Money Times - November 18 and 24
Posted by Jill Kerby on November 18 2014 @ 09:00
Hi everyone – I will be away the week after next, so please find two weeks worth of columns here – for November 18 and November 25.(The postbag was overflowing with letters – enough for the two weeks.) Hopefully you’ve a little extra space… cheers, Jill
THIS WEEK’S Q&A: SAVINGS, PENSIONS, PROPERTY & MORE
My postbag and inbox are overflowing with your letters and queries. email Savings, mortgages, pensions, stockbroker fees, inheritances – and dental expenses – are among the pressing topics from readers all over the country in my post (and internet) bag. Read on:
Mr L McK writes: I have just spent £3,000 sterling on dental treatment in Newry. Will I be able to claim the dental tax relief?
Yes you can. A qualifying dental treatment attracts tax relief at your standard income tax rate of 20%. It also applies to qualifying medical treatments, which is why many people who do not have health insurance but have savings, or who do not want to wait so long for treatment here decide to go abroad for less expensive treatment and then claim their 20% tax relief. You just have to fill out a Med 1 or Dental form Med 2 and submit it to the Revenue. (See http://www.citizensinformation.ie/en/money_and_tax/tax/income_tax_credits_and_reliefs/taxation_and_medical_expenses.html )
Ms MB writes: Can money be withdrawn from a credit union like it can from a bank at short notice. Is the interest rate lower? Does it remain secret or is it declared to the State like the banks do?
So long as your deposit is not secured against a loan, you can withdraw some or all of it without advance notice, though every credit unions sets its own credit and lending terms. Some allow just €1,500 withdrawals a day, others less or more, so check with your local union. You may only have to give a day's notice.
Interest is paid in the form of a savings dividend: many credit unions are paying no dividend or very tiny dividends (maybe 1%) mainly due to their level of bad debts and because, like the banks they are not lending as much as in the past. Again, ask about their dividend history.
From January 1, 2014 all credit union share dividend and deposit interest paid to members is subject to 41% DIRT with the exception of dividend or interest paid to members who are exempt from DIRT (certain people over aged 65 and certain people who are permanently incapacitated). Before 2014 certain types of credit union accounts were not subject to DIRT. DIRT exemptions can be arranged for you (if you qualify) by the CU on your behalf with the Revenue; all DIRT is paid automatically to the Revenue.
Mr JM writes: When the owner of an Approved Retirement Fund dies and the fund is passed to his dependents, are they taxed?
Approved Retirement Funds is a post-retirement investment vehicle for mature pension funds held mostly by self-employed people, proprietary directors and an increasing number of members of occupational defined. The ARF option means that you don’t have to buy a poor value annuity-based pension income but can draw down an income or capital from the ARF as you need it. (The government requires you draw down at least 5% of the fund each year – 4% from next year.)
There is no tax payable on a deceased person’s ARF if the ARF itself transfers to the spouse at death or he/she encashes it. This is because all transfers/inheritance between spouses is tax-free. Children under 21 who
inherit an ARF pay no income tax on it (that would otherwise apply in the year
the holder dies) but they will pay 33% inheritance tax. A child over 21 who
inherits an ARF pays income tax due but no inheritance tax.
Check out this link - http://www.davyselect.ie/customer-service/faq-arf.html
Scroll down to "What benefits are payable on Death".
Ms LM writes: I am married, 61 and hope to retire in May 2016 or July 2016 after 40 years service as a radiographer. My pension will be about €25,000 after all deductions- it won’t be enough to stretch to all our expenses. Is it correct that Portual is a good place to retire to as it does not charge income tax on pensions? My husband will retire officially next year and get his old age pension.
Two EU countries do not tax pension income - Portugal and Malta – (Australia is another) because pension fund contributions are paid with after tax income and the pension income at retirement is tax-free. Our system works in the reverse.
The only way retirees from Ireland can avail of claiming their pension funds tax-free is to be a tax-resident in these countries and to have moved their pension funds to them before they retire and claim their income (usually as PAYE earnings). Malta has already been the destination for some companies and individuals who have moved their active pension funds in order that the tax-free status (and higher tax-free lump sums in Malta’s case) becoming available to retired members but there have been recent reports that the Revenue Commissioners are intervening, despite a previous success court case. Someone who becomes a tax resident in these countries can also then also be paid their old age state pension tax-free and not be charged tax by their new country’s tax authorities.
Anyone who wants, or thinks, they might be able to ‘genuinely’ retire to these pension tax exempt countries (‘genuine’ is the Revenue’s requirement) should get specialised, tax and financial advice. I have passed onto you the names of some companies that work with ex-pat retirees.
If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.
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November 25, 2014
Jill Kerby’s MoneyTimes
THIS WEEK: MORE OF YOUR PERSONAL FINANCE QUESTIONS
Mr GK writes: I am a retired postman. I drew down my first payment on an ARF and had to pay 4% PRSI. Do the PRSI contributions give me any entitlements?
Once you hit 65 your income will not be liable to PRSI deductions anymore. Meanwhile you are still entitled to its few remaining benefits - the state pension at 65 (if applicable), one free eye and dental check-up and basic treatment, etc. Check out www.welfare.ie for all the benefits you can still collect.
Ms TS writes: We bought a house in 1989 for £30,000 that was our main residence until 2006. We moved but kept this house and rented it out. When we moved out in 2006 we got a €300,000-€310,000 valuation. We have sold it for €263,000. Can we use the valuation we got in 2006 for the purpose of calculating the CGT liability?
The way to calculate your Capital Gains Tax is to take the sale price and subtract the original price you paid in 1989. That is the gain. But you only need to pay the proportionate tax to the number of years that the property was rented out, minus the final 12 months that the Revenue discount as it is assumed that the property is being repaired/renovated/shown to the buying public, etc over that year.
In your case the taxable value is €233,000, that is, €263,000 – €30,000 = €233,000. You owned the property for 25 years but only seven years is liable to CGT on the sale proceeds, so if €233,000 accounts for 25 years profit, €65,240 is the seven years of profit liable to the CGT at 33%. (1/7th of €233,000) Your gross CGT bill should be in the region of about €21,530 but you can both offset this bill with your annual CGT personal allowance of €1,270 and any selling costs.
Ms HW writes: I am looking for independent financial advice that I am willing to pay for. I once contacted an advisor in Dublin who didn't get back to me. My overall feeling is that these people are only interested in the big investor and not the smaller investor like me.
You are quite right that it isn’t always easy to find a good fee-based adviser. I only tend to deal with fee-based ones, but as you say, some have wealth asset limits and may not be affordable. Unfortunately, so long as commission remuneration is the norm here for the sale of most life assurance and bank investments – it has been finally banned in the UK - fee-based advice will mostly be sought by, and offered to people of greater means. If you have money to invest, keep looking – ideally for an independent chartered certified financial planner or an experienced, licensed financial adviser who will charge you a reasonable fee for a wealth review and recommendations.
Make sure to ask upfront how much is their hourly rate or other fees (plus VAT) and then be sure to go very well prepared with all your accounts, documents, contracts, earnings, how much tax you pay, the value of your assets (house, pension funds, etc), savings, your debt and household running costs. Set this all out in a very clear schedule; it will save them time and you money (in the form of their hourly fee.)
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Mr ML writes: I thought I heard somewhere that if a lending institution sells its mortgage book to one of those big overseas investors who are buying them up, these debts become unsecured. Can you tell me am I right or was I dreaming.
Sorry to spoil your dream, but even after mortgages are bundled up, securitised and sold on, their repayment status does not change and the mortgage holder is obliged to keep paying the new owner. Where you have a lump sum to clear the balance of your loan, you could approach the new owner (this has been tried with IBRC loans) and see if they will discount the balancing payment. There’s no harm in trying.
Mr PR writes: I am not a stock market investor but had a bit of money in Waterford Glass (I had a family connection there and believed in Tony O’Reilly) and as an ex-farmer I also own some Kerry Group shares. I want to offload a small bit of the Kerry shareholding – about €5K in all – and take a punt on Bank of Ireland and INM now. I heard you on the radio mentioning a low cost stockbroker. Can you give me their name?
The execution-only stockbroker in question is Sommerville Advisory Markets (see www.sam.ie) where transaction costs are as little as 0.15% for trades worth up to €10,000.
Are you sure you want to trade in Kerry shares – which have proved so incredibly valuable to their holders for the last few decades – in order to take a gamble on two companies that destroyed so much wealth in recent years and neither of which show much sign of rewarding shareholders either with decent dividend payments or future dividend growth?
It’s never a bad idea to get second or third opinions – especially about gambling on the stock market. I recommend you find a good, impartial financial adviser to discuss your plan – you wont find either at a bank or stockbroker company.
If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.