Jill Kerby

 

PAY YOUR TAX BY THE DEADLINE, BUT DON’T MISS OUT ON TAX RELIEFS 

 

This could be the last tax year that any of us will be able to claim as varied – and valuable – collection of tax reliefs and allowances. The Minister for Finance may have made it clear that he has no intention of increasing income tax any further, but I don’t recall hearing him say the same about capital taxes or VAT or that the long list of tax allowances and reliefs will be preserved.   

 

In fact, over 200 tax-breaks were listed by both the Taxation on Commission report and the McCarthy, ‘An Bord Snip’ report for cutting, and if it comes down to ‘no new income taxes’ at the expense of tax relief for service charges, trade union subs, the Rent-a-Room scheme, benefit-in-kind, tax relief on pension contributions and any tax reliefs to do with property, other than an outright tax on our houses, we should probably prepare ourselves for the worse on Budget Day and be grateful for any tax breaks that are left untouched. 

 

Since October 31st, the tax and file deadline, is a Saturday this year, anyone who is self-employed, has earnings outside of PAYE, own a rental property, has sold shares or another asset for a gain only has until the close of business this Friday if you are filing your returns by hard copy or until November 16th if you are filing by the Revenue’s excellent on-line service ROS (see www.ros.ie).  Since it can take eight working days to get registered with ROS, you should do so now if you are not able to file by this Friday. 

 

Many of us know people who run their own business as sole traders or self-employed agents or who own a buy-to-let property. But I also have a friend, a primary school teacher, who for many years has given cookery lessons in her home two nights a week during about six months of the year, an in a good year earns another €6,000 from this job.  

 

Another person I know, who is a kitchen fitter (or was), has a small, part-time business repairing furniture and making beautiful willow Moses baskets that he sells on-line.  He too must fill out their return for 2008 and pay their balance of tax for 2008, then pay preliminary tax for 2009.   If you are unable to work out your tax liability yourself – the ROS site is very helpful in providing step-by-step on how to fill in the form.  Or you can contact a tax advisor to help you do the paperwork.  Late filing is subject to steep penalties – up to 10% of your tax bill if you are late by two months plus a monthly interest penalty of 8% thereafter.  “You are also more likely to trigger an audit if you are late in filing or paying your tax,” says tax advisor Sandra Gannon of TAB Taxation Advisors (www.tab.ie) and co-author of the TAB Guide to Pensions Money and Tax (with yours truly.)  “This is especially the case if you have always filed on time before.”

 

Aside from paying your tax on October 31st (or November 16th) this is also the deadline for claiming your tax reliefs, whether you are a PAYE earner or are self-employed.  

 

The biggest tax breaks continue to be for the contributions you’ve made into business expansion schemes, any remaining property investment schemes you are already invested in, and of course, personal pension plans or PRSAs and AVC top ups to occupational pensions. 

 

Anyone who is not on course to achieve a pension worth two thirds of final income at retirement (up to a new income limit of €150,000) can make contributions that can attract either standard or marginal rate of tax and PRSI contributions.  Age limits apply – the older you are the greater percentage of your salary you can make into your pension or AVC, but this is a hugely valuable tax break for higher rate taxpayers:  instead of paying €100 into the retirement fund, the tax relief means it will cost just €54 when PRSI is factored in. 

 

Since time is running out, you will need to move quickly to choose which approved pension fund or PRSA that best suits your needs and risk profile.  Advisors and life companies admit that those workers who are buying or topping up their pensions are opting this year for safer cash or bond funds which are more secure but younger workers should be investing for the long term – in growth areas like alternative energy, commodities, emerging markets as well as strong consumer durable shares like food companies, pharmaceuticals and new technology sectors. 

 

While they last, we should also be claiming for exemptions and allowances such as those that are available to qualifying artists, ex-spouses paying maintenance, workers with foreign earnings, working students (or their parents) paying third level fees, charity donors, tenants paying private accommodation and any of us who have incurred dental and medical expenses not covered by private health insurance, have made charitable donations, etc.  The full list of exemptions and allowances are also listed on the Revenue’s website at www.revenue.ie .

 

Finally, if you haven’t been collecting your tax breaks you can only go back four years for a refund.  But don’t procrastinate another year…they may be gone if the worse happens next December. 

 

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BC writes from Dublin: In your column "A Question of Money" under the heading Landlord's Levies you stated that in making a tax return, allowances include the interest paid on your borrowings. I was of the understanding that rented properties are excluded from these tax exemptions i.e. claiming interest on borrowings only applies to one's residential home. I'd very much appreciate if you could clarify this point for me as I have a rented property and have never claimed interest.

According to the Revenue, as a landlord you are entitled to claim “for interest paid on loans to purchase, improve or repair a residential premises” in order to offset the income tax you are obliged to pay on the rent you earn. As a result of the April mini-budget, however, only 75% of the interest relief on borrowings can be claimed from this year, and not the usual 100%. Also, you can only go back four years to collect your unclaimed relief on all your qualifying expenses.

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OS writes from Dublin:  I have just received my redundancy money and have about €70,000 for deposit. This will be our nest egg for the future. Having read the about the Irish banks instability, which are now the safest banks to lodge this money and still get a reasonable return percentage wise, without having to leave it on deposit the bank for a long period. 

All six Irish owned Irish banks (and the Post Office and PostBank) carry a 100% guarantee on deposits until the end of next September.  Other retail banks (and credit unions) come under the €100,000 deposit guarantee scheme, as well as, in some overseas banks, their own government deposit guarantee schemes.  These non-Irish banks (and An Post and PostBank) do not offer the higher risk premiums that the Irish ones do for the simple reason that they are not insolvent or in receipt of government bail-outs. An Post and Postbank have no debt liabilities; the Dutch-based RaboDirect is the only triple A rated bank operating here; the Danish-based NIB and the UK-based Leeds and Nationwide UK (Ireland) building societies are profitable and have not been bailed out by their government. You should be seeking a safe, secure return not just ON your money, but OF your money. 

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NG writes from Dublin:  I moved to Ireland in March 2007 and I commenced renting a property (with a tenancy agreement confirming payment of €1,400 - one month’s rent and deposit after which I paid €700 a month. in July, 2007 I moved to another property. The landlady gave me just a hand written note confirming payment of €2,100 for one month’s rent and deposit and for a year I paid €1,050 a month. When I moved into my current property in August 2009 I was informed that I could claim rent tax relief. The problem is that I paid my previous landlord/Landlady via bank standing order, I never asked for a receipt but I have bank statements to prove payment and I never had their PPS no’s because I wasn’t aware of the Irish tax laws. (I am a UK citizen).  Can I still claim back these rent tax relief?

 

You certainly can claim back four years worth of rental relief in the form of a tax credit from the Revenue.  I am told that your bank statements, deposit receipts, and rental contracts will be sufficient proof of your tenancy.  Your landlords should have been registered with the Irish Tenancy Board.  As a single person under age under 55 you are entitled to a tax credit of €400 for 2008 and 2009 or to €800 if you are a widowed person.  Married couples can claim €800.  The tax credits double if you are over 55.  In 2007 the tax credit amounted to €360 for a single person under 55, and in 2006, €330.  (The amount, again, is double for widow(er)s and couples under 55 and twice as much again for claimants over 55. You can download a claim form at http://www.revenue.ie/en/tax/it/credits/rent-credit.html  and make your claim on-line if you wish.

 

 

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SS writes from Dublin: I am a recent Masters graduate and am currently unemployed. I have a €21,000 student loan built up over the past four years. The bank have agreed to restructure the loan but are still taking €86, (almost half) from my benefit payment every week.  The interest rate they are charging is 11.1%. Can you advise on how best to service this loan while maintaining my other commitments, child maintenance, rent, bills etc.

 

It’s clear from your letter that you are not happy with the deal you’ve cut with your lender.  Have you considered visiting your local MABS office to see if they could help you get even better repayment terms, or to see if it is possible to transfer your loan to your local credit union, which may offer better repayment terms?  Also, have you secured all your benefit entitlements?  I’m assuming that in addition to your jobseeker’s allowance (if that is your benefit payment) you should be receiving the monthly child benefit of €166 (or €38.30 per week) and the child dependent increase of €26 a week.  Are you also receiving supplementary rent allowance? A medical card? Your local social welfare office or citizens information centre can help you apply for all these welfare entitlements. Is your family in any position to help you out financially? I’m afraid the only way you are going to be able to pay off this huge debt over a reasonable amount of time – under the existing repayment deal your will be repaying this loan for the next 61 years - is by securing a full-time employment.  I’m sure you’re already doing the best you can on this front, so I wish you luck.  

 

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Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/oMoney Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

 

 

 

 

 

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Matthew Elderfield, the newly appointed Head of Financial Supervision at the newly integrated Central Bank of Ireland, is a man who must really enjoy the idea of a ‘challenging’ job.  

 

 

I’m trying to resist describing him as the Brendan Drumm equivalent for our disfunctional financial services regulatory system – you might remember that Professor Drumm was brought in to reform the health service - but at least Mr Elderfield, who spent eight years in the UK’s Financial Services Authority before his job as the head of the Bermuda Monetary Authority, has a solid track record in the business of actually regulating and supervising, as opposed to just working in finance (or medicine), though he’s done that too. 

 

He’ll have his hands full for some time in just trying to work out how the excesses and abuses that helped bring down our banking system occurred, but he has another job to do too – to ensure that the abuse that consumers have put up with, both from the financial institutions and, by default, from the regulator also comes to an end. 

 

His ex-colleagues in Britain are coming to grips with this as well. Last week, in their latest Mortgage Market Review the FSA has set out a new protocol for mortgage borrowing, all part of a process of barn door shutting after the horses have bolted, but necessary nevertheless. 

 

Since Mr Elderfield is a newcomer to our depressed shores, and is entering a viper’s nest of political intrigue, cronyism, blame-passing, incestuous relationships between regulator and regulated, perhaps it would be helpful for him if I make a few suggestions for his priority list of reforms on the consumer side of his taskbook:

 

I give information seminars every year at the popular Over 50s Shows that are held around the country.  Between the credit crisis of last year and the establishment of Nama, elderly savers are still hugely fearful of the banks’ ability to not just pay them a decent deposit rate but to also ensure the safety of their money. This is especially the case for the thousands of older people – many of them ex-bank employees - who have lost a substantial part of their life savings when their Irish bank shares collapsed and Anglo Irish Bank was nationalized.  You need to publicly address this matter, and long before the September 2010 deadline regarding the 100% deposit guarantee runs out. Vulnerable, anxious pensioners just want an honest answer about whether their deposit funds absolutely safe or not?  They’re not stupid.  They know that we are borrowing nearly €500 million a week to pay state salaries and keep the Taoiseach’s limo filled up, so where exactly is the money to repay deposit funds if a bank were subject to another run?

 

 

Get rid of commission remuneration. The British IFA has already stated that it plans to phase out commission sales for investment products by 2012 to stop the missellingof unsuitable, expensive life assurance and investment-based products, including mortgages.  Commissions are what drive stock brokers, mortgage and life and pensions brokers and other so-called independent financial advisors to push funds with the highest remuneration, regardless of the suitability of the product or the investment risk.  Your own Ombudsman publishes quarterly reports full of commission-related horror stories which you can download onto your Blackberry www.financialombudsman.ie that you can check out between now and January when you take up your job. 

 

While you’re at it, perhaps you could also reassure depositors that under your watch, Irish banks will be required to inform depositors with substantial sums of money in bog standard 0.5% demand deposit accounts that their bank in fact offers higher yielding returns in other instant access or fixed rate accounts.  These inertia accounts are a huge source of revenue to banks and a source of great loss to their elderly customers in particular and it’s just a slimy way to do business that was outlawed – perhaps you recall - in the UK many years ago.

 

There’s a lot to be done on the mortgage and debt front too.  You might start by issuing the lenders with a new protocol in dealing with arrears and negative equity. You need to tell them to lay off imposing penal interest and cash penalties on people in arrears and formalize the protocol for negotiating new interest payments or extended terms. 

 

Another barn door that needs to be closed is the selling of 100% loans, 40 year mortgage terms to anyone over the age of 25 and self-service or ‘liar’s loans’, another irresponsible and reckless lending practice that your old friends in London just announced is to be abolished in the UK. Despite what your new staff here in Dublin will tell you, there was never the degree of stress testing of mortgage loans that there should have been.  We may never have had the degree of sub-prime lending that occurred in the US or Britain, but the widespread selling of huge loans with no money down required and endless repayment terms was our home grown version. Now, of course, so many of these young mortgage debtors can barely meet their interest payments, let alone see a time when the capital will be repaid. 

 

This is just the tip of toxic iceberg. I haven’t even started on stockbroking practices or the missellingthat goes on in insurances companies.  But good luck in the new job…you’re going to need it.   

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SHOULD THE STATE NAMA-IZE OUR TOXIC MORTGAGE DEBT?

 

 

A week after the government finally, inexorably, committed us to the burden of NAMA, the National Asset Management Agency, it might be a good idea for the rest of us to look at the flip side of this enormous commercial property debt coin: our private residential property debt. 

 

It is estimated that: 

 

 Of the 1.7 million households in this country, just over a third, or 600,000 are owner-occupiers with mortgages.

 

Of this group, at least 116,000, according to the ESRI are already in negative equity. This figure could rise to nearly 200,000 by the end of 2010.

 

Last July the Permanent TSB, with 20% of the Irish mortgage market, revealed that 6,000 of its mortgage customers are in 90 day arrears. Nationally, this suggests c30,000 mortgage holders in arrears.

 

The typical mortgage value for first time buyers by late 2007, early 2008 was c€250,000, according to the Irish Bankers Federation and c€276,000 for people moving house and €263,000 for re-mortgagers.

 

 According to Daft.ie economist, Ronan Lyons, as many as 725,000 properties bought since 2004 million are worth less than their last purchase price”. 

 

The total outstanding mortgage debt to the end of August 2009, (based on August ’09 Central Bank stats is €109.6 billion.

 

 Seven years ago, in 2002, total outstanding residential mortgages were worth ‘only’ about €40 billion.

 

Residential mortgage lending has collapsed this year, and the outstanding mortgage bill has been steadily falling, from a high of nearly €124.4 billion in March 2008 to the August total of just over €109.6 billion. But this still means that, when spread over all those 600,000 mortgaged properties, the average outstanding property debt per mortgaged household now amounts to €182,696.  

 

 

(This figures doesn’t include other personal loans or credit card debt or these households’ share of the national debt, which now exceeds €70 billion net, and excludes the €77 billion Nama liability.) 

 

 

With half of all the mortgages sold to first time buyers in the two years to early 2008 accounted for by 100% loans, this is a group that is at the greatest risk of losing their homes. 

 

 

Over the next few months, the impact of the December budget on people’s incomes and the fact that a considerable number of the 95,000 people who lost their jobs between October 2008 and January 2009 will be switched from Jobseeker’s Benefit to means-tested Jobseeker’s Allowance, could result in a surge in arrears and mortgage defaults. 

 

 

If the government decides not to allow this next wave of the property debt tsunami to take its natural course in the form of rising arrears and defaults, and they intervene instead, a NAMA-Lite plan might include the following combination of options: 

 

 

A new, extended protocol for the banks to deal with arrears, that includes interest only payments, extended repayment terms, abolishing arrears-related penalties, and that renegotiates fixed rate contracts in order to either reduce, forego or defer the breakage penalties. 

 

A facility that allows a mortgage holder with negative equity(NE) to carry the NE with them into another mortgage (say, if they must sell their property in order to take up employment in another Irish location) or have any NE balance, post-sale, refinanced as a special long term, low interest loan. 

 

The introduction of a shared equity scheme with the lender and/or government/local authority that allows the mortgage holder who is incapable of repaying their mortgage (due to unemployment and negative equity) to remain in their property as an owner/tenant or as a tenant with the long term aim of full ownership. This could avoid large-scale foreclosure and like NAMA, Mark I would probably assume a market recovery by 2020. 

 

The preferred solution for indebted mortgage holders, of course, is the writing down by the lender and/or government of a large percentage of their outstanding, unpayable capital debt. 

 

 

Should this happen – and it is unlikely - it would further increase the national/bank’s debt, possibly our cost of borrowing abroad and raise the risk of ‘moral hazard’ among some struggling mortgage payers who may opt to default on their own loans. 

 

 

Some commentators suggest that a modest programme of government intervention, like forcing the banks to ease up on the repayment terms for existing mortgage holders, could bring some confidence back and help stabilize market prices.

 

 

Others (like me) think it might cause the lenders to raise their fees and charges and maybe even their interest rates (or, on the deposit side, to reduce their rates) to pay for the costs of widespread loan refinancing or capital write downs.  It might also cause many other borrowers who are coping (just about) with their normal repayment schedule, to demand a similar deal, depriving the lender of much needed capital. Higher interest rates mean lower property prices…and the danger of higher arrears.  

 

 

The outcome of this great property bubble collapse was always going to be brutal and costly. Government intervention always has unintended consequences.  

 

 

What we have to hope is that whatever course is taken, it does the least amount of harm. 

 

 

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Is the Great Recession really over in the US, France and Germany?

 

Last week at a seminar in Dublin hosted by the on-line bank RaboDirect to launch three new ‘sustainable’ energy, water and climate funds, I felt obliged to pour a little cold water on the proceedings.

 

President Obama and Ben Bernanke, the head of the US Federal Reserve, certainly seem to think the recession is over, though Mr Bernanke, who was speaking on the day of the first anniversary of the Lehman Bros collapse, cautioned that it was going to be a slow recovery.  

 

The Zurich-based Sustainable Asset Management (SAM) managers who were laying their wares before the RaboDirect audience last week didn’t have any particular views about the merits of the end of the recession, but they certainly believe their funds will be beneficiaries if there is a pick-up in industrial production and especially the capital financing that was very short on the ground last year. 

 

With unemployment still rising in all three countries as well as budget deficits, it strikes me that what is behind the recovery has more to do with the billions that’s  been poured into the financial, construction and motor sectors than because consumers earnings are going up or that they feel confident to start spending again.  

 

Stock market performance is no reflection of the reality of ordinary people’s lives, and this rally is no exception. 

 

That said, there are plenty of people with cash in RaboBank who are wondering what to do with their money and are eager for glimmers of hope.  These energy, water and climate funds have produced impressive performance track records since they were launched (SAM itself has specialised in these sectors since 1995, long before ‘green’ investing became fashionable) and there’s no question that the demand for clean, accessible water and energy is genuine. 

 

The end of the Great Recession is certainly good news for existing SAM investors but I think I might just stay on the sidelines for a little while longer.   However sustainable these funds may be over the longer term, there seems to be a growing number of sceptics – like me - who don’t share President Obama and Mr Bernanke’s confidence in the sustainability of this seven month stock market rally.  

 

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The Comptroller and Auditor General was very unfair to single out MABS, the money advice and budgeting service for inefficiency in his annual report.  He accused them of only dealing with two cases a week for their €16.2 million annual budget. 

 

In fact, MABS advisors each take on at least two ‘new’ clients every week in addition to all the active files already on their desks. Last year, 16,600 people sought help from MABS; that figure is already up 30% this year with only 19 more advisors on the payroll of 252, and not all of those new posts are full-time. 

 

The Auditor General rightly points out that there isn’t sufficient date about how quickly cases are cleared or their outcome, but that’s an administration issue for the Department of Social and Family Affairs to address.   

 

To suggest that each of the 271 MABS advisors – there are also 500 volunteers - are slacking on the job is a misrepresentation of one public service that has genuinely been paying its way for the past 17 years. 

 

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Does anyone in the credit union movement know exactly how much it cost to send 80 Irish delegates to the World Council of Credit Unions’ annual congress in Barcelona this summer?  I’m just wondering because I’ve just read a report about the event in the latest edition of the League of Credit Union’s magazine ‘Focus’ and it doesn’t mention the cost either.   Assuming that all the accompanying spouses paid their own way, even a bill of €2,000 per delegate, or €160,000 seems a little excessive given the financial difficulties being experienced by so many Irish credit unions. 

 

According to the 2008 Registrar for the Credit Union’s report, 133 of the 419 CUs had high enough levels of arrears or rescheduled loans to trigger investigations last year, a process that is on-going.  Nearly one in four were instructed to stop advancing any new loans for periods “in excess of five years” until they return to compliance with the limits set out in the [Credit Union] Act.  Only about half of credit unions paid dividends in 2008, a situation I’m told that hasn’t improved this year, and 76 were told to reduce their dividends once their books were examined. 

 

 

As the travel expense records of our TDs and pubic servants now show, there’s a propensity in this country for some people in positions of trust to think nothing of spending money that isn’t theirs on foreign junkets that don’t really contribute a whole lot to the betterment of their department, agency or constituents. 

 

I’m sure all credit union members would love to see a comprehensive list of advancements and good practices that the League members brought home and implemented after last year’s international congress in Hong Kong and the one in Barcelona.   One can only imagine the credit management skills delegates will pick up in 2010 in Las Vegas. 

 

But perhaps before the travel budgets are agreed for next year, they might want to read another article in the latest Focus magazine by Mandy Johnson, the former government press secretary who is now the League’s new head of communications, management and public relations. She notes that “we still have a significant number of credit unions…who are not yet using e-mail” and continue to conduct all communications with the League “in hard copy”. 

 

Apart from being very convenient for booking cheap airline tickets, perhaps Ms Johnson will let the members know that joining the internet is also a remarkably cost efficient way to keep in touch with worldwide credit union developments. 

 

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MS writes to Dublin: I was self-employed for 15 years. I ran a retail shop and employed 4 people. I paid my taxes (VAT, PRSI, income etc...) in a timely manner on a yearly basis. Unfortunately I had to close my business last year as it was no longer viable. I am married to a PAYE employee and am in my mid-thirties. Am I entitled to any social assistance (as of today) and/or a state pension when I reach pension age?

Unfortunately, the Class S level of PRSI that you paid as a self-employed, sole trader (or perhaps as a company director) only entitles you to receive a very limited number of benefits, the most significant of which are a contributory state pension or widow’s pension and maternity benefit. This assumes that you have sufficient PRSI contributions.  You may be entitled to Jobseeker’s Allowance, but this payment is means tested and is reduced on a euro for euro basis against your spouse’s income, based on a quite complicated formula which you can check out on the government’s information website, www.citizensinformation.ie .  Depending on your total income, your local social welfare or citizen’s advice centre will be able to inform you about any other supplementary welfare benefits to which you, or your family, may be entitled.  

 

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RO’C writes from County Dublin: I am retiring on the 31st October 2009, aged 61, with 39 years’ continuous service in the public sector.  I have been advised that I should take out maximum AVC single premium contributions for the tax years 2008 and 2009 to best take advantage of existing tax and PRSI reliefs. I am in a position to make the maximum contributions allowable but wonder if there are any pitfalls I should be aware of.  Apart from the mandatory 3% annual amount I must draw down after retirement I don’t feel I will have any need to make substantial withdrawals in the foreseeable future.  However, one never knows and this situation may change.  If I do make an AVC contribution I was thinking of playing safe in the current economic climate and investing in a cash fund - but I’m open to suggestions!

 

 

 

According to Michael Leahy, actuary and CEO of Global Pension Options, a Dublin fee-based pension consultancy, if you have not paid AVCs to date then it is likely that you can get tax relief for contributing to an AVC and get some and maybe all of the money back tax free when you retire in October.  This clearly makes financial sense. If, however, you have contributed AVCs in the past, given the way the public sector scheme works, “any additional AVC contributions that your reader pays will not entitle her to any additional tax free cash.  Instead, the AVC fund will likely end up in an Approved Retirement Fund and she will have to pay tax at her marginal rate on any money withdrawn from the ARF. If her tax rate in retirement is lower than her current tax rate, AVCs generally make good sense even where she has already maximised her tax-free cash sum. But if she ends up paying a similar rate of tax in retirement as she currently pays, be that the basic or higher rate, case for paying AVCs is much more finely balanced.” There is little advantage, he says, in getting 2008/2009 higher tax and PRSI relief on the way in, but paying 2010/2011 etc. tax and PRSI (health levy only) on the income coming out, a tax rate that will probably be even higher than today’s top rate of tax. Also, purchase charges – even on a more secure cash fund - could amount to as much as 5% of the AVC contribution plus a 1% annual fund management charge.  Even if tax rates stay the same as now, says Leahy, “you will have made no major gain. Doing the maths in a case like this is crucial."  Make sure you take genuinely independent advice before you make any final decision. 

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EC writes from Waterford: My husband and I only ever worked in the UK and both of us paid our full national insurance contributions. We are now retired here on UK state and company pensions. Our problem is that our accountant is trying to make us pay the health levy. As I understand it we are not liable for it as we are paid UK pensions.  It took us quite a while, but we now get Irish medical cards on our State Pensions from the UK.  We were entitled to the Irish free medical cards. If we were entitled to medical cards by right then surely we are not liable for the health levy?

A spokesperson for the Department of Social and Family Affairs assured me that any pensioner, whether living on Irish or UK pension income and already receipt of a medical card is not liable for the health levy.  No doubt your accountant can also confirm this with the department.

 

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Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/oMoney Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

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The saga of the ISTC bond sale to retail investors just won’t go away.  Last week, the Financial Regulator fined a Kilkenny financial services provider €12,000 for not keeping proper records regarding his sale of these bonds. But over the past two years, the controversial repackaging and marketing of the ISTC bond by Friends First and its subsequent sale by brokers to retail investors – who lost €43 million when ISTC went into examinership back in 2007 – is still featuring in complaints to the Office of the Financial Ombudsman. 

 

 

There have been various private settlements between clients and the brokers who sold them the Friends First ‘Creative Bond’ and the ‘Creative Step-Up’ investment product, others have been adjudicated on by the Ombudsman.

 

 

And this is where it gets even murkier:  there are now at least two documented cases where the Ombudsman has found in favour of the investor complainant and recommended compensation be paid by the broker who missold the Friends First product, but where the brokers now claim they are unable to pay up, because their own indemnity insurance provider to honour their claim on the grounds that the original produce supplier – ISTC, had gone bust. 

 

 

Both the Department of Finance and the Regulator are aware of this problem.  The question now is, what happens when private indemnity insurance fails?  Does the complainant have to pursue the sales intermediary – by law the only party they are able to pursue and not the product manufacturers - all over again at their own expense through the Courts?  

 

Where’s the justice in that when the Office of the Ombudsman was specifically created to avoid such huge costs to ordinary people who have been financially disadvantaged by the actions of powerful financial institutions, including their mostly-commission paid intermediaries? 

 

 

The Regulator began investigating the ISTC retail bonds last year and the recent case in Kilkenny is just one part of the ongoing operation. Far more significant is the dangerous precedent that might be set if the Regulator does not come up with some method of protecting consumers who have received a favourable financial judgment in such a case.  

 

 

I’m not suggesting for a moment that the exchequer should pick up the tab where the sales agent or even the product producer who has been instructed to pay compensation pleads inability to pay, for whatever reason. 

 

 

At the very least it should be setting up a victim compensation protection scheme, funded by the industry itself, so that whatever happens to the financial circumstances of the industry players, it isn’t the consumer that gets shafted – again. 

 

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Would a UK-style IVA – an individual voluntary agreement for debtors – sort out the growing personal insolvency problem in this country?

 

 

The Greens seem to think so and they’ve convinced their Fianna Fail colleagues to sign up to the idea too in the new Programme for Government.  

 

 

I’m not so sure.  IVAs are a more formal, but still private settling up process between debtors and creditors than the entirely informal (as in, no involvement of the Courts) way it is currently done in this country. Some accountants and insolvency practitioners (who could benefit financially from the more formal IVA) say the IVA is more accountable and provides a fairer outcome for all creditors than the current Irish system, which incidentally, is often brokered by officials from MABS, the free, state run money advice and budgeting service.  Both systems are certainly better than the expensive and inflexible Irish bankruptcy system that has been also been in need of reform and is rarely invoked. 

 

 

If I’m lukewarm about the Green’s proposal for an Irish IVA it’s because aside from introducing formal charges where there have been none, the Greens seem to think it might be the way to address the great wave of mortgage-induced insolvency that is happening. 

 

 

Whatever about allowing unsecured debts to be satisfactorily written down or written off, the IVA process in the UK doesn’t usually deal with secured mortgage debt in the same way as it does unsecured debts like car loans, utility and credit card bills or alimony payments. The debtor seldom gets to walk away from their obligations. 

 

 

No, given how property debt and negative equity is at the heart of our national indebtness, we’re going to have to come up with something more than an IVA process. And we should do it soon. 

 

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Professor Terrence McDonough of NUI Galway is reported as saying that we need a ‘good’ bank to replace the ‘bad’ bank, Nama.  Lots of economists also attending the TASC economic conference last week agreed with him, so here’s a tip on where to find one: the transition year students who’ve accepted AIB’s 2009 ‘Build a Bank Challenge’. 

 

Every year for the last eight years bright, honest, enthusiastic, hardworking, trustworthy young people in secondary schools all over the country set up and run their own bank after being trained (albeit by AIB) not only in money management skills, but “teamwork, customer service and marketing and sales.”  

 

 I’m told that since the programme started, there’s never been a defaulting customer or a case of payment arrears; the young bankers have never issued themselves with director loans, falsified their accounts or even deceived their regulator (again, AIB). They even report…fully accountable profits.

 

With a record like that, forget Nama.  They should replace the ECB.

 

 

 

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YOUR DEBT – YOU REALLY CAN BEAT IT 

 

 

“If this past year has taught us anything, it’s that nothing can be taken for granted anymore.” – MoneyTimes, October 7, 2009.

 

For bankers and developers, politicians and ordinary citizens, 2009 has been a year of great financial uncertainty, change and disappointment as jobs and careers have disappeared and ‘lifestyles’ have suddenly become unaffordable as credit has dried up. 

 

Not everyone has experienced the change the same way of course. A few have managed on savings and a spouse’s income until a new job has come along. Many have packed up and emigrated.  A few have even found unemployment a liberating experience, no longer having to chase an increasing elusive “lifestyle” doing a job they never enjoyed anyway.  

 

Many others have had a much harder time of it for no other reason often than that their outstanding debts are out of their control and out of their realm of repayment and they simply don’t know where to turn or what to do. 

 

Since this column is about personal finance, let’s focus on some of those actions that you may not have considered or would never have contemplated.  Some apply to people who’ve lost their job; others for people still working but with reduced income, debts or negative equity: 

 

Use redundancy settlements to create a credible repayment schedule to present to your bank and other creditors.  Instead of using your redundancy lump sum to pay off a single debt, like a pressing credit card bill, HP payment or even a mortgage arrears, use it as part of a larger process that includes cutting your everyday spending to the bone and then adding your redundancy money to the new schedule of repayments that takes account your reduced income, your essential purchases (like food, heat, light, educating your children) and the need to pay something off every one of your debts. Ideally, all your loans should be switched to interest only payments (or less) over longer payment terms.  Eddie Hobbs’ excellent book, ‘Debt Busters’, gives a number of worked examples. 

 

Rescheduling debt only works if you’ve also slashed your spending, but even people who are still working and in debt should do this. A stubborn credit card bill or car loan will be paid off much faster if the money spent on a monthly TV cable contract, gym membership or on alcohol, cigarettes and takeaways is scrupulously directed at your debt. Set a one year goal…and see how fast is passes.

 

Get a part-time job, no matter how low-paying.  Every euro you pay against your debt gets you closer to financial solvency.  Get help from your local job-centre and citizens information centre; sign up with employment agencies; do some personal advertising around your neighbourhood and town.  E-mail every contact you have with a heart-felt/charming/funny note asking for their help in securing you part-time work – nights, weekends and holidays. 

 

Teenaged and older children should be required to turn over a substantial part of their earnings if a parent is now unemployed.  Encourage part-time jobs and if you have a particularly beautiful baby or toddler, consider signing them up at modelling and talent agencies. My son once did a one-line voice-over for a radio ad (he was at the station by chance) and was sent a €300 cheque a few weeks later by the ad agency.

 

If the bank won’t lend you money to refinance expensive debt at lower interest rates (this is especially important if you have expensive credit card debt), try your local credit union. If they won’t help, approach sympathetic family members. Offer them collateral – your car, jewellery, electronic goods, etc.  With even the top fixed interest rates only offering c3.5% gross, they may be happy to accept a 5% rate (but not expect the repayment on a compounding basis.)

 

 

Sell stuff.  If you are confident your unemployment will be short-lived, simplify your life and start selling unwanted or unneeded personal items – from electrical goods, furniture, CDs, DVDs, books, jewellery, clothes, shoes.  You CAN earn money from e-Bay. If you get good at it, offer to sell stuff for other people for a small fee.  If needs be, sell your car (keep the bike), the boat, jewellery, antiques.  Sell investment policies or shares, your car, even your house (if you can).  

 

Too many people in serious debt hang onto their house for too long, losing out on what equity there might be in it to arrears and legal charges.  Hard as it might be to admit it, IT IS ONLY A HOUSE. Rents are falling and there is a huge selection of good rental properties available. A home is where your family (and your stuff) is; it isn’t the bricks and mortar. 

 

- Stay away from moneylenders.  Swallow your pride. Go to MABS, to your local social welfare officer, to family or friends.  Seek assistance from St Vincent de Paul, your church or other charities. 

 

 

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KO writes: I purchased an apartment in Bulgaria in 2008. However, I was wondering if I could now "cash in" some of my pension fund and pay off the apartment mortgage and then subsequently add the apartment to the pension fund?

 

There is currently no real facility to “cash in” part of one’s pension pre-retirement.  Private pensions can consist of any combination of Occupational Pension Plan, Personal Pension Plan, Personal Retirement Savings Plan (PRSA), Self Invested or Self Administered Pension Trusts and each of these structures may have different retirement benefits options, says Joan Garahy, Managing Director HBCL Investments & Pensions.  Your age, and employment situation – employed or self-employed – determine when you can take retirement benefits, with a PRSA contract probably the most flexible because benefits are available in certain circumstances from age 50.  Anyway, under current pension rules and legislation, selling the property to your pension is prohibited since assets must be held at ‘arms length’ from the scheme member or their relatives.  Garahy suggests that you get independent advice for a definitive answer about your Bulgarian property, but adds that the tax-free part of your matured pension funds can certainly be used to pay off your Bulgarian mortgage. 

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PS writes from Co Offaly: A member of my family has just realised he has a bad credit rating, after being in dispute with a courier company and then a debt collection agency. It started with goods ordered on the internet which were marked COD, the item was left in his post box while he was at work, he never got an invoice, he did receive requests for payment from the debt collection agency, the invoice was paid direct to the courier company. How can he contest the claim of a bad debt on his credit record?

 

To find out that your credit record is impaired – usually by being turned down for a loan or a credit card - can be an awful shock, especially if you have never been refused credit before.  However, before anyone can challenge a bad credit score they must get a written report from the Irish Credit Bureau, which costs €6. This can be done online at www.icb.ie.  As for challenging an unfavourable credit score, according to the ICB, “All lenders must provide an honest and truthful report of your loan repayment pattern. So a Financial Institution is not obliged to change or remove details from your report unless they are inaccurate.” If your relative believes there has been a mistake in recording the way this purchase and repayment was recorded by the debt agency, and that it was just an unfortunate mix-up – they need to write to the debt collection agency and request that they in turn amend the credit report they made to the ICB. Hopefully this will be sufficient to repair the impaired credit score, but if he is still not satisfied at the outcome, they can make a formal complaint to the Office of the Data Protection Commissioner  

 

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JC writes from Dublin: I am a PAYE worker who became a landlord for the first time in January.  I need to file a tax return in October but I'm not sure how to go about doing the accounts up. As I pay tax at the top rate, does that mean I must pay tax on all the rent at that rate? Is there any easy guide to working out any allowances? I would appreciate any advice on this matter.

 

First of all, any return you make this October is for income earned in the 2008 tax year, not 2009. If, as you suggest, you only earned PAYE income in 2008, you will have no liability payment to make on the pay and file deadline. Next October 31st 2010, however, you will have to file and pay for any balance of tax you owe for 2009 and make a payment ‘on account’ for 2010.  However, because there are a number of allowable expenses you can claim against your rental property income, you may end up with a very small tax bill.  The allowances include your insurance costs, including mortgage protection insurance, repairs, cleaning and maintenance costs, and the interest you pay on your borrowings, though that was reduced in the April budget to 75% of the interest paid, not 100%.  The TAB Guides (which I co-author) covers investment property tax allowances and how to fill out a tax return, but you might also want to consult a tax advisor, or even your inspector of taxes, to ensure that you claim all your allowances and pay the correct tax, if any.  This year’s tax deadline might also be a good opportunity to make sure that you are paying the correct amount of PAYE and are claiming all your other tax reliefs and allowances, such as medical and dental expenses, local authority bin charges, trade union fees, uniform allowances where applicable. If you can, you might want to make a pension contribution:  this might be the last year that you will be able to claim top rate tax relief on the contributions. 

 

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Jill Kerby is co-author of the TAB Guide to Money Pensions & Tax 2009 and the TAB Property Guide 2009.  E-mail her at the address below or write c/o Money Matters, The Sunday Times, Fourth Floor, Bishop's Square, Redmond's Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility. money.ireland@sunday-times.ie  

 

 

 

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The average American adult has 13 plastic money cards in their wallet.  We Irish typically have two or three – an ATM, and/or a Laser card and a credit card. 

 

David McWilliams briefly addressed this abundance plastic in the first episode of his new programme “Addicted to Money”. He noted how easy it’s been to access credit over the past 20 years, but how much easier again it has been to build up a level of credit card debt that, along with foreclosed mortgages, could still destabilise the banking sector. 

 

As the latest Central Bank statistics shows, Irish credit card holders have been trying to wean themselves off their credit habit. Compared to July 2008, shoppers have spent €175.6 million less this past July, a downward trend that began with the financial meltdown last autumn.  However, the figures also show a nominal rise in spending compared to last spring and no matter how much extra people seem to be increasing their monthly repayments, the nation’s total outstanding credit card balance since 2008 remains stuck at about €3 billion. 

 

Falling net incomes and rising interest rates, especially on cash withdrawals, isn’t helping, of course, but anyone who is dragging behind them a limpet mine of credit card debt may need to take more drastic measures. 

 

Aside from cutting up the cards, you need to shift this most toxic of leveraged debt to a lower cost personal or credit card loan.  If the bank or credit union isn’t an option, maybe a kindly family member, who’s only earning 2.5% on their savings will take a chance and lend the money at a nice steady 5%. Cancelling the satellite TV contract might be worth doing before you’re forced to sell your car.  

 

As discretionary spending gets thinner on the ground, the greater the distance we should put between ourselves and those thin rectangles of plastic. 

 

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I’m resisting the urge to celebrate the latest surge in the price of gold.  For one thing, the $1,044 an ounce price it reached while I was writing this might have fallen by $30 or $40 dollars by the time you read this.  

 

No one can accurately predict where gold is heading, or the wider asset markets with which gold has moved in tandem lately. Gold, like other commodities, shares and even residential property (in the US and UK) has been affected by the huge amount of government stimulus money that has propped up industries that were too big to fail, like the banks and motor trade.  If the price of gold falls along with the markets – as many commentators predict they will - it should be a buy signal to anyone who doesn’t hold some gold in their pension or in a wider investment portfolio. 

 

Mind you, last week’s price jump was an interesting development in that it was based on speculation in the London Independent that a number of oil trading middle eastern governments, along with the Chinese, Russians, Iranians and French, were plotting to replace the dollar with a new basket of currencies and gold as the preferred oil currency. 

 

They all denied it, but much of this year’s upward price ticks have been attributed to the Chinese government’s growing purchases of physical gold. Recently, the Hong Kong government shifted its gold out of storage in London to a specially built mint near Hong Kong airport; the price jumped the day that was announced too. 

 

The Chinese know that the higher price isn’t really about gold, whose enduring value is not disputed. It’s about the constant devaluation of a piece of paper with ‘dollar’ printed on it. 

 

And if you take a longer term view of your finances like I do, you’ll know the euro isn’t really much better.  

 

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The new Fair Deal for nursing home residents has come too late for my widowed mother-in-law, who spent nearly four years in residential care before she died in 2007. We were very lucky that her excellent care – at a cost of over €50,000 was easily met out of a combination of her pension income and her capital - the bubble-induced proceeds of the sale of her modest home in Cabra.  

 

However, had Fair Deal been around then, the real beneficiaries of the scheme (assuming the fees didn’t suddenly rise) would have been her heirs, who would have inherited an additional €85,000 more than they did receive from her remaining estate. And all because the required contribution – from her income every year and 5% worth of her other asset for a maximum of three years – would have been less than the true market value of her care for those four years. 

 

Fair Deal will be very welcome for those elderly people on their families who do not have sufficient income or resources and who had little choice in the choice of the highest quality care home. 

 

But is Fair Deal …a fair deal for the taxpayer?  With property and share values deflating but medical inflation rising and the state’s weekly borrowing requirement now over €440 million a week, how sustainable is a scheme that limits the state’s clawback to a maximum of 15% of non-income assets, regardless of the market value of those assets?

 

Is this why the Fair Deal FAQ (see www.dohc.ie/issues/fair_deal/faq.pdf?direct=1 ) notes: “While it is hoped that there would be sufficient funding to support everyone, there may be situations where a person’s name must go onto a waiting list until funding becomes available. If this is the case the HSE will notify you when it writes to advise you whether you are eligible for State.”

 

You might want a plan B in place, just in case. 

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