Jill Kerby

What is the soaring price of gold and silver telling us?

By the time you read this, the price of gold and silver may have fallen back a little, or by a lot. Or maybe it will have kept going up.

Precious metals seem to have a mind and momentum of their own at the moment, but their price is simply reacting to the growing awareness all over the world that the ‘great correction’ continues:  during the boom years too many governments – and banks - made too many promises they couldn’t keep.  Too many ordinary people bought too much property and other stuff with too much credit that they cannot repay.

In Ireland, we know how it turns out when you have no choice but to own up to your – collective - borrowing and spending mistakes – your economy keels over and your state goes bust.

The people who are driving up the price of gold and silver these last few weeks are now worried that it isn’t just the Greeks, Irish and Portuguese who are bust, but maybe…sharp intake of breath …maybe the Americans too, whose budget deficit is $1.7 trillion and the national debt, $13.4 trillion. The US economy is in danger of a having a stroke.

The ratings agency S&P may not have much credibility left after the way they kept rating toxic, subprime mortgage bonds as a triple AAA risk during the boom years. But last week’s warning that the USA might not continue to deserve its top rating (which of course it does not) if it doesn’t get it’s hyperbolic national debt under control, still came as a shock.

‘The Emperor has no clothes’ is what the rating agency was actually saying.  And once that observation spreads, you have to wonder if the game is up and the 40 year experiment of an entirely fiat global currency system is also coming to an end.

The Chinese, who hold trillions of dollars and Treasury bonds in their reserves, responded by also expressing concern about US debt and deficits. Aware of the threat that rising price inflation the government has recommended that Chinese people start buying gold with their savings. Purchases have quadrupled on last year’s volumes.

And in a most significant US move, one that many observers believe also had an impact on the latest price spike, the $19.9 billion dollar University of Texas Investment Management Fund – the second largest endowment fund after Harvards’ – has spent nearly a billion paper dollars to buy 6,643 bars of 24 carat gold bars. Not much of a vote of confidence is the greenback.

When the price of gold hits $1,505.34 an ounce (or €1,032.74) and silver, $46.16 an ounce (or €31.66) as it did when I wrote this article, you can be certain that investors will take profits and the prices will fall back. (Summer is often the ‘low’ price season.)  Since silver has an industrial utility it has a tendency for bigger peaks and falls. Some people will look forward to those dips as a buying opportunity.

I have been writing about gold’s steady climb in this column for the last seven years. It cost about $550 dollars an ounce back then.  Silver, about $7.  The physical metals haven’t changed at all since then, except perhaps that with each year they become a little bit more rare and costly to extract.  What has changed, is the amount of additional dollar bills (and pound notes, euro, yen, yuan, etc) that central banks have printed out of thin air.  It isn’t so much that the lumps of gold have become more valuable…but rather that the world’s paper money has become increasingly worthless. 

Gold has always been considered a store of value and until the First World War was even an acceptable method of exchange. Until 1933 in the United States, every 20 dollar bill could be exchanged for an ounce of pure gold. After the Second World War, only countries could exchange their dollars for gold.  After August 1971, the United States, already spending more than it was earning, went off the modified gold standard entirely and substituted the US dollar as the world’s reserve currency.

Since then, politicians – everywhere – have been spending beyond all their people’s means because they were no longer obliged to limit their spending and the volume of currency they issued against their reserves of gold and silver.

So vast is national debt, that governments can only issue more debt and print more paper currency.  It is why global retail price inflation is such a risk.

Gold is not cheap anymore, not like it was back in 2005.  But nor is it in a bubble. 

How many family members or friends do you know who have bought gold or silver coins or bullion? (Or exchanged their euro for Perth Mint certificates – gold held in Australia, see Goldcore.com).

The price will go up and down. But when everyone is buying gold (and not selling their scrap gold!) and every other story in the media is about gold and every dinner party is chatting about it – just like we did about property during the boom – that’s when gold will be in a bubble.

Foreign share dividends can be a taxing problem

 
JO’B writes from Dublin: I receive dividends from foreign shares, Great West Life in Canada and Aviva Insurance in Britain. Tax is deducted at source in Canada and the UK on these dividends.  I am not sure what percentage is deducted and why. How do I declare this income for ROI (Republic of Ireland) tax returns? Do I get any credit for having already paid tax abroad on these dividends? I cannot find the answer to my question anywhere.

The Canadian tax authorities impose a 25% withholding tax on Canadian share dividends held by non-residents. (See http://www.cra-arc.gc.ca/E/pub/tg/t4058/t4058-e.html#P141_13999 )
You are obliged to report those dividend payments in an annual Irish tax return and to pay any Irish income tax due. Irish share dividends automatically include a 20% withholding tax so you can apply for a tax credit for the 25% tax you already paid to the Canadian authorities, but if you are a 20% standard rate taxpayer you will not be credited with the additional 5% tax paid in Canada. If you are a higher rate (41%) taxpayer, you can apply for a tax credit on the 25% Canadian withholding tax paid against your 41% Irish income tax liability on the dividend income.

UK dividends are treated differently. When you obtain a dividend from a UK company whose shares you own, it will normally show the net dividend and a tax credit which is equivalent to 1/9thof the net dividend. Only the net dividend is taxable in Ireland, that is, the cash amount received exclusive of any tax credit.  For example, if you received a UK share dividend worth €1,800, the dividend voucher will show a tax credit of €200 (1/9th). Assuming your tax rate is 41% you will pay 41% tax on the €1,800 or €738.

In order that you complete your tax return correctly, you might want to seek the help of a tax advisor before the pay and file tax deadline of end October, or mid-November if you file online.

Fickle fund

MM writes from Co Tipperary: In 1998 I received a IR£50,000 (€63,000) insurance settlement for a bad personal accident and it was put into an investment fund with AIB but fell in value so much that we could not encash it without further loss. By 2007 it had increased substantially, but I found out too late after which it fell in value again. The fund is now worth about €50,000. I don’t know whether to leave it any longer or cash it in. It has been 13 years now without anything to show for it.

The conventional view is that stock market related investments need at least a decade to absorb set up costs and charges and to allow that time to work its magical compounding effect on your money. That’s the theory and it does sound like it worked in your case, with your fund performing well by 2007.  The markets are fickle, however and it sounds like your fund plunged with the late 2008 crash and still hasn’t fully recovered.

However, you haven’t revealed any purpose or plan for your money and perhaps this is where you should start, before you make any decision to keep it invested or to cash it in.  Do you need or want this money to buy something like a house or further education?  Is it going to boost a pension or other retirement plans?  Does the investment itself, specifically the assets it has purchased, suit your age and risk profile after all this time?

Once you’ve answered all these questions then it might be time to speak to a qualified, independent, fee-based advisor to help you answer whether or not this investment fund is appropriate to your needs and plans, how high are the ongoing costs and what investments might be more suitable.

Tax break

CH writes from Co Wexford: I am a UK citizen permanently resident in Ireland since 2000. My income consists of a UK local authority occupational pension of approximately €775 per month and the UK state retirement pension. I have no income originating in Ireland.  I pay £150 income tax per month to the UK Revenue on this income.  I am not liable to income tax on any of my income in Ireland as our income (my wife and I) is below the tax-free threshold. I used to file an Irish tax return but was told I no longer had to about three years ago.

I have been recently been told by the local Irish Revenue Commissioners that I am liable for the universal social charge (USC) on my UK occupational pension. I would contend that as the USC is a tax on income, the double taxation rules should apply. I would be most grateful if you could help to clarify this matter with the relevant department.

I asked the Revenue Commissioners to comment on your tax position. First they noted that “Where an individual is resident in [this] State [Irish] income tax is chargeable on both his UK occupational pension and his UK state pension. An occupational pension is chargeable to the USC, in Ireland, whereas a social welfare type payment is not.”

However, as a UK local authority pensioner, your occupational pension is “only taxable in the country in which the pension arises, in this case the UK. Where such payments are chargeable to income tax in the UK, then they are not chargeable to income tax in [this] State and consequently the USC would not be chargeable.”

It would appear from this explanation that both your UK occupational and state pension will be exempt from the USC, but you should consider meeting with your local tax official to confirm your exemption.

Phone Charges

MO’L writes from Dublin: What would be the least expensive way of selling infamous Vodafone shares for someone not used to share-dealing?

The cheapest way to buy and sell shares is to have an on-line, execution only trading account and to bypass the stockbrokers. But there are usually set up or annual charges so if this is a once-off transaction, it might be worth dealing with the lowest cost broker you can find. Sharewatch, for example, offers an execution-only telephone transaction charge in the region of €40 (see http://www.sharewatch.com/sw2011/tradingfees.html).

START PREPARING NOW FOR THE REAL PROPERTY TAX

Next year we are expected to have a full-blown property tax - of some kind - that will replace the controversial €100 household charge and the second property charge of €200.

The suggestion is that the government expects to raise at least twice as much – at least c€3.2 billion - than the €1.6 billion they will collect if every property owner signs up and pays the Household Charge.

The argument in favour of a properly tax is that taxing property is a more sustainable source of exchequer funds than taxing labour (via income tax) which can de-incentivise workers and impact on employment levels. It is claimed that it is also a fairer form of taxation, especially if the tax pertains to the site value/productive value of the land on which the dwelling exists, and not just the market value of the dwelling.

If the government adopts a site tax next year – and not everyone is singing off the same hymn sheet after junior minister Jan O’Sullivan implied on RTE last week that house values would determine what tax is paid - they will have to ensure that the complex will have to be both fair and transparent.

If you are interested to know how a site tax will work and how much you might have to pay, you should consider downloading a study that was done by the Daft.ie economist Ronan Lyons last December for the Smart Taxes Network. (See http://smarttaxes.org/2012/01/30/ronan-lyons-report-on-site-value-tax-now-available/)

In the study Lyons presents a very convincing argument in favour of taxing residential - and commercial land for that matter - on the grounds that “the supply of land… is fixed and thus a parcel of land cannot be ‘withdrawn from supply’; it can merely lie idle. Thus, SVT cannot affect economic outcomes: it is not distortionary.”

Furthermore, says Lyons, “land values vary. Much of the value of a site is created purely by its designation as residential, not agricultural land, i.e. at the stroke of a pen. More generally, land values vary with the value of surrounding amenities. These amenities are typically public goods, either directly, i.e. provided by the Government with taxpayer’s money or indirectly i.e. amenities created by the populations living there, such as social capital, or a rich market for jobs, services or cultural activities. All these amenities incur costs of maintenance or costs of opportunity. Therefore, if public goods create private value, the fairest way of paying for their maintenance is to recoup some of that value from those who benefit.”

He argues that a site value tax “is not a tax in the conventional sense. It is better thought of as a maintenance charge for the value of amenities enjoyed by landowners and residents.”

A site tax also discourages land being left idle or underdeveloped for speculative purposes and derelict land zoned residential is taxed at the same rate as residential land with houses on it. 

In the ideal site value tax world – and Lyons goes into great detail about how site values could be calculated, which households might be exempt or at least be able to postpone their payment (such as low income pensioners living on high value sites – their payments would be collected from their estate) and how previous costs to homeowners, like high stamp duty payments during the boom years could be offset by tax credits. He also notes that a proper system of income distribution will have to take place between high site value areas and low value ones if there are to be any services provided to people who live in more remote, or poorer areas.

One thing is very apparent from this study, and that is that owners of even modest homes in busy, high amenity towns and cities will pay a great deal more than €100 if such a tax is introduced. If a 2% equivalent SVT is introduced, top ranked sites – where the land is valued at, say, €2 million an acre, could result in annual tax bills of €1,200; at €10 million an acre valuation would see an owner paying as much as €4,960 a year.  (Incidentally these are not untypical UK council tax values or property/site taxes for homeowners in Canadian and American cities where many readers may have family members residing right now.)

Ireland is very unusual in not having a formal property tax, but the old rates system was incorporated into our income and consumption tax system in the 1970s. Consumption taxes are high here and the marginal income tax/PRSI/USC is now c52% and as high as 56% for higher earners.

Is it fair to burden already stretched middle earners, many of whom are mortgage holders in negative equity and arrears with a potential site value tax of a few thousand euro without reforming and reducing income and consumption taxes? (The Commission on Taxation said absolutely not in its last property tax report.)

AS you read this, a new state body is compiling all property prices achieved since 2010. A new property registration authority will report to the government soon on the type of property tax that should be introduced, and everyone who has registered for the household charge will be on that property tax list.

The Smart Taxes Network report (which includes a number of property case studies at the end) could be the framework on which the new tax is based. 

Read it and then act:  open a savings account called “Site Tax” at your local bank or credit union and start making contributions.

And get used to the idea that you are no longer just the King of your Castle:  you’re now a tenant of the state and the tax you will pay is rent.

SAVE A FORTUNE: READ THOSE INSURANCE TERMS AND CONDITIONS

Last week’s article about the consequences of insurance non-disclosure reminded a few of our readers of similar experiences they’ve had in the past. It also sparked a few others to remind us all how not reading an insurance contract could end up costing a great deal of money.

Mrs R wrote that “I too had made a small claim on my first home which I owned before I got married.

“When my husband and I bought our marital home we took out insurance with a difference insurer and I had no idea that my small claim, several years later on a totally different property, had to be declared when we got the new house.

“I was told that if my husband had filled out the policy MY previous claim would never have been discovered, but I put the policy in my name so we ended up with a very big hike the next year, even though the insurer paid out the claim. I”m told we got off lightly.”

Another reader, Mr McD wrote: “I had a claim for damages after the washing machine flooded when we weren’t at home. It ruined some carpets and other soft furnishings, flooring, bookcases, some electrical stuff on the floor of the adjacent living room.

“I had reduced our claims cover a few years earlier because we had got rid of all sorts of heavy, old, but expensive antique furniture at the time, some paintings and jewellery and hundreds of books which I had intentionally insured separately. My full claim for the flood was rejected because the insurer said I was now underinsured.

“The lesson here, is make sure you explain – in writing – if you decide to adjust your policy.”

Then on Wednesday, Joe Duffy of RTE’s Liveline programme spoke to the insurance broker who I referred to in my article regarding non-disclosure of previous house insurance claims. Joe took some calls from his listeners.

The stories that caught my attention the most was the one from a woman whose €250 undisclosed household claim years earlier practically blackballed her from getting any home insurance – she should have challenged that decision with the Financial Ombudsman - and the one from the listener who inadvertently had been driving uninsured for two years because her daughter, a named driver, was paying the insurance premium.

Luckily, no accidents had occurred, but had one happened, or any other claim, the car owner would have been seriously out of pocket and perhaps in trouble with the Gardai, though any third party claims would have been covered by the insurance industry’s compensation scheme.

Meanwhile, another reader, Mr F, who heard me speaking on another popular call-in radio show last week about undeclared penalty points and how these can affect both the cost of a renewal premium and securing cover told his story:

“I ended up with two penalty points soon after I renewed my motor insurance. Someone I knew told me I had to inform the insurer of this and when I got home I called them and was informed that it would cost me €81 to add the points to the policy record -  €41 for having more than two points (I have three) and €40 to make a change to the policy. They also said that if I’d have had a crash I wouldn’t have been fully covered, with just third party most likely.”

Insurance brokers tell me that, depending on the insurer and the policy you have, acquiring penalty points AFTER you renew your policy usually only results in a slightly loaded premium the next year and even then, only if you have more than four penalty points. It shouldn’t result in any loss of cover for the duration of your annual contract, even if you pay your policy by the month, instead of in a single, lump sum payment.

The €40 administrative charge isn’t written in stone, either, but is more likely to be charged by the Direct Insurers and if you use the services of a broker.

Still, with different rules applying to different companies, it is always best to check the policy itself regarding penalty points and non-disclosure.

Meanwhile, here’s another motor insurance nightmare to beware, especially, if like me, you have a young person in the house who is just learning to drive. This story came from the aunt of young fellow, age just 17 and a half, driving his mother’s car in the company of his friends one evening, but without a full licenced driver in the vehicle.

Pulling out of a car parking space at the local shopping centre one evening, he struck an elderly man, who fell to the ground, injured. The boy took off in a panic. Passersby and CCTV cameras caught the car make and plate number and the Gardai were round to his house soon enough.

Not only is he likely to be charged with driving without a full licence and for leaving the scene of an accident - a criminal offense – but possibly reckless driving and he will probably face several years of being banned from driving. His parents could have their insurance policy cancelled, not to mention a huge increase in their next insurance premium.

My son tells me that the waiting list for a driving test is still so long that a number of his friends drive alone on their learner permit (which has replaced the provisional licence) – with their parents’ approval.

More fools them. It won’t be happening in this household.

Enjoy the rest of the Easter Week …and safe driving.

Revenue unsure of my first time buyers status

MR writes from Co Meath: I have applied for the new 30% mortgage interest allowance and was told I do not qualify. I purchased a house in 2005 and was exempt from stamp duty and received first time buyer (FTB) allowance on my mortgage. I was newly divorced and was treated as a FTB applicant. However, on applying for the extra allowance today I was told am not suitable as I claimed FTB allowance on a house I had bought in 1983 when I was single. I sold this house in 1984. I thought this new legislation on the extra allowance was for property bought between 2004-2008. How can the Revenue treat me as a FTB in relation to stamp duty and not a FTB when I need to claim the extra allowance?

MR writes from Co Meath: I have applied for the new 30% mortgage interest allowance and was told I do not qualify. I purchased a house in 2005 and was exempt from stamp duty and received first time buyer (FTB) allowance on my mortgage. I was newly divorced and was treated as a FTB buyer. However, on applying for the extra allowance today I was told am not suitable as I claimed FTB allowance on a house I had bought in 1983 when I was single. I sold this house in 1984. I thought this new legislation on the extra allowance was for property bought between 2004-2008. How can the Revenue treat me as a FTB in relation to stamp duty and not a FTB when I need to claim the extra allowance?

The fact that you purchased your current home after your divorce in 2005 is a clue to why you were considered a first time buyer then, despite having bought your first house in 1983 and then, presumably, being a second-time joint owner with your spouse of your marital home.

Under a Revenue rule introduced in June 2000 (see http://www.revenue.ie/en/personal/circumstances/separation-divorce.html#section14), the spouse who leaves the family home and gives up their interest in it as part of their separation or divorce settlement (with the other spouse continuing to occupy the property) can be treated “as if a first time buyer” for stamp duty purposes if they buy another home. However, there is no specific reference in the rule as to how you are treated regarding mortgage interest relief.

Nevertheless the Revenue allowed you to be considered “as if” you were a first time buyer again for mortgage interest purposes as well as for stamp duty purposes. If that decision was correct, then I can’t understand why your claim for the extended first time buyer relief that was introduced in the 2012 budget for all FTBs of property between 2004 and 2008 was rejected.

I spoke to an official in the Revenue’s TRS section who confirmed that the decision to give you FTB status for stamp duty purposes is related to your status as a newly divorced person who was replacing a family home to which she no longer had any interest. He was unsure, however how you were deemed to be an FTB for mortgage interest purposes in 2005 except to suggest that it may have been related to whether you used up all your allowances as a genuine FTB in 1983 and were being permitted to carry them to this new property.

He suggested that you contact the TRS section directly at LoCall 1890 463 626 or your Inspector of Taxes for a definitive answer. 

Depending on the size of your mortgage, a decision in your favour could be worth several thousand euro to you between now and 2017 when all mortgage interest claims will end.

Transfer window

KP writes from Co Louth: In January when it appeared that Greece might bring down the euro, I transferred some of my savings to Northern Ireland. As time was short (or so I thought) I transferred the €50,000 into my parent’s bank account. I have recently got my name added to this account. 

What are my tax liabilities? Do I have to pay tax in UK or Ireland?  My parents pay tax in the UK where they own businesses. Would I be better buying an asset in the UK with the money before I have to pay any DIRT?

You need to check to see what tax, if any, is payable on the interest you and your parents are receiving from this account. Offshore bank account holders are often exempt from paying deposit tax, but if you are not, then you may be able to claim a tax credit from the Irish Revenue for any tax you do pay on your offshore account. Irish DIRT of 30% is a liability and must declare this account on a tax return to the Revenue and pay the DIRT the October 31stself assessment tax deadline (or mid-November if you pay online).

It’s entirely up to you to leave your money in this NI account, to bring it back home if you are no longer worried about leaving it here or to invest it. You are still obliged to pay DIRT in the UK and/or here on any interest you earn. If you do decide to invest some or all of this money just make sure you inform yourself about the investment options that suit your needs and expectations and you are absolutely clear about the amount of risk you are prepared to take to achieve a yield that beats a deposit rate. 

Policy decisions

NK writes from Dublin: I have two personal loans, a car purchase plan and two credit cards. I have never missed a payment on my loans or car purchase plan so I'm in good standing with my bank. However, I have PPI protection on all of the above and I would like to know if I was miss-sold these products.

I have looked for advisors on line but for whatever reason, I'm suspicious of them or they want an up-front payment to take on a case.

Payment protection insurance has been grossly missold in the UK over the years with the UK Financial Services Authority (FSA) ordering banks to refund over a billion pounds worth of premiums and compensation last year alone. Recently, our regulator, the Central Bank completed an initial review of the PPI sales practices of the seven main Irish lenders and it will finish its investigation by the summer.

If you think you’ve been missold these five policies you should make your case to the Financial Ombudsman (see www.ombudsman.ie) and seek compensation that way.  Make sure to explain your personal circumstances and list all the policies, how much they have cost and their duration. Include any evidence that you were pressured into buying the insurance on the grounds that you would otherwise be denied the loan.

There are private, unregulated (by the Central Bank) companies offering to negotiate on the policyholder’s behalf with lenders to seek refunds or compensation for the misselling of these payment protection policies. They charge upfront initial fees and/or a ‘no win no fee’ charge that can amount to 10% of the refund or more.

This is clearly a profitable business for the intermediary, but now that the Central Bank is investigating whether widespread misselling has happened here, why not wait for the outcome, in addition to making a formal complaint to the Ombudsman?

The main grounds on which misselling may have occurred is if it was sold to people who were unemployed, self-employed, working less than 16 hours a week or on contract. People who were told PPI was compulsory are also likely to be candidates for a refund or compensation.

Meanwhile, there’s nothing stopping you from cancelling this insurance, says the National Consumer Authority and if you paid the premiums up-front, you can claim a refund of the remaining term.

NON-DISCLOSURE? YOU’RE ASKING FOR TROUBLE SAY INSURANCE BROKERS

“Switching insurance providers is turning into a national past-time,” a broker told me last week. “Everyone is looking for what they hope will be cheaper cover – for their car, their home and contents, for life and health insurance.

“What not everyone is doing however, is filling out their application properly, and some of them are finding out how costly that could be.”

This particular broker says he’s seeing an increase in people who have been rejected by insurers on the grounds of ‘non-disclosure’, that is, “for not being entirely frank about their claims history or pre-existing health conditions.”

Underwriters, they say, are getting tougher. Not only have their claims gone up significantly in the past year due to weather events, but the recession has caused an upsurge in burglaries and other theft claims. Throw in lower investment returns on the insurer’s own portfolios, and premiums are on the rise.

On-line discount motor or home insurance brokers in particular are able to offer lower premiums because not only are the policy benefits pared down, but they usully require you to both select the policy and fill out the forms yourself. The person at the end of the phone or internet is not there to double-check your answers and job your memory about previous claims. 

“Not every case of non-disclosure is intentional,” I was told. “For example, I have a client who lived in rented accommodation, had a burglary soon after they moved in – they didn’t have an alarm – but  made a successful claim on their contents-only policy.

“A couple of years later, they bought a house, had a burst pipe and made a claim. But this new claim was rejected after the insurer discovered they had a previous payout they hadn’t declared, because they didn’t think they had to.

“Not only that, but the insurer declined to renew their policy and no other company would take it either. I was able to convince their home insurer to change their mind, but only with a sizeable premium ‘loading’.”

Once upon a time, the insurer might have overlooked a case like this– depending on the size of the claim – but not now, says the broker. Being on the Irish ‘Insurance Link’ register as having had a claim rejected for non-disclosure could affect future insurance applications as well, he added.

It isn’t just motor and home policies that require full disclosure. Others include:

Life insurance: 

All applicants must reveal if they’ve ever been turned down for life cover, but also their own medical history (including medical investigations) and that of their immediate family, like parents and siblings who suffered various diseases, conditions and /or their cause of death. Depending on the cause of your death, not disclosing this information could result in the death benefit not being paid to dependents or beneficiaries.

Income protection insurance:

This pays all or part of your income up to retirement if needs be, in the event of illness or disability. But it too requires that the applicant not just reveal any existing medical condition and previous health claims, but also give an accurate disclosure of the type of job you do. Claiming to be an “administrator’ when in fact you’re a construction foreman, is always going to end in tears if you want income protection insurance.

 Health/Serious Insurance:

You must reveal pre-existing medical conditions if you apply either for private health insurance or serious (also known as ‘specific’) illness policies, the latter of which pay tax-free lump sums in the event you suffer one of the listed illnesses or conditions.

Premiums are not affected (due to our community rated system) but health insurance exclusion periods are typically up to five years in duration. This means that you cannot expect to claim benefits related to any treatment or services regarding a heart condition, for example, until the exclusion period ends. (In the case of maternity cover, you can’t make a claim for the first 52 weeks in which you are an insured member.)

A previous serious illness that you have survived does not discount you from getting a policy quotation, but that condition may not be covered or the premium is likely to be higher, say brokers. Not disclosing a previous serious illness is likely to result in any claim being rejected.

 Travel Insurance:

You have to be extra careful regarding travel insurance, say brokers, referring to how some policies are automatically issued as part of a some bank or credit card company accounts. If you’ve made a travel claim in the past, and now have a ‘gift’ policy with your bank/credit card account, check with your bank or read the new policy carefully to ensure that previous claims will not prevent new ones being honoured on non-disclosure grounds.

Independent brokers always want insurance customers to come to them rather than search the web for discount providers.  I think there’s a place for both, the latter if you are diligent about examining all the terms and conditions very carefully before you buy the policy.

 Since reading contracts extra carefully is something few of us ever do, using a good, experienced broker (and a fee based one for any investment related policies) might save you a great deal of money someday. 

With Mortgage relief comes responsibility

MF writes from Limerick: In 2007 I purchased a house for my daughter. The house was legally transferred to her and I have continued to pay the mortgage. I have a house of my own and it is mortgage free. Would I be able to claim mortgage relief from the Revenue for her house?

I’m afraid not. This property is not your principal private residence so you are not entitled to claim any mortgage interest relief; nor is it an investment property that you own that you could have offset up to 75% of any mortgage interest paid against the rental income (along with other qualifying expenses).  Instead, this is a second property that you bought with a mortgage only to put your daughter’s name on the deed of ownership.

I asked tax advisor Sandra Gannon of TAB Taxation Services in Dublin to comment on your letter and she raised an interesting point: “From the information provided it appears that a separate mortgage was taken out in order for your reader to buy this property for his daughter. He says that his own home is mortgage free, but perhaps it was never mortgaged.

“Either way, it would have been very unusual for the bank to allow the ownership of this second property to be transferred to the daughter while the mortgage remained with him, unless it was secured against his own home.

The only way mortgage relief can be claimed on this property is if your daughter becomes the legal owner of the mortgage, says Gannon. “However, the lender would need to be satisfied that she had sufficient income and independent means to pay the loan herself; only then would the father’s home be released from acting as security, if that is how the loan was arranged.”

Assuming the transfer of the mortgage to her is possible, there would be nothing stopping you from continuing to pay this mortgage for your daughter if you so wished. 

But it might be a nice gesture for your daughter to at least refund you the annual mortgage relief to which she would now be entitled as a first-time buyer in 2012. The relief could be worth up to 25% of the interest paid up to €3,000 reducing thereafter to 22.5% and 20% until it is abolished for everyone in 2017.

Finally, you may want to ask your own tax advisor about the fact that you have gifted her this property and continue to gift her the cost of the annual mortgage payments.

CAT free gift exemptions between a parent and child have fallen by half in the last few years and the annual CAT gift threshold is just €3,000. Depending on the value of these gifts, and any other inheritances or gifts she may receive from you or other sources she may have a potential CAT liability to pay.

Separate issue

Terry L writes from Dublin:  On the death of my parents some years ago, I recieved a sum of money close to the then maximum tax-free threshold for parent-child inheritance.  

My spouse's elderly parent is in poor health and, when she passes away, my spouse will inherit a sum in the region of €150,000.  What is our tax position on this second inheritance, given that we are jointly assessed?  Will the value of both inheritances be added together to calculate the tax payable, or is the tax-free threshold separate for each partner's parental inheritance?   

Also, if both inheritances are added together for tax purposes, would it be better for us to opt to be assessed separately for tax for the next few years?

Inheritances and gifts are the individual's alone and liability is that of the beneficiary, even if the person is jointly assessed with a spouse for income tax purposes.

The €150,000 inheritance your wife may receive will therefore be capital acquisition tax (CAT) free, assuming the tax free threshold between a parent and child does not fall below that amount when the inheritance is received and if your spouse has not previously received inheritances or gifts that would trigger a CAT lifetime threshold being exceeded.

Calculating aggregated sums for CAT purposes can be complicated and a tax advisor should be consulted.

Seeking relief

AB writes from Dublin: I purchased our home in 2004 jointly with my wife for €500,000. It was not my first mortgage but my wife was a first time buyer. Does she qualify for the relief announced in the December budget to help people who bought during the peak?

The December budget introduced enhanced mortgage relief for people who bought their homes as first time buyers between 2004 and 2008. Your wife, as the first time buyer during this period, is now entitled to claim 30% mortgage tax relief on her half of the mortgage repayment for the next five years to 2017 when it will be abolished for everyone.

Safe for Summer 

PW writes from Navan: My son is returning to the same summer job at a hotel in America that he had last year under the student visa programme. However, he is pretty sure that another, better paying job will be available a month later.  It took nearly a month last year for the hotel to sort out getting him off emergency tax and his worry is that he’ll be gone to the next job before that happens. First, is there anything he can do to avoid emergency tax or get it back quickly before the summer is out? (Otherwise his father and I will have to send him the money.)

Students are often put on emergency tax rates when they take up summer employment, though most employers, here and in the US or Canada, will try to sort it out quickly.

It might be worth you or your son contacting Taxback.com before he goes to the States this year to find out what he might be able to do himself to avoid being put on emergency tax or at least to know what will be involved in claiming the tax refund when he gets home at the end of the summer. There is a section devoted to tax refunds for students: http://www.taxback.com/usa-tax-refund-j1.asp

Negative Equity Mortgage?  No thank you.

The property market is doing as Professor Morgan Kelly predicted it would: it is taking back between 75%-80% of the spectacular prices it achieved at the peak of the bubble.

Just on cue, the government and banking industry that did everything it could to inflate that bubble, is still trying to manipulate the correction, in an effort – they say - to ‘break the logjam’ of sales.  This time it will permit heavily indebted owners in negative equity to carry their debt with them to yet another property, which will also continue to fall in price until the correction is over.

The problem is well documented: tens of thousands of mostly younger buyers purchased overvalued houses with artificially low credit. Their affordability levels - their income – was grossly overestimated if property prices fell, interest rates went up or their incomes dropped.

All three happened. The economic collapse revealed how uncompetitive the country had become and how necessary it was to freeze or reduce income (but paradoxically increase taxation to protect ‘key’ spending levels by the state - its own paybill and politically sensitive social welfare payments.)

The mother and father of all negative equity conditions now exist in this country – and will get much, much worse if and when interest rates go up.  Yet the government think letting heavily indebted owners trade up (or ideally, down) while the conditions that created the negative equity and the rising arrears risk still exist – is some kind of solution.

It is not.

The tens of thousands of first time buyers (in particular) caught by the boom need an immediate and fulsome recovery of the economy and a surge in their incomes…or they need substantial debt forgiveness.

Instead, they’re being offered another debt cul-de-sac that will give the perception that the property market can be stimulated back to life.

It can’t.

The property market will recover – naturally - when normal lending is resumed; when interest rates are not being so grossly manipulated by central banks; when the overhang of empty properties is cleared (which is happening in Dublin but not the rest of the country) and unemployment starts reversing.

Those neg-equity mortgage holders who are facilitated to abandon their distant suburbs for the homes they had wanted to buy that were closer to their jobs and parents in the city, will now end up even more indebted as the new property they buy also falls in value.

Good luck to them.

Meanwhile, the suburbs they leave will be even less attractive to live in than they are right now.

God help the poor sods they leave behind and strike up another victory for witless politicians and their creatures in central banks who endlessly subscribe to the Law of Unintended Consequences.

Misery loves company: Financial companies to be ‘named and shamed’

The decision to introduce legislation that will allow the Office of the Financial Services Ombudsman to name and shame financial institutions that it finds against has taken 20 years longer than it should have.

Better late than never.

When the first ombudsman’s offices were set up back in the early 1990s by the banking and life assurance industries, there was never any question that their members would be named and shamed.

Everyone maintained that the ombudsmen would be wholly independent of their paymasters, but there were just too many categories of complaints that were excluded or beyond their remit. The penalties were not onerous or high enough.

That isn’t to say that a good job wasn’t done within those limitations. 

Many complainants, in the years before the statutory IFSRA (Irish Financial Services Regulatory Authority) ombudsmen were set up in the early 2000s told me they were very satisfied with the investigation and settlement of their complaints and the published judgments appeared to be measured and fair.

But everyone also knew (the way everyone ‘knew’ that Charlie Haughey was on the take) that there were certain institutions – usually banks and their life assurance subsidiaries – that were chronic abusers of their own industry’s voluntary codes of conduct. But self-regulation has a funny habit of stacking the deck in favour of those who are being regulated, no matter how honourable and hard-working the ombudsmen and their staff doing the investigating.

When you pay that piper, he plays your tune.

All the same mealy-mouthed excuses were used by the State authorities when the two financial ombudsmen’s offices were taken over by the new Financial Regulator (now the Central Bank) a decade ago: that the complainants would also have to be named (to what purpose?); the firms would resist cooperating with the inspectors if there was a chance they’d see their names in lights or, worse still, as a case-study in the Ombudsman’s quarterly report (all the more reason!).

It hasn’t been determined how far the new legislation will go in the naming and shaming process, but no one gives a toss about the sensibilities of financial services companies anymore.  

The previous regulatory regime was incompetent and clearly in awe of the industry and allowed them too much influence in setting the rules and limitations of the ombudsman’s offices, especially regarding the historic mis-selling of investment products, which still needs to be addressed.

Banks, life assurance companies, insurers AND their agents always knew that ordinary folk and especially the vulnerable (like the elderly who are sold long term stock market investments) needed more protection than they ever got.

The Central Bank has been slowly but surely working its way through the banking mire that was left behind by the previous bunch, but now it is coming under scrutiny for its handling – mishandling? – of Custom House Capital. The mostly pension investors, who have lost €90 million, continued to be at risk even after the regulator discovered evidence of malpractice in 2009.

They say that misery likes company. 

The banks and insurance industry better get used to owning up to their own malfeasance, accept that the old days when they could keep repeating the same infractions year after year is finally be coming to an end, and accept that what’s left of their reputations will be lost forever, if they keep screwing their customers.

Having their ‘good’ names dragged through the mud might be just what they need to clean up their collective acts.