The Sunday Times - Money Questions 30/08/09

Posted by Jill Kerby on August 30 2009 @ 20:28

JC writes from Dublin: My parents are elderly pensioners and are selling a house that has been in my father’s name since it was left to him in the 1950's (He built it with his dad). The house was left to him with the stipulation that his mother would live in it for the duration of her life. She passed away in 2003. This house is, of course, not my parents "principal residence" and has remained unoccupied since 1998, when my grandmother went into a nursing home. The simple question is, are my parents liable for full CGT on the proceeds? 


“There is CGT relief available where a dependent relative is living in a property that is in your name under the circumstances that your reader describes,” says tax advisor Sandra Gannon of TAB Taxation Services in Dublin. “The house must have been provided free of rent or any other consideration," says Gannon. The calculation of the amount of CGT your father will have to pay is complicated however:  it depends on the date he took over the title, the years your grandmother occupied the house, the fact that CGT was only introduced in 1974, the date from which the house should be valued; that your father’s CGT liability will be calculated based on his unencumbered ownership from 1998, but mitigated by all of the above.  A tax advisor, or your father’s tax inspector should be able to assist him with this calculation. Since April 9th, 2009 the CGT rate has increased to 25%, but your father can offset any expenses involved in the sale of the property against the tax as well as his personal capital gains tax annual allowance of €1,270.




JD writes: We are in the process of purchasing a house that requires a lot of work. The architect informs us the project may take up to one year to complete. Are we obliged to pay CGT on our current property that we will sell as soon as we are able to move?

Your principal private residence is not liable to any capital gains tax when it is sold and in this case, it remains your PPR until you move out and into your new one. However, if you change your mind, and decide once your new home is ready that you’d prefer not to see your original house and you either rent it out or leave it vacant, you would then have to pay a proportionate amount of CGT, relative to the amount of time involved – when your original property is eventually sold.  For future reference, the first 12 months of your ownership of the new house is usually exempt from any CGT liability if it is being refurbished.  This means that you are unlikely to be liable to any CGT for this period when it was still a second residence if you decide to ever sell it.   



LK writes from Glasnevin:  Please could you answer a question that I'm sure many of your readers, especially Permanent TSB customers, may find interesting. Could you explain the relationship between the euribor and mortgage rates. In 2007 I looked for a business mortgage and was quoted the euribor three month rate + 1%. At that stage euribor was tipping 5%. Given this offer I presume banks use euribor as a basis for some loans. As mortgage rates were increased a few weeks ago I checked to find that the three month euribor rate is just under 1%, the 12 month rate is 1.38%. Both figures give a bank charging a standard variable rate of 2.69% a margin of at least 1.3%. If the euribor represents the rate at which banks can get funding at then where is the justification for a rate rise? Has euribor become as irrelevant as the ECB rate? I would be grateful for your expert view.


The euribor is the rate of interest at which banks borrow funds from other banks in the EU interbank market. It varies daily but it used to operate at a small margin above the official ECB rate. Time was when these rates were all in close alignment, such as when tracker mortgages were established: they were based on a set margin above the official ECB rate, reflecting the lender's confidence that the ECB rate would be almost identical to the euribor rate.  But no longer. When the credit crisis hit, banks pulled back dramatically on their lending - even to each other, charging exorbitant rates and shortening the length of the loans. Recently, euribor rates have come into closer alignment with the ECB but the amount of money that can be borrowed by different institutions means that the rate is no longer as influential in setting mortgage rates as it used to be and the banks say they must rely on a mixture of  retail deposits, corporate deposits, inter bank borrowing (often at a margin above the euribor), the bond market and the ECB itself  to fund mortgage lending.  The banks argue that the average rate they pay is now higher than the euribor, hence their reluctance to advance loans tied to a rate that is costing them money, like trackers.  The PTSB say the traditional link between ECB, the  euribor and mortgage rates is now gone and is unlikely to be restored




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The Sunday Times - Money Comment 30/08/09

Posted by Jill Kerby on August 30 2009 @ 20:27

The investment club I’ve belonged to for the last couple of years suffered the same fate as most of the rest of the investing community a year ago: we were caught, deer-like, in the headlights of the juggernaut that crashed through global stock markets.  Because we were invested almost entirely in Irish shares, (the consensus being that we should buy what we know - ha!) we lost 69% of our original stake. 


The poor little ISEQ hasn’t recovered as well from its beating as other, bigger markets since the rally began in March, but our portfolio value is now down just 49% and I think it might be time to bail out, lick my wounds and accept that investment clubs are a perfectly good way to socialize, but not to make money. 


Luckily, we all knew the risks and only made modest monthly contributions we could afford to lose and agree that it’s been a valuable and humbling learning experience. 


We even did the right thing and changed tactics last February, using an investment formula recommended by a stock market guru, Rory Gillen of investlikethebest.com, which has certainly been more successful than our earlier, sporadic, stock picking. 


But I’m cutting my losses because I don’t share the view that this rally is sustainable: there’s no body of evidence to suggest that this so-called green shoots recovery is based on anything other than artificial stimulus from governments and central banks and massive corporate cost cutting.



I haven’t given up on investing though:  for what it’s worth, this year’s pension fund contribution is going into include index-linked bonds and natural resources and gold funds.  



Gold may not have yet made that enormous price leap that goldbugs keep predicting, but it has spent most of this year hovering in a price band that has averaged at about €940 an ounce for 2009.  So long as the US keeps accumulating as much debt as it does, and we keep thinking the US is somehow going to help us get us out of our depression, I’m going to keep buying the yellow metal – one of the only investments I’ve made in recent years that hasn’t just kept it’s value, but produced a genuine profit. 




For some reason, the National Consumer Agency keeps paying for studies and surveys that simply confirm what is already pretty much known – that it pays to shop around and switch to better value products and services.


Top of the switch list last year (last year?) are mobile phone contracts, says the NCA.  And this is news?  Or even useful news?  You can’t open a newspaper, magazine, tune into a TV or radio station or go onto the internet or social network site and not come across some mobile phone or broadband company offering savings if you switch to their service.  I’m still trying to work out how to stop these companies accessing my mobile phone to lay out their competing wares.


Ditto for electricity supply and car insurance and groceries and all sorts of other stuff. 


A far more useful exercise than hiring Amarach consultants to discover that people who shop around for mobile phone contracts can expect to reduce their bill, would be for members of the CAI staff to conduct a secret shopper survey, right now, on how the two main banks are interpreting their side of the lending deal they made in exchange for our pension savings.


It seems that despite getting €7 billion worth of bailout money care of the National Pension Reserve Fund, AIB and Bank of Ireland – “the only two lenders in town” according to mortgage brokers – are not even giving loans to people with steady jobs, good credit records and equity in their homes.


One such reader complained recently that when he did inquire about switching his PTSB variable rate mortgage to an AIB fixed rate loan, which he believes will be cheaper over the duration of his loan term, the AIB official suggested that he wasn’t the ‘category’ of customer they were looking for, “whatever that means. Weeks have passed and I’m still waiting for the branch loan committee to say yes or no.” 


I know it’s the summer, a tough time to generate a meaty story, even for a group of civil servants who’ve been earmarked by An Bord Snip for merger with the Competition Authority, but I don’t think I’ve ever heard a peep from the National Consumer Agency about mortgage switching, good or bad or indifferent.  


If an historic survey about the merits of product switching is the best the NCA can come up with, that merger really can’t happen soon enough. 




I take a great interest in American financial news because what happens in America eventually happens here. 


Interesting then that the US Social Security Administration, the agency that administers the payment of the US state pension, announced last week that it is to freeze the size of social security payments to 50 million recipients until 2012

on the grounds that the cost of living has fallen. 


The Americans haven’t frozen their state pension since 1975 when automatic cost of living increases were first introduced; commentators say the SSA hasn’t ruled out an outright reduction. 


Like here, deflation is taking its toll on consumer prices;  the US action falls just short of the recent An Bord Snip’s recommendation that all Irish social welfare benefits, including the state pension, be cut by 5%.  It could make an interesting precedent for the Minister for Finance to cite if he leaves pension payments where they are now, in his December budget.   



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The Sunday Times - Money Questions 23/08/09

Posted by Jill Kerby on August 23 2009 @ 20:44

JC writes from Dublin: My parents are elderly pensioners and are selling a house that has been in my father’s name since it was left to him in the 1950's (He built it with his dad). The house was left to him with the stipulation that his mother would live in it for the duration of her life. She passed away in 2003. This house is, of course, not my parents "principal residence" & has remained unoccupied since 1998, when my Grandmother went into a nursing home. The simple question is, are my parents liable for full CGT on the proceeds? 

“There is CGT relief available where a dependent relative is living in a property that is in your name under the circumstances that your reader describes,” says tax advisor Sandra Gannon of TAB Taxation Services in Dublin. “The house must have been provided free of rent or any other consideration and in this case, what CGT does apply is payable from when the house fell vacant, in this case 1998,” says Gannon. The calculation of the amount of CGT your father will have to pay is complicated:  it depends on when your father received title, the fact that CGT was only introduced in 1974 and the fact that your grandmother’s period of occupancy was be exempt in determining the value of the CGT that applies between 1974 and when the property is actually sold.  Your parents will need to get a valuation of the house back in 1974, and then work out how much of the gain is exempt based on her years of occupancy.  A tax advisor, or your father’s tax inspector should be able to assist. Since April 9th, 2009 the CGT rate has increased to 25%, but your father can offset any expenses involved in the sale of the property against the tax as well as his personal capital gains tax annual allowance of €1,270.




The period mother left in it it is treated as PPR and he can claim relief until mother left – calculate gain from 98 value in Apirl 6 1974 to 09 when CGT was intro – she lived for 25 year  74 to 09 but actual years of wonership is the period that is discounted



CR writes from Limerick:  I read in Aine Coffey's Sunday Times article last week that Halifax might pull out of the Irish market. We have a mortgage & some personal savings with Halifax. What will happen to these accounts if Halifax withdraw from the market? Will the mortgage be sold on? If so, we have a tracker mortgage, will we keep the terms & conditions of the tracker mortgage? Will we be able to access our personal savings?


This is all the realm of speculation, but if Halifax or any other bank were to pull out of the Irish market, my understanding is that they would be obliged to honour all existing lending contracts, but do so by providing their customers with on-line or telephone/postal services with which to either access their savings or repay their loans.  It would undoubtedly make requests for information or problem solving less convenient than being able to speak to a branch official directly – no one enjoys the tiresome automatic redirection facilities of home-grown, let along foreign based financial call-centres.  But such an arrangement, a la Northern Rock Ireland and the Leeds and Nationwide building societies, which all take deposits from Irish customers this way, would certainly allow the Halifax to remain here as a deposit taker if they so wished.  Of course they could also just sell their loan and deposit book to a rival UK or Irish bank.  Again, existing lending contracts would need to be honoured, but savings terms, (once fixed rate periods expired) would undoubtedly revert to whatever offers were available from the new institution. 



DP writes from Dublin: We recently gave birth to our first child and have received many gifts of cash and cheques for him but have been unable to decide on the best option for a bank account for him. Can you please advise as to the best savings account currently available for children either a post office or bank account. I am sure over the coming years he will receive more gifts of cash and I also want an account with which we can teach him the value of saving as he grows older. 


There are plenty of branded children’s savings accounts available – all the main Irish banks and building societies offer them, so does the on-line bank, RaboDirect, though the interest payable on some child-specific accounts can be very low. Some provide moneyboxes and membership certificates, but these are suitable for older children so perhaps you should concentrate on achieving a good return for the lump sum right now and on any regular savings. Top paying demand, internet and notice accounts at the moment are available from the Halifax (3.75%), AIB (3.25%) and Permanent TSB (3.5%) respectively. Anglo Irish Bank offers 3.8% for a 12 month fixed rate and the EBS 3.75% for five months while the best regular savings return are available from Anglo Irish Bank and Bank of Ireland at 5% and the EBS at 4.5%. Deposit rates are expected to come down so you might want to fix your rate.  Make sure you check out post office savings certificate and savings bonds for longer term, tax free savings returns, currently paying 21% over five years and six months and 10% over three years respectively.  Many parents find the local post office a very convenient place for their children to open their first account. 



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The Sunday Times - Money Comment 23/08/09

Posted by Jill Kerby on August 23 2009 @ 20:31

The latest report from Daft.ie shows that rents have fallen nationally by 17% over the past year with the average monthly rent now just €800, and €1,000 a month in Dublin.  Good news for renters, but not for landlords and buy-to-let investors who will be disappointed to also see that the number of rental properties to rent on Daft.ie reached hit 23,400 on August 1st, three times the seasonal average and up from 6,200 properties on August 1st, 2007.


The Daft statistics are just one piece of the wider picture of empty or unsold properties in the Irish market.  Last weekend another newspaper quoted the ratings agency, Standard and Poors, as estimating that the excess housing stock in Ireland had now reached 250,000.  With just 7,400 first time buyers and investors taking out mortgages in the first half of this year (according to the Irish Banking Federation), at that rate of purchase it’s going to take nearly 17 years to clear this inventory. 


Meanwhile, the housing charity Focus Ireland insist that the real number of homeless households around the country is 3,499, and not 1,394 as the Department of the Environment claims.  This figure, of course, doesn’t include homeless individuals or the thousands of other families and individuals already living in crowded or unsuitable public accommodation who are waiting for housing transfers.   All these people would certainly put good use to some of this unsold or unrented inventory. 


Perhaps someone needs to revisit the suggestion I made nearly three years ago in this column after the 2006 Census highlighted the huge stock of vacant houses. I pointed out that we should do the same as the UK, where local authorities have the ability under the Empty Dwelling Management Orders (Edmo) legislation to take over and rent out homes that have been standing empty for more than six months. The owner is given the chance to voluntarily rent out or sell the property themselves, but if they decline the Edmo is enacted and they are given a market rent by the local authority which proceeds to house a client on their housing waiting list.

Not every empty house planted in a piece of boggy land by tax-driven builders and speculator/owners would be suitable for Irish homeless families. But there must be thousands of locations in urban and rural areas that would be a sight more appropriate than the bed and breakfast accommodation into which so many parents and children are placed. 

Normally, I wouldn’t be in favour of the government interfering in anyone’s private property rights; but we haven’t lived in a ‘normal’ property owning community for decades.   The size of the housing stock was artificially pumped up by the government and subsided by those people who couldn’t afford to jump on the property gravy train:  many of them remained inadequately housed or on local authority housing lists during the Celtic Tiger boom years. 

Falling rents should help local authorities reduce their waiting lists, but the vast, idle, housing stock, funded by billions of euro in tax allowances and reliefs will remain a visual testament to the waste of national resources until it is cleared. 

That these properties only attract a token €200 property tax (from this month), and may not be subject to the higher residential property tax next year that the Commission on Taxation is understood to have recommended, -just adds further insult to injury.


The government keeps bleating on about the falling cost of living, and how the higher levies and taxes have been offset by mortgage savings, cheaper clothing and footwear, food and alcohol.  

That’s all very well  - if you have a mortgage and like to drink -  but it won’t come as any surprise to find that the National Competitive Council has upheld what the rest of us knew already:  the cost of three important state-provided services, health insurance, education and public transport are up 13.2% this year.  Other non-pay costs such as utility prices and professional fees also compare poorly with other EU, says the NCC, and even the price of credit – if you can get it – costs more here than in our European countries. 

The gist of the NCC’s report is that the government should be tackling the cost problems of their own creation as a matter of urgency.  They’re right of course, especially given the disproportionate effect that even very small increases in mortgage rates will have on already heavily indebted, and increasingly, unemployed households.  



Construction workers beware.  The number of employers who are stealing your pension contributions continues to grow. 

Last June, when the Pensions Board launched it’s 2008 annual report, it revealed that it was pursuing about 200 mainly construction companies for not passing on the contributions – stealing, in other words – that were made by their workers into the Construction Workers Pensions Scheme. 

That number is now up to 270, say the Pensions Board chief executive, Brendan Kennedy.  Every new case the Board uncovers – often because the company has gone bust - is reported to the scheme trustees, the Pensions Ombudsman, the Office of the Director of Corporate Enforcement and the Garda Fraud Squad.


Sadly, the workers are often the last one’s to find out, and there is no guarantee that all their lost contributions will be recovered.   A quick phone call (01-496 6611) with the scheme trustees to ensure that all contributions have been made on your behalf would be a small cost well spent. 

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Money Times - 19/08/09

Posted by Jill Kerby on August 19 2009 @ 23:02

Can Your Family Afford Third Level Education?


Irish parents put great stock in education, and so does the country: the consensus view for nearly 30 years is that the high quality of secondary and third level education here has been a driving force in attracting foreign owned industry to Ireland and raising our standard of living (at least until now.)   It will need to develop even further however, if we are to both recovery from the excesses of the Celtic Tiger days AND beat new global competition for those top paying ‘smart economy’ jobs. 


So much for the long term, but what about paying for this high qualify education right now? As incomes fall, taxes rise and jobs and services disappear, will you be able to afford to pay for the costs associated with sending a young person in your family to college or university in 2009-2010?


It’s a question that thousands of parents want answering…and soon. 


In a recent survey in conjunction with the parent’s web-site Schooldays.ie, Bank of Ireland estimates that parents could end up paying €42,000 to give a child a third level education, a figure that doesn’t include fees. (This is in addition to the €28,000 they may have already spent for primary and second level education expenses.)


The Union of Students of Ireland estimate that in addition to the compulsory €1,500 registration fee, the total annual cost can amount to between €11,700 and €15,250, though this will vary considerably depending on the programme of study and where the student is based. 


Students who go to college but live at home should expect to spend a minimum of €315 a month, or €2,835 for the nine months excluding the registration fee, says the USI. 


Typical expenses for the student living away from home include rent at €3,285; food, €1,634; utilities, €613; books and supplies, €585; transport, €738; clothing (including sports kit), €450; pocket money, €1,283; broadband, €198 (plus cost of a laptop). 


About 60% of third level students work during the course of the academic year to help meet their expenses, but this percentage is likely to fall as the recession deepens.  The economic malaise is also going to have a negative impact on how far parents’ budgets will also be able to stretch, and the student and parent might want to at least discuss the matter of how sustainable a three or four year third level course may be, depending on the family’s current and future finances.  


Parents and children fund third level courses in many ways, the most ideal being from long term savings; however, only 25% of parents currently save the state child benefit payment, and only 40% of those put the proceeds specifically towards education costs, says Bank of Ireland.  Other rely on income with the student also making a regular contribution from their part-time or summer employment.  This money is also often subsidised with short term and longer term loans, by both parent and child. 


One very popular way that parents have funded their children’s education costs in recent years has been by drawing down equity loans against the value of their homes.  It’s an option that is rapidly disappearing as banks tighten up their lending criteria in light of falling house prices, the threat of negative equity and growing unemployment. 


Some students – like those doing medical and veterinary degrees – are still considered good loan bets, but law students, some engineering and architecture students and even those studying to be pharmacists and actuaries could find themselves struggling to convince their lender they are worth bankrolling one bank source told me last week. “These are no long ‘safe’ jobs in this economic climate”, he said. 


Two funding options that do still exist are student grants and scholarships and university bursaries (which students should be investigating right now). The size of third level grants and funding are frozen for the second year and the amount of is limited according to how many miles from the college the student lives, the family income, means and the number of other dependent children.  Within 24 kilometres of the college, a qualifying student may receive a grant varying from between €345 and €2,680 a year; further than 24 kilometre and the grant varies from between €855 and €6,690, depending on the qualifying circumstances. (You can check here to see if your child qualifies at http://www.studentfinance.ie/mp7559/check-grant-levels/index.html )


Finally, this year’s crop of leaving certificate students will more than likely be the last to be exempt from third level fees: from October 2010, they (and perhaps) their parents will probably face several more thousands of euro in costs, most probably in the form of deferred loan repayments.  There is a rumour that discounts may be available for immediate or early payment.  


Whatever the government’s final decision about fees, a plan for paying them, as well as all the ancillary costs, is something that shouldn’t be put off. 


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The Sunday Times - Money Questions 16/08/09

Posted by Jill Kerby on August 16 2009 @ 20:46

PH writes from Dublin: I have been self employed in the construction industry for the past three years paying PRSI class S. Due to the downturn in construction I am now without work.  I have been informed by my social welfare office that the only benefit I can apply for is means tested, but I don’t think I would qualify as my wife earns around €600 per week. Nor do I qualify for any FAS training course or any training scheme because I am not in receipt of unemployment benefit. My accountant informs me that there is an allowance which is not means tested for persons who paid PRSI Class S. Is this correct?   What is my best course of action?


Class S PRSI applies to self-employed people including certain company directors, people in business on their own account and people with income from investments and rents.  The only benefits you are entitled to under this category are a State Pension (from age 66), a widow and widower's contributory pension, a guardian’s contributory payment, maternity benefit (if you are a woman), adoptive benefit and a bereavement grant. I have no idea what allowance your accountant is referring to, but you are correct that any social welfare payments that a community welfare officer could sanction would be means tested on a euro for euro basis against your total household income, which of course includes the bulk of your wife’s earnings. Self-employment has many attractions, but not during a severe economic downturn and for many construction workers, they had little choice in becoming sole traders because so many building companies refused to hire full-time, pensionable employees.  Unfortunately, even those who did, were not always compliant in making employer PRSI contributions, pension contributions or even in passing on their employees’ own pension contributions. Your options are quite limited and your main hope (along with a lot of your colleagues) is to find work in your field or find PAYE employment in a PRSI category that provide you with a better safety net than PRSI category S. You can download leaflet SW 106 from the Department of Social and Community Affairs website (www.welfare.ie); it defines the different PRSI categories and accruing benefits. 





MW writes from Dublin:  I refer to your query from SL of Limerick in last Sunday’s edition. The query related to capital gains tax on profit made from selling your home after having let it for a period of years. Could you tell me if the same applies in the UK?  I have a property there that I lived in for over 15 years before moving back to Ireland for family reasons five years ago.  In order to buy a house here I will have to sell the property in the UK and wonder if I will have to pay CGT?


While you will not have to pay Capital Gains Tax on the five years in which your UK property was not your principal private residence - this is because you made a “distinct break” from the UK and were no longer a tax resident - you will be liable for Irish Capital Gains Tax of 25% on that portion of the proceeds that correspond to your five years residency here. Also, you would have been liable for both UK and Irish income tax on any rent you would have earned from the UK property, but the dual taxation agreement in place between the two countries means that you would only pay the tax in one jurisdiction and receive a tax credit from the other. The UK Inland Revenue has produced helpful guidance notes and booklets which defines residency, ordinary residency and domicile – see http://www.hmrc.gov.uk/CNR/ and a Q&A guide about CGT liability for non-residents: http://www.hmrc.gov.uk/cnr/faqs_capgains.htm 

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The Sunday Times - Money Comment 16/08/09

Posted by Jill Kerby on August 16 2009 @ 20:45

I expect there will be more than just 19 temporary staff hired at Mabs before this Great Recession ends.  With 10,000 new cases presenting in the first half of the year alone, the 53 money and budget service offices are seriously overstretched, with long delays in the queues of people seeking assistance. 



Aside from the sheer volume of demand for the service, which is entirely funded by the state, the Mabs model is a transparent and trustworthy one.  Which is more than one can say about the growing commercial and private debt advice industry, represented often by underemployed mortgage and life assurance brokers whose own businesses are suffering badly from the collapse of the property market and the sharp fall off in the sale of investment products.


Many of these debt councilors, as they call themselves, are now advertising their services to anyone who can pay them an initial consultation fee of as much as €500, and are willing to forego a percentage of the total debt settlement figure – typically 15% - once a new payment schedule is agreed with their creditors.



At best, they will help the debtor get a workable deal in place that reschedules their mortgage, car, credit card and other personal loans.  But I’ve also heard about clients handing their paycheques and any other monthly income over to the debt advisor who takes it upon himself to pay all their bills on their behalf, for a fee, of course. 



There are legitimate budget planning firms that facilitate bill paying and some brokers might say they are providing similar bespoke arrangements, but these single operators don’t  work under any code of practice and are pretty much free to make up the rules as they go along.  If other reports are correct about how unregulated moneylenders are now getting into the budget and bill payment business, then some of the most vulnerable people may be handing over their weekly social welfare payments to these vultures to keep other vultures at bay. 



Despite the recruitment ban, the Minister for Social and Family Affairs Mrs Hanafin, has moved pretty quickly to address Mabs’ need for more advisors but perhaps it’s now the turn of the Financial Regulator and the National Consumer Agency to look at the operation of a new, unregulated industry that looks like it might have rich pickings for years to come.  




‘Cash for Clunkers’ is the American version of the car scrappage schemes that are now operating or are being considered in at least 12 European countries that, unlike here, actually make cars.


Last week a friend of mine, just back from a holiday in America, waxed eloquently about how her brother was turning in an old model SUV he bought many years ago for a newer version that has already been hugely discounted by his local Ford dealer.  This $4 billion scheme has been so successful, that it’s already run out of money and will be extended at a cost of another $2 billion. 


Since my friend’s brother’s new purchase achieves at least 10 miles per gallon more than his old one – the minimum extra mileage requirement to qualify for he subsidy is just 4mpg - he will get a credit voucher of $4,500 from the US government. The original criteria was that the new vehicle had to achieve at least 32 mpg with the minimum to be replaced at 20mpg, but this was watered down by the motoring industry lobby.


Now his perfectly good ‘gas guzzler’, that could probably have been driven by him or someone else for many more years, will be replaced with another, newer gas guzzler, whose manufacturing carbon footprint probably exceeds the cost of running the old one into the ground. 


My friend, who could afford a new car if she wanted one, wishes she could have replaced her old car via such a scheme here, which the government – for once – had the good sense to reject on the grounds that we have no manufacturing jobs at stake. 


Scrappage schemes may clear out inventory, but they don’t create sustainable new production or employment.  If they did, motor manufacturers wouldn’t still be saying that they may need more state bailouts to remain in business until global economic conditions improve. 


Mainly they incentivise buyers – like my friend and her brother - to bring forward spending that they would probably have undertaken at a future date anyway, but at the added expense of permanently rendering down a car that could be driven for many more years or could be a resource for another buyer who couldn’t afford any new car.  What a waste. 


Still grieving for the new car that was not to be, I mentioned to my friend that there is a huge, mostly unoccupied new housing estate near her rural home.  I asked her whether she would support the idea of the Irish taxpayer stimulating the struggling construction industry by giving her a cash subsidy to level her lovely old, higher carbon emitting, house in order to buy one of those empty properties.



“Don’t be ridiculous,” she said.


I rest my case. 





Apologies to the reader who last week asked about the deposit guarantee under which Ulster Bank operates.  Here in the Republic, the Royal Bank of Scotland owned Ulster Bank and First Active, which are regulated by the Irish Financial Regulator come under the €100,000 deposit guarantee scheme. You can check exactly which scheme your financial institution falls under by checkout out the ‘Compensation and Guarantee Scheme’ link at www.itsyourmoney.ie 



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The Sunday Times - Money Questions 09/08/09

Posted by Jill Kerby on August 09 2009 @ 20:51

PP writes from Dublin: Some time ago you gave the address of who would supply information about converting pension funds into PRSAs, the above, but I have forgotten it.   I contacted Irish Life re information on buying an annuity, and they suggested I should contact an independent broker.    

A good pensions advisor should be able to explain the merits of transferring a qualifying occupational, defined contribution pension fund and/or AVC into a PRSA if you are over 50 and especially if you have been made redundant.  This is because the pension income produced from the pension annuity you would be obliged to purchase if you encashed your pension could reduce any means-tested Jobseeker’s Benefit you might be entitled to if you have not secured work after your 12 months of Jobseeker’s Allowance runs out.  There is no cost involved in transferring a pension fund to a standard PRSA, but there is a charge (typically 1% of the fund) in arranging for the required actuarial certificate. Pension consultant Michael Leahy, the former CEO of Standard Life (michael_leahy@globalpensionoptions.com ) is the actuary whose company, Global Pension Options provides this service to individuals and to the pension providers who accept such transfers. 



NP writes from Dublin: I have a question relating to the purchase of a Section 23 apartment. My late brother purchased one in 2006 for €260,000. He died in 2007 having used some of the allowances against other rental income. As he had not held the apartment for 10 years a claw back was paid to Revenue. I am thinking about buying the apartment for €115,000 in line with falling property prices but am unable to get a satisfactory answer regarding the amount of rental relief I would be entitled to, offset against other rental income. My accountant says the rental relief should be the new price, €115,000. Revenue say it is based on a formula which, is the property cost multiplied by the development cost plus the site cost. I don’t know yet what the site and the development cost are. If Revenue are correct it would hardly be worthwhile to make the purchase as the rental relief would be very small, €40,000 or less.  Revenue’s answer would seem unfair as the site cost and the development cost would be much less today than they were in 2006 when the property was first purchased. Like my brother, I intend to offset the rental relief against other rental income. 


According to tax advisor Sandra Gannon of TAB Taxation Services in Dublin, the Revenue should allow you the full amount of tax relief that was available to your brother when he bought the property despite the fact that your purchase price would produce a much smaller tax relief amount.  The Revenue’s website, www.revenue.ie  allows you to download a booklet, A Guide to Section 23 relief – Rented Residential Relief in a Tax Incentive Area, which outlines how to calculate your tax relief.  It gives an example – see Section 6.2, Example 2 -  of how the original Section 23 property is sold for a lower price to a new buyer and how the new buyer, because their tax relief works out at lower amount because the purchase price is lower than the original purchase price, is still entitled to claim the higher relief that applied to the original buyer.   Either you or your accountant should be able to confirm the amount of tax relief you will be entitled to from this example. 





LL writes from Dublin: In regard to the bank guarantee, is Ulster Bank fully covered by the Irish government in their branches in the republic? 

I became unemployed in May. My mortgage is quite new. I applied for mortgage interest supplement to assist with the interest portion of my mortgage and Ulster Bank had to send a copy of my mortgage application to the community welfare officer. The manager in my local branch sent this request through the internal bank post, but it has been delayed. Without the mortgage supplement it is difficult for me to repay my mortgage and I feel that my only option is to cease paying the mortgage payment, until I receive the requested documents. I know this appears to put me in the wrong but I can't see any other option. I would be grateful for your advice.

First, Ulster Bank’s deposits are covered by the £50,000 bank deposit scheme operated by the Financial Services Authority in the UK. It does not come under the Irish government 100% guarantee scheme. As for the problem you are having in getting the bank to release the documents that you local community welfare officer needs before he can assess whether you are entitled to mortgage interest supplement, I suggest you contact the dedicated MoneySense officer in your branch about your difficulties, if you haven’t already done so. MoneySense is a new personal finance guidance programme that UlsterBank introduced last May for its customers to use on-line, in print and face-to-face in all their 227 branches. Dealing with unexpected situations like losing a job, divorce or illness is one of the specific functions of the new service in order that customers don’t arbitrarily stop making mortgage or other loan payments. According to Richard Donnan, Managing Director of Personal Banking at Ulster Bank, “In recent months, reports of job losses and the resulting financial pressure on customers has intensified. We want to give people the practical support they may need at this time to help them take control of their finances.”  Let me know how you get on.



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The Sunday Times - Money Comment 09/08/09

Posted by Jill Kerby on August 09 2009 @ 20:49


I’m increasingly concerned about the number of people I’m meeting these days who are being taken in by the stock market rally of the last six months. Or, rather, by press reports of the rally.  Do we never learn?


As this rally has shown, last March was the lowest point for nearly all global stock markets and the traders and speculators who got in early and picked up battered financial, construction related shares and oil and other commodities have made big profits.   

Amateur investors need to see the rally in full flight before they feel confident enough to get – and angry enough with themselves for not acting sooner – before they plunge into the market. Usually that’s when it’s too late and the traders, who see the plebs hammering at the door, start moving towards the exit, pocketing their profits. 


I have no idea if the markets are going to keep rising or not.  No one does.  But I do know that the kind of buying we’ve seen, especially of financial, construction-related and some retail shares – makes absolutely no sense given how the banking sector is still a basket-case and lending has effectively ground to a halt. Unemployment is also still rising; house prices are still falling and repossessions are soaring. Commercial property is going into melt-down and government deficits and national debts are ballooning. Consumers have stopped spending. 


This looks like a recipe for lower, not higher corporate earnings, share prices and dividends. 


The mistake I made was not heeding my own advice in May of 2008:  I didn’t sell and go away, but that was because the bulk of my savings is tied up in long term pension funds. Last year, it never dawned on me until it was too late that the financial and credit crisis could have such a devastating effect on my 20 years worth of carefully diversified pension assets.  I genuinely thought I’d been clever by-passing Irish shares or getting weighed down in financial stocks. 


Since I think this Great Recession is still in its early stages and there’s a lot more downside risk than ‘green shoots recovery’, I’m checking out low-cost, index-linked bond funds and big defensive stocks that still pay dividends and are, I can only hope, unlikely to disappear altogether between now and when I can afford to retire. 


And while pension tax relief is still with us, I suggest you get moving on making your 2009 pension contributions as soon as possible:  one bet I am taking is that retirement funding is going to get a lot more expensive after the Commission on Taxation’s report is published in September.  


And I wouldn’t put it past this government to not just cut the level of tax relief on both contributions and the matured fund, but to implement those changes before the October 31st pension deadline. 



Savings rates are up everywhere – at least among people who still have a job - and no more so than here where the fear of unemployment, falling house prices, rising taxes and fewer public services – has raised the national savings rate to a reported 12%. 


That may not last.  The latest Postbank quarterly savings index throws up an interesting statistic: nearly half (45%) of those surveyedbelieve they will have to dip into their savings within the next few months as their incomes come under more pressure.  With the retail banks now reducing their deposit rates and at least half of all credit unions failing to pay any dividend this year, there certainly isn’t much financial incentive to keep saving at these levels even if the reasons for doing so – like retirement and children’s education - increase. 


Meanwhile, Bank of Ireland suggeststhat the cost of educating a child from primary to college level is now €70,000 – and that doesn’t include paying any private secondary or third level fees.  


The bank notes in a report they compiled with the parent’s website, www.Schooldays.ie that you might just about cover the cost of educating one child up to secondary level if you saved all your child benefit payments, plus another €150 a month but only if their education investment plan, “which is not guaranteed” returns a steady, net 6% per annum. 


Who comes up with this stuff?  


This useless plan charges a 5% bid offer spread, a 1.5% annual management fee and a 28% exit tax. Avoid at all costs. 




It’s weirdly heartening to find out that we are not the only eejits in the world who deliberately set out to fleece both visitors and locals for all sorts of goods and services. 


According to Visa’s Europe Suitcase Index, which prices a basket of popular holiday items around the world, the Bulgarians are even worse than we are for ripping off holidaymakers. Singled out in five of nine categories, why else would they charge a whopping €28 for a pair of designer flip-flops, €30 for a beach towel or even €5.35 for a can of deodorant?  


Mind you, the last place you want to be without your iPod 8GB Nanoor a Kodak C1013 camera this summer is the Caribbean:  compared to the €139.99 and €99 respectively that they will cost here (they’re even cheaper in the US and Czech Republic), expect to fork out a whopping €490 and €477 to the pirates that are clearly still running those sun-blessed islands. 


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Money Times - 05/08/09

Posted by Jill Kerby on August 05 2009 @ 22:55




We won’t know for sure exactly what kind of property tax the Commission on Taxation has proposed until their report is made public.  But if the recent leaks have any credibility they appear to be favouring a flat rate tax, typically less than €1,000 for the average priced property, based on bands of values into which property owners will then slot their homes.  


If, as the leaked report suggest, this is done on a self-assessment basis, it will be the responsibility of the homeowner to make a declaration and send their payment to the Revenue. However, because we have a “progressive” system of taxation in which those who earn the most, pay the most and this excludes so many from even paying income tax – most pensioners, lower income families and the unemployed, chances are it will be mainly middle and higher earners who will end up paying the bulk of any new property tax. 


The justification for most property-based taxes in other jurisdictions is that the money goes for the provision of services - roads, public lighting, police and fire services, schools, local government, etc. that the local authority delivers to the property or land owner.  


This local rate or tax, which is often based on market value and square footage is usually reviewed annually, every two or even three years, but it is seldom revised downward. Pensioners and the unemployed are often exempt or enjoy large tax discounts. 


Most property owners pay up, but some challenge the rate if they see the value of their property falling, either because of a poor delivery of services lowers the reputation of their community and ultimately their property values, or because property prices are falling generally, say during an economic recession. 


We, unfortunately, do not operate a decentralised local authority system and instead depend mostly on central funding to pay for local services.  Since it would be hugely expensive and take too much time to revert to such a system that would justify a genuine property/land tax, it seems disingenuous to call the €600-€800 typical charge that those homeowners who will be caught in the net a “tax” a “property” tax.  Since no new services or efficiencies will be delivered in exchange for this tax, it should be called what it really is – an annual wealth tax that is probably only going to be levied against certain property owners and their private residences and investment properties. 


But how can you assess the value of a property in a still falling market where only a handful of sales are being completed? 


If any good comes out of this tax it is that homeowners who have been in denial about the real value of their homes, post bubble, are unlikely to mark down that bubble price.  Instead, they may end up using the price achieved by a neighbour who did happen to sell their house in 2009.  The danger is, of course, that this will be a very small, unrepresentative sample, especially in a falling market


One mortgage broker I know says he thinks house prices will bottom out at 2002-2003 levels and this is the historic price that he’ll be using for his valuation, “if push comes to shove”.


Since there is no market at the moment – and hasn’t been since late 2006 when the last house like mine sold in my Dublin city neighbourhood – I intend to value my house using a long standing formula that professional landlords use to determine good value.  I will take the average rent being paid for our houses and multiply it by a factor of between 12 and 14. (The better the location and the state of the property, the higher the number.) 


The final figure shows that if someone came along to buy my house tomorrow, they’d be able to recover their initial investment within (in the case of my house, say) about 13 years.  (It’s the equivalent of how share investors determine through the price earnings (p/e) ratio how soon they could recoup their investment:  if you pay €100 for a share and it pays an annual earnings dividend of €10 then the p/e is 10, or 10 years in which to recoup your investment. If it pays a €15 dividend, you get your money back in 6.6 years.) 


I’ve no idea if my assessment will be acceptable to the Revenue, but it’s acceptable to me, because the rent that someone will pay is always a more consistent real time indicator of the market value of a property than the sort of crazy prices that were quoted at the height of a property bubble. 


But given the Given the complete lack of an independent national valuation of land and dwellings in this country, there could end up being as many valuation formulas …as there will be householders liable for the tax. 


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