Posted by Jill Kerby on June 27 2009 @ 21:24
MG writes from Cork: I met you briefly at the recent Over 50s Show in Cork and mentioned I was retiring from the HSE and that I had an AVC with Cornmarket. I am meeting them to discuss what to do with the AVC and was wondering if you have any particular questions you think I should ask.
Most advisors suggest that you take the maximum tax free amount from your pension/AVC in order to clear your remaining debts and to provide a cash fund to keep on hand especially for incidental expenses or emergencies. If Cornmarket had been earning their high commissions and fees, they would have recommended over the past decade that you shift a predominantly equity based AVC into safer, fixed interest and bond assets in order to safeguard your savings the closer you got to retirement age. You don’t say if you are aware of the current value of your AVC but chances are it has experienced a significant fall in value if it was mainly invested in equities. Once you take your lump sum, you can cash in the balance of the AVC (subject to your highest rate of income tax), use it to purchase a pension annuity or transfer it to an ARF (approved retirement fund) that allows your money to remain under investment and from which you can then draw down an annual return. This option might suit you if you don’t need access to the entire fund right now. Before you do anything, make sure you get Cornmarket’s recommendations in writing and then seek a second opinion, ideally from a fee-based financial advisor. Do not be pressured into making a quick decision.
MH writes from Dublin: My query is as a small private Waterford Wedgewood shareholder. I am completely in the dark ... what is my position with the company as it stands? In fact where does it stand right now? Or, do I simply write them off as a loss?
I’m afraid that you have little option but to write off your Waterford Wedgwood shares as a loss. Technically, the shares are still listed on the Irish Stock Exchange but have been suspended from trading since the group was placed into administration on January 5th. Since then the assets of the group have been sold to the venture capital group KPS. Depending on the price you paid for the shares and the consequent capital loss, you might be able to offset the loss against a capital gain. Regarding your being completely in the dark, I’m surprised that the administrators, Deloitte, haven’t communicated over the past six months to tell you what has been going on, but that’s a matter you’ll have to take up with them directly.
WW writes from Co Louth: In March my mother’s only brother died. There were only two beneficiaries, me (his godchild) to whom he left cash and savings certificates and his best friend, to whom he left his small house which is on three quarters of an acre. (I am also the executor.) Unfortunately, the cottage is in poor repair and was valued, with the land, at less than €100,000. My uncle’s friend is in dire need of cash but is facing an inheritance tax bill that he cannot afford unless the house is sold, which doesn’t look very likely. If he cannot pay the inheritance tax, which I think is about €16,000, what happens to the property? Is it automatically put up for sale? What if it can’t be sold? Dothe Revenue charge interest on the tax they are owed? I might consider buying it from him, but not for anything like €100,000. What are the tax implications if I buy it at a lower price?
First, the capital acquisition tax rate payable on inheritances is the one that applies when the benefactor dies, or in this case, at 22%. The Finance Act 2009 increased the rate of CAT to 25%, but this new rate only applies to inheritances where the benefactor dies on or after April 8th, 2009. According to the Revenue, your uncle’s friend “is deemed to have acquired the house and land for its market value on the date the deceased died”, that is, in March 2009. For CGT purposes ‘market value’ generally means “the price which an asset might reasonably be expected to fetch on a sale in the open market. If the friend sells the property, the chargeable gain/allowance loss will be computed on the difference between the sale price (net of any legal and auctioneer's fees) and the market value at the date of death.” In other words, if the house is sold for less than its original market value back in March, his CGT may very well be reduced. However, states the Revenue, “if…the sale is not at ‘arms length’, then the actual sale price is replaced by the market value of the property [the original March market value] at the time of sale.” If you were to buy the property at less than the market value, “this would be treated as a gift …and the value of the gift would be the difference between the market value of the property and the amount actually paid". The tax-free threshold between strangers since April is just €21,700 so you may have a CAT liability but since the property is worth less than €127,000 you would not have any Stamp Duty liability. Finally, if your uncle’s friend cannot raise the CAT he owes, he could end up with a tax charge on the property at a daily rate of 0.0219% from July 1st. Deborah Kearney of Lehman Solicitors in Dublin says he could apply to his Tax Inspector for a moratorium on the interest accrual, perhaps even until the property is sold,or he could try and raise an equity release mortgage to pay the €16,000 tax. This money would only have to be paid by his estate after his death. Finally, your uncle’s friend “who should take legal advice” says Kearney, could renounce his inheritance in favourof someone else (who would be liable for the CAT) or revert it back to the estate. In that case, as his remaining heir, you would inherit the property.