bank do they survive?

Your money is a liability on the balance sheet of Bank of Ireland Life so it could be at risk in a catastrophe. Ireland has no protection schemes for investors in insurance funds, unlike bank deposits.

The good news is insurance companies are in much better financial health that banks. Bank of Ireland will not be shackled to the bank for much longer because European commission has decided that the division must be sold as a condition of the state aid given to Bank of Ireland.  The hope is that Bank of Ireland Life will be bought by a strong international insurance company.

If you are concerned about the value of your investment or how it is managed (as opposed to Bank of Ireland’s future) you should have your Smart Fund reviewed by an independent, fee-based advisor who will report on its performance and explain what costs or penalties you may incur by encashing your fund or switching it to a different provider. 

A safe place

My son, who is a college student, has received a lump sum as a result of an accident. I would like to get advice as to where to invest the money. He intends to finish his education overseas in two/ three years time and would need access to funds at that stage. I would appreciate your suggestions.

If your son needs access to his money by 2013-14 then it probably makes sense to simply find a good deposit home for it – ideally in a secure, solvent institution that offers the best possible interest rate.  The Irish banks are not the most secure financial institutions in the state, and may end up being merged, sold or closed eventually but until then all deposits up €100,000 are guaranteed by the state.

Since it might be best for him not to have immediate access to these funds if they are earmarked for education purposes, you son should be considering a fixed deposit account. The best one year fixed rates range from 3.5% to 3.62% gross from Ulster Bank and KBC and Permanent TSB respectively, but require a deposit of at least €10,000.  If ECB rates go up, as many commentators expect they will by the end of this year, then hopefully the next one year fixed rate he locks into will yield an even better return.  By year three he can then spend a portion of his savings and roll over the rest into another one year deposit term. Finally, as a believer in ‘real money’ and not just fiat, paper currency, I’d encourage him – if he was my son - to exchange at least 10% of his settlement into gold or silver.  The further debasement of the euro is inevitable as the ECB increases eurozone debt and we are already seeing how prices are rising, partly due to the huge increase in the supply of money and credit to insolvent eurozone countries. 

Devil is in the detail of any bank insurance offer

SC writes from Dublin: I have two private cars and one private residence and three rental properties and it is costing me a lot of money to insure all of them.  I would like to have a package and know exactly where I stand weekly or monthly or yearly in this regard. Do you know of someone who would give me a good deal for my business?

I’m afraid there are no regular ‘three for two’ special offers in the insurance business as there in the grocery trade, or your favourite bookstore, though the likes of both Aviva and Quinn have been known to offer special rates if you buy your home, car and health insurance with them. Sean O’Connell of The Insurance Shop in Fairview told me that on-line brokers like 123.ie may be able to get better discount rates for your cars and properties – he admitted it wouldn’t pay for him to take on such business at those premiums – but you need to examine the contracts very carefully for small print and exemptions and excesses that might apply. He also warned that house insurance terms and conditions are being very strictly enforced, especially regarding water and flood damage and especially for rental properties.

Unfair state charge

KP writes from Navan:  Referring to your comment last week about the anomalies in the way the USC is applied, I have discovered an anomaly within an anomaly!  The Irish state contributory pension for a single person is €11,976.  I retired here in 2002 and have a full contributory UK pension (as well as a modest UK occupational pension).  My UK pension for 2010 totalled €7,012 which is exempt from the USC as 'a similar type payment'.  However, this means that a pensioner in receipt of the Irish state pension but with the same total pension income to me will pay a lower USC since less of their remaining income becomes liable after the €11,976 exemption (compared to my €7,000 exemption. I cannot follow either the fairness or the logic which requires someone whose pension income is not Irish sourced is liable to pay a higher USC than someone whose income is Irish sourced. Exemptions seem to be a minefield!

Tax advisors are not impressed by the construction of the new universal social charge. Two tax advisors I spoke to about your case both told me they were not “in the least surprised” to hear about the USC anomaly that you have raised, though it was the first time it was brought to their attention.  “Here’s another pensioner USC anomaly,” said one. “There are two pensioners, both 71, and both considered well off with annual incomes of €50,000 that includes their state pension of €11,976. One earns the balance of their income, €38,024 from a private pension. He pays income tax at the marginal rate on the €50,000 plus 4% USC on the €38,024 - the state pension being USC exempt. The other person earns their income balance of €38,024 entirely from interest returns from Savings Certificates which are tax and DIRT free as well as being exempt from USC. This pensioner pays absolutely no tax or USC on the entire €50,000.”

You’re right. It isn’t fair that only self-employed people who earn over €100,000 are being targeted for a 10% USC when all other earners with that income pay 7%, it isn’t fair that between two pensioners, each earning the same income, one ends up completely USC exempt.

Redundancy deal

PK writes from Dublin: My company announced just before Christmas that it was going to see voluntary redundancies early this year. This wasn’t unexpected and if they offer a redundancy package that is anything like one offered in 2008 I could expect to get about a year’s salary or around €65,000.  Just wondering what sort of tax I could expect to pay on that and would I still have to pay all that tax if I used the money to start my own business?

Ex gratia payments over and above statutory redundancy payment of two weeks pay for each year of continuous employment, plus a bonus week, subject to a ceiling of €600 per week, is taxable.  However, there are three different exemptions options available which reduce the liability plus the possibility of ‘top slicing relief’ which can also reduces the rate of tax you will pay.

The basic exemption is €10,160 plus €765 for every complete year of service. If you have five years service, for example, the amount exempted from tax from your estimated €65,000 payoff will be €13,985.  This basic exemption can be increased by another €10,000 to a maximum of €20,160 plus the €765 for every year of service if a) you haven’t made a claim for the increased exemption at any time in the previous 10 years and b) the increased exemption of €10,000 is reduced by any tax-free lump sum you may be immediately entitled to as part of an occupational pension or the present day value of such a tax-free lump sum which you may receive some day from the pension scheme.

The third exemption option is the Standard Capital Superannuation Benefit (SCSB) which involves calculating your annual yearly remuneration for the last 36 months multiplied by your years of service that can also take into account tax-free lump sums, though according to tax expert Sandra Gannon of TAB Taxation Services in Dublin, “The SCSB is more appropriate for people with longer service and higher earnings.”

If you don’t have a pension tax-free lump sum coming that would have to be deducted from the increased exemption of €10,000, based on exemption option two, your total redundancy tax free payment (assuming you have five years service) would be €24,985. (€10,160 plus €3,825 (€765 x 5) plus €10,000.)  This leaves a balance of €41,015 which is subject to marginal income tax of 41% or €16,406 and the universal social charge of €2,120, leaving you with a total, net redundancy payment of €47,474.

According to Gannon, top slicing relief, which is available to claim at the end of the tax year in which you receive your redundancy might be available as it takes into account your average rate of tax for the previous three years and might result in a refund if this is less than the amount of tax you paid on your lump sum.

Finally, seed capital tax relief is available if you were willing to invest your entire lump sum, plus, in the form of a refund, tax you paid in the previous five years into a group of qualifying new manufacturing and service enterprises.  The Revenue has produced a leaflet: The Seed Capital Scheme: Tax Refunds for New Enterprises - IT 15 that you can download at www.revenue.ie

Tax-relief gives pension the edge over repayment 

JH from Cork writes: I am 31 and employed full-time and avail of a company pension scheme. I recently had a pension meeting with the company and it seems that I will need to increase my contributions to get a decent return. I was thinking of doing this while the top rate tax relief exists. Currently I contribute 4.5% and the company contributes 2.5% but that only gives me projected earnings of 12% of my current wage once I retire. An extra 3% contribution would cost me €75 a month, an adjustment I could handle. My question is, what level of my own wage should I be investing as a general rule, and is it realistic to expect a decent return from these pensions in the long run. Would I be better off repaying my mortgage at a faster rate and then saving more once that is paid off?  Currently the mortgage will be paid off when I am 53. If there are other options that are better at this stage please let me know.

You are very lucky that your pension review has taken place at the age of 31 and not 51 - you’ve plenty of time to adjust and increase your contributions and work out an effective investment strategy.   

Go to the Pensions Board website, www.pensionsboard.ie and click on their pension calculators. By its reckoning, based on today’s money terms, a 31 year old male, earning, say, €50,000 a year, with an existing fund of, say, €20,000, should be contributing 17%, not 7% of salary into a pension every year in order to secure a retirement income, worth two thirds of final salary or €33,330 at age 65.  This income includes the state pension worth €11,976 but does not make provision for a spouse’s pension.  Even if you were satisfied with only 50% of your final salary or €25,000 a year at retirement, of which nearly half was accounted for by the state pension, you would still need to contribute at least 10% of salary. By filling out your actual details, you should get some idea of the level of funding you need to make for a comfortable retirement. 

It appears that you are on schedule to pay off your mortgage long before retirement, but with mortgage interest rates likely to rise, you might want to consider fixing your mortgage rate if you have a variable rate loan.  Over the next 22 years inflation will also play its part in reducing the real cost of your mortgage and if you can afford a fixed rate you will be in an ideal position to benefit from such an impact, all the while secure in knowing exactly the size of your repayment for the fixed term.

No prizes here

DMcD writes from Dundalk: I am a regular purchaser of prize bonds.
I am now thinking of investing a significant part of my life savings in them.
How safe would my money be? In recent times I have been confused as to where to find safety.

Prize Bonds are guaranteed by the Irish state, just like deposits in An Post and up to €100,000 deposited in Irish banks. You can check the Financial Regulator’s consumer website for details of the bank guarantee schemes: http://www.itsyourmoney.ie/index.jsp?n=757&p=125  

Your Prize Bonds participate in tax free weekly and monthly draws but they pay no ongoing interest and are vulnerable to inflation, which will eat away at the purchasing power of every bond.  Just 2.8% of the entire value of all prize bonds is repaid, though not necessarily to every prize bond holder. Someone who purchased 2000 pounds worth of prize bonds 30 years ago – a down payment on a small house back then – may have received some winnings over the year – or not – but if they encashed their original stake today, that original £2000 might provide a down payment on a modest, family sized car. 

By all means hold some Prize Bonds, but leaving your entire life savings in any single asset – cash, property, stocks and shares, precious metals or Prize Bonds is not advisable.  Finally, the state of Ireland’s finances is so precarious that voluntarily handing over all your savings to the government, strikes me as foolhardy.

Golden Future

FO’S writes from Dublin: I will inherit approximately €80,000 shortly and not sure where we should put this money. I read your recent reply regarding the purchase of gold, but it does seem expensive at the moment. I am also worried about the stability of the Irish banks and the euro, and am considering depositing some of the money in banks in Newry and the likes of RaboDirect or Nationwide UK here in the south, but would prefer if I could open a sterling account in Dublin rather than travel to Newry. Is gold still a good investment?

As with any windfall, you need to take advantage of your good fortune by reviewing your immediate financial position as well as considering what to do with this money in the medium or longer term.  If you have expensive debt – like a credit card, hire purchase contract or even a high cost personal loan – you should consider clearing it and thus avoid future interest payments. Next, if you don’t already have one, you might want to set aside some of the money into a contingency savings fund – a good bank account into which you ideally have three to six months worth of discretionary income that is only earmarked for emergencies, such as car troubles or a furnace repair, illness or even temporary unemployment. 

Once you’ve reduced your debts and have an emergency fund in place, you can concentrate on investing and/or spending your inheritance.  You don’t say how old you are, but this money may be an important source of retirement funding.  Tax incentives for Revenue approved pension funds will be reduced from next year for higher earners, so this may be the last year for you to top up an existing private or occupational pension.  If your pension is already in place, funded and on target, you’re in the enviable position of being an investor who can take your time to pick and choose assets that will hopefully perform well and increase your wealth.  Take that time to investigate all the different options that should include precious metals, if only because they are a ‘real money’ substitute for the increasingly devalued and debased paper and ink currencies that are issued by indebted governments and are backed by nothing but empty promises.

I suggest you seek a good, independent, fee-based advisor who can help guide you through the various low cost investment funds, ETFs, shares, bonds, commodities, etc that might suit your needs, expectations and budget. 

Don’t take the easy route and just leave all your money in cash, or purchase the first investment fund that is recommended.  Finally, most of the retail banks will allow you to open a non-euro account  (RaboDirect and Nationwide UK do not offer this facility) but be sure to ask what interest rate, if any, is paid and whether there are any other fees or charges.

Past performance is no guarantee of good funds

SG writes from Dublin: I was on RaboDirect’s website and I came across its 2011 investment top picks. I’m thinking about investing €10,000 I have in another savings account between the various top picks listed. Have you any advice for me regarding same? Looking at the last couple of years they have performed fairly well.

The attraction of an on-line investment website is that the fund information is very transparent and the fees and charges are usually lower than if you buy one through a life assurance company or via a broker.  Once you have an account in place, the purchase – and selling - process is also quite easy. Past performance is just one part of the story you need to check out when making an investment, however. Keep in mind that nearly all stock markets and the vast majority of investment funds have recovered since the financial collapse of 2008 but that markets are volatile, and quite irrational given the scale of the debt in western countries.

More important is knowing what you are buying and that you both understand, and are comfortable with, the risk you take in buying the assets under investment in your fund(s) of choice. You should also be careful about the fees and charges and keep in mind that there are even lower cost ETFs – exchange traded funds – available to buy, many of which mirror the shares and assets that can be found both on-line sites like Rabo or in the list of funds that life assurance companies sell.  You can buy ETFs from a stockbroker or your own lower cost share trading account. Check out the online brokers, www.tdwaterhouse.ie where direct, execution-only trades cost just €15.

Ends

Bank overseas 

NR writes from Co Tipperary: Do you have any advice on how to open a non-resident account in either France or Germany? Germany seems to need an address in that country. Do you have to go to either country to open the account or can you do it by post? I only need a savings account. I am a pensioner and am afraid of keeping my savings here.

I’m afraid that different rules or conditions apply in different countries and even with different banks. I’ve written here a few times before that the European Union/Commission itself sets no restrictions on the opening of accounts by EU citizens or residents in member countries.  However, individual banks have leeway when it comes to setting the conditions for opening non-resident bank accounts.  They all require that you fulfil strict anti money-laundering terms and conditions but some require that you attend in person to open your account or that you fulfil their residence requirements.  You will simply have to contact the bank to determine their rules. 

The easiest solution to this question of moving some of your savings out of this country (and even out of the euro) – though not to France or Germany - is to open a euro or sterling bank account (but not a building society account as they do not accommodate non-residents) in Northern Ireland.  You can follow a good askaboutmoney.com post on this subject here: http://www.askaboutmoney.com/showthread.php?t=147596

 Inherited house

HR writes from Limerick: I inherited my late father's house two years ago in March 2009) and it has depreciated in value since. It has been rented and income declared and all taxes paid on said rent and NPRP tax paid. At the time when I inherited it the value was at €230,000 and now I have it on the market at €160,000 euro. Do I have to pay capital gains tax as it has depreciated in value? Also do I have to use a solicitor when said property is sold and if not how do I go about transferring ownership?

When you inherited your father’s house, the transaction was tax-free because its value was below the tax-free threshold between a parent and child.  The property is not your principal private residence however, so any gain in value from its market value when you inherited it and when it is sold would be liable to 25% capital gains tax.  If, as you say, the house has lost value these past two years you will not have any tax to pay.  As for not using a solicitor to complete the transaction, I’m told it is possible to do the conveyance yourself if you understand what contracts and deeds need to be compiled and exchanged. However, the buyer – and their lender – may not be willing to proceed with the transaction unless they are satisfied that the legalities have been done properly. Self-conveyancing is relatively common in the UK. Check it out here for some background: http://www.diyconveyance.co.uk/ but a straight forward conveyance in Ireland shouldn’t cost a great deal of money and solicitors are more than willing these days to negotiate their fees.

 Emergency exit

GB writes to Navan: Surely if we were to pull out or are pushed out of the euro, it would not happen overnight, can you please advise if that is so, or is it possible it could happen without warning, it would I'm sure put a lot of people at ease including me.

Unfortunately, I don’t have a crystal ball, nor do the politicians or central bankers, and so no can accurately predict if and/or when Ireland will leave the euro, or if and when the eurozone will break up. Nevertheless, the euro’s future is high on the agenda of not just eurozone top finance officials, but also the Americans, Chinese and Japanese whose central banks are now all supporting the currency by purchasing Portuguese and Spanish bonds in an effort to keep the borrowing costs of these countries affordable.   If you are worried about the safety of your life savings, don’t leave it all in euro or the eurozone.  If the currency does collapse, you will have done your best to mitigate some of the worst effects.

Bank on Australian gold but pay the tax

MP writes from Kildare: I heard you on radio last year regarding personal savings. Part of your advice said that you had put a portion of your savings in gold. From memory you said you used an Australian company.  Would you please provide the contact details of this firm? Are there any issues relating to taxation if capital gains are made? How can payment be made? * Euro Bank credit transfer, credit card, cheque?

The Perth Mint, the gold depository for the Bank of Western Australia (www.perthmint.com.au/investment_certificate.aspx) sells allocated and unallocated gold and silver certificates to investors. Their European agent is the Dublin/London gold bullion dealers Goldcore and payments are made, if I recall, when my husband and I bought our certificates in 2006, by electronic bank transfer.  Under the Perth Mint certificate programme, the precious metals, mined in Australia, are kept at the Mint in your name (as allocated metal) or in a pooled fund to which you belong if unallocated. Certificates are a cost effective way of owning and storing gold and silver, rather than buying physical gold which includes a premium per ounce, delivery and insurance costs.

The sale of any asset attracts a capital gain tax of 25% in this country, and you are obliged to file a tax return and pay your tax on any gain by 15 December each year if the disposal takes place between 1 January 1 and 30 November and by January 15 if the disposal occurs in December.  

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Flat solution

AR writes from Dublin:  I have a two bed apartment in Dublin which I bought for €275,000 in 2004 with a €30,000 downpayment.  It has been valued at no more than €200,000, but my sister, who has been living with me says she is willing to take over my mortgage balance, which is now about €235,000.  She will have a tenant to help make her repayments.  The problem is that my lender has just informed us that they will not (cannot?) lend for an apartment, even though they said they would in November. I/we have never missed a mortgage payment, my sister has a good job, some savings which she could use as a downpayment on her own mortgage and she has a good tenant lined up who also has a good job.  Can you recommend a bank that will lend to her?  I have a new job in the UK lined up and am getting a little desperate.

Banks are increasingly reluctant to lend for apartment purchases because of the huge overhang of unsold properties around the country and the fact that so many are in negative equity – yours included.  With prices still falling – about 15% lower on average in 2010 according to the latest Daft.ie house price report and no guarantee that they will bottom out anytime soon, their reluctance to lend is understandable.

You don’t give much information about your mortgage but from the outstanding balance you quote I suspect you are on a very long repayment term and may not have a tracker rate.  Mortgage advisor Karl Deeter of Irish Mortgage Brokers says it could be difficult for your sister to get a better finance deal. Since you will be taking a loss to whomever you sell this property, he suggests that if your sister is happy to take over the apartment, you might consider circumventing the banks altogether: instead of legally transferring the deed, set up a tenancy in common agreement with her your sister to take over the repayments on the existing mortgage, ideally with her paying you some of her savings as a ‘downpayment’. 

Defacto ownership of the property can be transferred slowly from you to her with an annual, tax-free capital gift worth the equivalent of €3,000 per annum, says Deeter, represented by slivers of the apartment – with the balance of ownership left to her in your will.  If she wants to sells the apartment some day, you can come to an agreement with her over your share of the sale, based on how much capital you both now own. Speak to a solicitor about how this private arrangement should be set up and be clear about the tax implications should she unexpectedly inherit the property.

The risk to you in this arrangement, says Deeter, is that your credit record could be affected if your sister doesn’t keep up repayments, but without a lender or a separate cash buyer for the property on the horizon, this might be the cheapest and most suitable arrangement if you really want to be shot of the property.

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Insurance options

MMcC writes from Dublin: After last week’s news about the VHI price hikes and how the other companies will also probably be raising their rates this year I went onto the HIA website (I couldn’t contact VHI directly) to try and find out what the corporate equivalent of Plan B Options is and the benefits.  Frankly, if was very confusing. 

Last week the VHI’s website and Health Insurance Authority comparison website (www.hia.ie) were very busy, as were all the customer help-lines, including those at Quinn and Aviva. With over 200 different insurance plans available and lots of subtle differences – especially about pre-existing medical conditions and the cost of child membership - it isn’t easy to shop around which is where a good, fee based advisor comes in. In my opinion, the three, best informed health insurance advisors in the country are consultants Aongus Loughlin at Towers Watson and Kevin Kinsella at Mercer who deal with corporate clients and Dermott Goode of healthinsurancesavings.ie who deals with both corporate and individual clients.

According to Goode, the corporate equivalent of VHI’s popular Plan B and Plan B Options, which are going up by as much as 45% in February is Company Plan Plus Level One which will cost €805 for an individual instead of the February renewal price €1,430.  The corporate plan equivalent for Quinn’s popular Essential Plus Plan is Company Care which costs €785 instead of €995 while the corporate equivalent of Aviva’s Level 2 Hospital Plan is Business Plan Extra which costs €799 instead of €825.

<!--StartFragment-->Inherited house has the potential to split the family

AG writes from Co Galway:  We are in the middle of a family dispute over a will. Three of us have inherited a property from an elderly uncle who died in October.  My husband and I believe it should be sold at whatever the market value is in order to get whatever money it produces. My two brothers want to hold onto it for when “the market recovers”.  It is a 1950s bungalow on just over a quarter of an acre but the location is not great – on a relatively busy road on the way out of the town – and it is not in great condition. Between it having to be repainted and redecorated at the very least, and the inevitable repairs and then property taxes being introduced, I think we should just sell it. I’d appreciate your view about where the property market is going and also, will the lower inheritance tax-free amount that was announced in the budget apply to us, or the 2010 thresholds? 

Given how far property prices have already fallen – perhaps as much as 50% - from their peak in 2007, I think it will be some time before you and your brothers see anything like those levels again.  If and when the bottom is reached, prices will probably bump along that bottom for a few years and then only start to rise in line with inflation.  That is the usual pattern after a property bubble bursts. You are right to be concerned about upkeep and taxes but if you are unwilling to wait for the market to recover and don’t want to keep shelling out money on this unoccupied property, you and your brothers should at least consider renting it out to meet the ongoing costs.  If that doesn’t happen, you could always insist that they buy out your one-third share at the current market price. If they don’t cooperate, you may have to seek the assistance of your solicitor in persuading them, with all the negative family consequences such action might generate.  
 
Meanwhile, the Revenue will be looking for their share of your inheritance, whether it is sold or kept until the market turns. Any inheritance or gift received (on the date of death) in the previous 12 months to the end of August must be included in a pay and file Capital Acquisition Tax return by 31 October. You and your brothers have until 31 October 2011 to fill out your Form IT38 to the Revenue and pay the appropriate tax.  The 2010 CAT tax-free threshold for Group B (which includes uncles, nieces and nephews) of €41,481 will apply in your case.  Any amount over that sum is subject to tax of 25%.  If, for example, the property has a market value of say, €200,000, the taxable balance of €75,557, divided by three means that you will each have to pay 25% tax on €25,185 or €6,296.  Check with your solicitor or tax advisor about what expenses and costs can be deducted from this CAT bill.

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Devaluation derby 

CMcC writes from Cork: I read with interest your column in the Sunday Times in the past two weeks regarding the handling of debts / mortgages in the event of a return by Ireland to the punt or devalued euro and my question addresses the other side of the story i.e. savings. If I had €1,000 in a savings account with an Irish bank or post office and Ireland was to return to the punt valued at say 0.90 pence would my savings then be worth: a) 1,000 euro, b) 900 euro or c) 1,000 punts? Alternatively if my €1,000 euro were with a bank in Germany / France or Holland what would be the outcome? Or finally if my €1,000 were with a "foreign" bank here in Ireland e.g. Investec / RaboDirect / Ing what would happen? I realise that it is always difficult to say with certainty what will happen in these kind of hypothetical situations but I would be very interested to hear your opinion on the above points.

This question of what happens to our euro if Ireland leaves the eurozone has become a national obsession – and quite right too since there is great uncertainty about what will happen to the highly indebted countries of the eurozone.  In the case of savings, there is a view that if we were to revert to the punt, the punt would be worth less than the euro.  No one knows what level of devaluation would apply, but if, as you suggest your €1,000 was converted to punts at par, with the punt then devalued by 10%, your new punt savings would then be worth £900. The real question is not so much what the devaluation of the new currency would be against the euro, but what the break value from the euro would be.  When we joined the euro back in 2002, every punt was valued as 1.27 euro.  If we were to break from the euro, would the reverse be the case – that is, would every €1 euro revert to being a new Irish punt that would have a value to the euro of 0.79 cent?
 
Finally, no one, even in the foreign banks that operate here, has been able to come up with the definitive answer about what would happen to euro held in non-Irish banks (that are also outside the remit of the Central Bank of Ireland), or even the ones, like NIB and Nationwide UK, whose parents are based in non-eurozone countries. Would your euro remain euro, or would they be automatically converted to the new Irish currency, which may or may not be devalued?  The only way you can mitigate against any such scenarios is not to leave all your savings in euro, or in Irish-owned banks, or entirely in Ireland or entirely in the eurozone. If you are worried, speak to a good, fee-based advisor about all your options. 

Readers who would like Jill to organise a personal finance seminar for their group or organisation this year, can contact her at jill@jillkerby.ie for more information about topics, venues and cost.  Sandra Gannon, the TAB Guide co-author and tax expert is also available during the seminars to answer individual tax questions. 

WILL OUR HEALTH INSURANCE PLAN STILL OPERATE IN CANADA?

PR writes from Wicklow:  We are moving to Canada at the end of January. My husband was offered a transfer to a partner company of the one he works for here.  We were told it could be up to six or eight weeks before we can be registered for the Canadian medicare system.  Before then, will our Quinn Health Insurance plan still be in force. Someone told me that if they know you are emigrating they cancel your contract immediately. I was hoping you could tell me before I contact them.  Also, we each have life insurance policies (with Irish Life).  Are these still OK if we keep making the payment every month. I am 32 and my husband is 35. We have three children.

According to the Canadian Immigration Service, there is a three month waiting period in the provinces of British Columbia, Ontario, Quebec and New Brunswick before new immigrants with permanent residence status can become eligible for Canada Medicare. The healthcare system in Canada is operated by individual provinces, which operate different rules, but wherever you live you will need to immediately apply for insurance cards for everyone and register with a family medical practitioner. Temporary health insurance can be purchased from Canadian insurance providers and the Immigration Service will even pay for the cover for those immigrants who cannot afford to pay the private premiums. 

Temporary insurance is important since your Quinn health insurance policy is only valid if you are a resident of the Republic of Ireland, says health insurance advisor Dermott Goode (www.healthinsurancesavings.ie).  The international travel cover in your policy is also restricted to medical emergencies only during short stays abroad and membership of a scheme will end immediately if the member stops living in Ireland for more than six months per calendar year” said a company spokesperson.

 “Strictly speaking your readers should cancel their policy when they leave Ireland and claim any pro-rata refund if they have paid up to their renewal date.” Goode said that temporary international health insurance can be purchased here from the likes of BUPA International, VHI, AXA or Allianz, but you should compare the price of these policies with the Canadian ones.

As for your life insurance policies, you can keep your Irish policies but all benefits would be paid tax-free in euro, says Irish Life but there could unfavourable tax implications in Canada so you need to check with a Canadian tax advisor.

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New Currency Debt 

HO’D writes from Dublin:  You mentioned in your column last week that if Ireland had a different currency to the euro, mortgages would be valued at the euro equivalent of the new currency at the time of the split. I wondered about this as inflation over time normally reduces the real value of debt, the pound paid back is worth less than the pound borrowed. Also what if the euro was retained for the "lesser" countries and valued much less than the ‘super euro’ of the richer countries. Would the mortgage now be valued at the super euro value at the time of the split?

Inflation always eats away at the value of debt (and savings), but it works regardless of the currency.    This question of what existing euro debt would be worth if Ireland left the euro and switched to a new, devalued currency against the euro, is a different matter. If we owed another euro country €100 million, but left the euro and reverted to a punt currency, whose value was set at say, 20% less than the euro, it would cost us the equivalent of 120 million new punts to repay the €100 million owed.  The only way we could pay them less is if they forgave us a portion of our original debt. 

If the eurozone broke into two new zones of richer and poorer countries, we could presumably continue to pay the other countries in our zone with whatever value euro we assumed, but if it was worth less than the other, richer zone’s euro, the final bill to them would be higher.   Since most Irish mortgage lenders had to borrow from the rich eurozone members in order to sell their homeloans, it could be presumed that such personal debt would cost more if it was being repaid in the devalued second tier euro currency. 

Many people question whether our huge state and personal debts can ever be repaid, and suggest instead that, aside from a new currency, what this country and many individuals also need is a large serving of debt forgiveness.

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COVER FOR CHILDREN 

CD writes from Waterford: Myself and my husband are looking for some advice regarding savings that we started in the credit union for our children, a 16 yr old and an 11 yr old. They have savings of  €4,500 and €3,500 respectively. We are considering taking most of their money out of the credit union and putting it somewhere "safer".  We are worried that Ireland will default and we will leave the euro, thus devaluing their savings. We were thinking of moving it to Rabo Direct or the Post Office, we just don’t know what to do for the best.

The security of your savings is important, but unless you are worried about the solvency of your credit union, you should keep in mind that your €8,000 falls under the €100,000 bank deposit guarantee, which also applies to credit unions. Post Office savings bonds and certificates are entirely State guaranteed and DIRT free.

The Dutch bank, RaboDirect is certainly one of the safest banks in Ireland, but it is not clear whether all deposits will remain in euro or convert to a new Irish currency in the event that Ireland did leave the eurozone.  A spokesperson for Rabo said, “        .

 If you need access to this money anytime soon, the cost of converting the children’s savings into a non-euro currency in a bank, which would protect them if we left the euro, may not be worth doing. Foreign currency accounts often have minimum deposit amounts for one thing, and can carry exchange costs and other charges. All paper currencies are at risk of devaluation. As a longer term hedge against both that and inflation, you could consider switching some of the children’s savings into gold or silver – real money – or another tangible asset - some people opt for oil shares, others a piece of art or an antique - as a hedge against both the risk of devaluation and inflation.