Jill Kerby

HAVE YOU MISSED THE BITCOIN EXPRESS?

Spotting financial bubbles are clearly harder than you may think.  Keeping well away from them, for many, is even harder. 

The latest bubble is the crypto currency Bitcoin, which in just the past year has gone from $575 in price to $4,262 at time of writing.

We only have to look at the property buying frenzy that began around 1997 here in Ireland to recall our own experience with bubbles. That one exploded – slowly, then practically overnight - when the property-as-investment bubble met its pin a decade later in 2008 with the realisation that we’d run out of buyers – and cheap finance – for the tens of thousands of surplus properties that were built here at such inflated prices.  Homeowners, worried about never getting on the property ladder, were unfortunately the biggest victims of all.

But Irish people have willingly participated in other, smaller speculative bubbles - nearly 600,000 people, encouraged by the government, bought privatised Eircom shares in July 1999 at the equivalent inflated price of €3.90 only to lose a third of their value.

Not long after that collapse was that of the NasDaq stock market in New York. Enthusiastic dot.com investors were far fewer than Eircom ones, but Irish pension funds were hard it and it triggered the downward interest rate adjustment by the US Federal Reserve and other global central banks, which in turn created the property bubbles in many Anglo-American economies.

Fools and their money have been parted many times by financial manias:  shop girls and shoeshine boys, along with lords and ladies, were caught up in the share mania of the late 1920s that turned into the Great Depression. Before that there was Tulipmania in the early 17th century; the South Sea and Mississippi bubbles a hundred years later.

And now there is Bitcoin.

Cryptocurrency proponents insist “this time is different’, but they should be reading the book of the same title by economists Carmel Reinhard and Kenneth Rogoff.

Today’s cryptocurrency mania is no different from all the others times when the inexplicable exuberance of the crowd, fed by soaring trading prices has led people to wildly speculate on a single asset; they are always certain they’ll know when to sell to the bigger fool and be out of the market before the price collapses.

‘Bitcoin’ was the first cryptocurrency and was launched in 2009 at the cost of only a few pennies. Its shadowy creators claim its production is limited to just 21 million units – thus ensuring a constant measure of value. To create a new blockchain of Bitcoins requires a lengthy and expensive computer “mining” process.

(Cybercurrencies are not held in physical form like cash currencies (or gold and silver coins, for example) or even in conventional bank deposit accounts. Instead, they exist exclusively as blocks in cyberspace, owned and then traded or sold directly by individuals (who hold then them in online purses) with no official third party intermediary, like a central bank or state revenue authority to regulate or or tax them. The blockchain miners are self-regulating.)

Today, there are over 830 cryptocurrencies like Bitcoins, most of them the equivalent of risky “penny stocks”. But some early traders have literally made overnight fortunes buying low and selling high. The market is now being flooded with ‘coins’ and they are being invested in and traded by some of the biggest investment banks in the world.

Cybercurrencies are supposed to be the ‘purest’ form of money with the value of each ‘coin’ set by willing buyers and the 260,000 retailers who participate in the cryptocurrency market. They may be easily portable (via crypto purses) and divisible (in coin ‘units’), two important factors for an viable currency but their “instrinsic” value and viability as a store of value (unlike an ounce of pure gold or silver) is still debateable.  And any asset that soars in value from €575 to $4,262 a unit in the space of 12 months is in a hyper-bubble that could prove very expensive to ‘the greater fool’.

I only know one Bitcoin owner personally who still has eight out of the 50 bitcoins his teenage son convinced him to buy a few years ago…at $2 a piece. He’s mostly spent the coins taking lovely holidays with travel operators and hotels that take these coins.

I’ve also had some recent discussions with some friends, readers and even Twitter followers who swear that crypto currencies, and especially the original Bitcoin will double in price as more and more corporations and individuals realise (as they do) that it is the only alternative to the corrupted currencies and physical bank ‘notes’ that we have no choice but to use.

They could be right. But not at this degree of volatility. At the top of this article I wrote that Bitcoin was $4,262 a ‘coin’ as I write. As I sign off…it’s price has fallen to $3,531.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

BACK TO COLLEGE COSTS MAY NEED MULTIPLE FUNDING OPTIONS

Putting a youngster through college, especially if they cannot live at home is a serious financial challenge for most parents, and especially for those whose income puts their child outside the student grant scheme.

How to fund a four or five year third level education (that fifth year being an expensive post-graduate degree) is something that parents need to consider from their children’s early years. It’s why it makes sense to commit your annual child benefit payment, to a good savings account and to also consider investing accumulated lump sums.

Saving the €140 a month (€1,680 pa) child benefit payment in a tax-free State Savings scheme and assuming even just a 1.5% average return over 18 years will return nearly €34,700. Investing the money in a longer term, low cost investment fund should beat deposit returns, but the current 41% exit tax on investment returns is a major disincentive and should be abolished. At the very least, the government should be introducing an ISA, and Junior-ISA - the tax-free individual savings accounts that exist in the UK - that are widely used there to fund third-level education.

With the cost of the 2017-2018 university education year expected to hit €12,500         according to the USI (University Students of Ireland), college-goers and their parents with more than one child in the family and with a moderate income and inadequate savings, would have had to apply for their student fee or maintenance grant by the July 13 deadline.

The SUSI.ie website, criticised in the past for being too complicated and unwieldy now provides an easy to use “eligibility reckoner”.  I keyed in the following information: 18 years old; a first year undergraduate doing a level 7-8 degree; one younger sibling and another already in college; parents with joint income of €100,000. The ‘reckoner’ concluded: “Based on the information you have provided, you may be eligible for funding. Please refer to the guidance on making a grant application.”

Clearly, the smaller the family and higher the gross income (from all assets), the lower the chance of qualifying for a SUSI maintenance grant, the maximum of which are in the region of €6,000. For those students who don’t qualify with SUSI, the search for funding will be more precarious.

Gifting

Bank and life assurance surveys regularly show that other family members, like grandparents, are generous contributors to the rising education costs of their grandchildren.

A tax efficient option for grandparents with spare cash who also want to minimise the long term inheritance tax bill of their family heirs is to gift the capital acquisition-free gift provision of €3,000 per annum to either help build up an education fund (via a deposit account or investment fund) for their individual grandchildren, or to meet the actual cost of Irish college registration fees, housing or other expenses listed by the USI.  There is no limit to the number of grandchildren (or anyone for that matter) that you can gift each year. Even the accumulation of the annual €3,000 gifts has no impact on the lifetime tax-free threshold between grandparents and grandchildren, which is currently just €32,500.

Bank Loans

Many third level students and their parents also turn to their banks or credit unions to fund their education costs. 

Depending on the course and income prospects for the student once they graduate, banks will lend some or all of the costs.  A single, €20,000 loan, repayable over four years from AIB, for example, will cost about €500 a month, repayable immediately, at interest of 8.5%. The total capital and interest will be c€23,500. There is still no official student loan scheme here, though it is under consideration with repayments made up to a decade after graduation and the securing of a job. 

It’s worth shopping around for best rates, especially from your local credit union where interest repayments are made on the diminishing balance and not as compound interest and loans repayments are covered by life insurance.

Finally, during the mad Celtic Tiger boom years home-owners with positive equity (at least on paper) were able to draw down equity loans for the purpose of paying secondary, let alone third level education costs.

Today, equity release loans are not available, but your family home still might be able to play a role in paying for your youngster’s expensive third level education if they living away from home.

The Rent-a-Room Scheme allows you to rent out rooms in your house entirely tax, PRSI and USC-free and earn up to €14,000 per annum. Demand has never been higher for student ‘digs’ and many students are happy to rent for five days a week, leaving you with some privacy on weekends (if your own child doesn’t return themselves.)

That €500 a month (or more) renting out your child’s vacant room could go some way to meeting their annual costs. (See www.citizensinformation.ie for details.)

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

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Fermat Point Limited, trading as PortfolioMetrix Ireland, is regulated by the Central Bank of Ireland.

WITH RECORD HSE QUEUES YOU NEED YOUR OWN TREATMENT PLAN

If you are over age 75, and have need for the services of a public hospital Emergency Department you may very well be worried.

And if you are one of the 687,000 patients still waiting for treatment in a public hospital anywhere in the country – up nearly 10,000 on July - or know someone who is in the 50% waiting over six months, you might want to do something more than just worry about the length of that delay.

The latest news about HSE waiting lists is only getting worse, and the Minister for Health is now on the verge of appointing a new ‘health Czar’, to try and bring some control to the €15 billion mess that is the public health service here.

Good luck to him. 

Until that stubborn nut is cracked, anyone who doesn’t already have private health insurance or a large bank balance needs to ‘hope for the best and plan for the worst’. And that means coming up with a practical, personal, affordable health plan of your own to ensure that you (or someone you love) doesn’t end up on that ‘patient-in-waiting’, or better still, is able to get off that list by receiving appropriate treatment.

Find a Private Consultant

According to the latest National Treatment Purchase Fund survey, the majority of the 687,000 patients– 493,780 - are waiting to see a consultant.

Since the public consultants’ supply problem will not be sorted out easily or quickly, you need to get your GP to recommend one. Expect to pay the consultant a fee of c€200, which is tax deductible. Use income or savings. If you have neither, sell something on eBay, DoneDeal.ie, Gumtree.ie , at a car boot sale or local market. If that isn’t possible, try borrowing the money from family or friends or the Credit Union. Check out the CU’s ‘It Makes Sense’ microloan scheme for people in receipt of a social welfare payment.

Try to avoid borrowing the money from a moneylender, but frankly, a €250 loan for an important medical consultation is just as worthy as a loan for expensive Christmas toys or elaborate First Communion clothes. On-line begging for expensive private medical treatment/hospitalisation is also perfectly respectable:  it’s called ‘crowd-funding’.

Private Treatment

Once you have a diagnosis from the consultant you can start investigating how to arrange and pay for your treatment.

The reactivation of the National Treatment Purchase Fund in 2017 means that public patients on hospital waiting lists, or on the recommendation of a consultant  are being sent to private hospitals in the EU/EEA under the EU Cross Border Treatment Directive or under the HSE Treatment Abroad Scheme if treatment is not available in Ireland (or is taking longer than it should to occur.) The cost to you, the patient is refunded by the HSE up to the cost of the same treatment in a public hospital in Ireland. (Ironically, the only private hospital treatments the HSE will not refund are those incurred in the 19 private hospitals located here in Ireland.)

The single longest outpatient waiting list -18,660 - is for a gastrointestinal check. The longest in-patient treatment list is for ophthalmology cases, followed by orthopaedic and urology cases.

Shop Around

If you need a hip replacement, for example, and are low on the Irish public hospital waiting list or the Cross Border or Treatment Abroad Scheme you can look for an approach a treatment centre in the EU and EEA and get prior approval from the HSE. See National Contact Points, Cross Border Health Directive on www.citizensinformation.ie

If for some reason HSE approval is not forthcoming, but your doctor still recommends treatment and you can afford to pay for it yourself, either from a private Irish or foreign hospital, you will at least be entitled to claim standard tax relief on your medical costs and expenses, according to Sandra Gannon of the tax consultants TAB Tax Services. (A hip replacement here will cost up to c€16,000 but just c€3,500 in Lithuania.)

Buy Health Insurance

The best way to avoid getting caught up in all the HSE’s legendary waiting lists, is to have a good private health insurance policy with comprehensive outpatient and hospital based cover (c€1,300 plus per annum.)  The greatest benefit of having such insurance is not the better accommodation or food in the private hospitals (however welcome) it is your ability to jump a queue that is now 86,111 long for inpatient or day care treatment in a public hospital.

It won’t do much good to someone with a pre-existing condition (like a dodgy hip) that caused you to join those horrific queues in the first place, says Dermot Goode of www.totalhealthcover.ie but you will be covered sooner for new, unrelated medical events.

Finally, even a good health cash plan (one premium can cover the entire family) from www.hsf.ie  for about €950 a year will pay tax-free benefits for a range of outpatient and in-patient events, including consultants fees and private hospital expenses.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

RELAX: THE GOVERNMENT WOULD NEVER RISK A PROPERTY CGT

Last week after appearing on the Today with Sean O’Rourke show on RTE 1 to discuss a proposal by the Department of Finance’s tax strategy group about charging capital gains on the profitable sale of the family home, a lot of angry tweets, texts and emails lit up RTE’s switchboard and my in-box.

The tax strategy group must know that the very idea of a tax on the family home would be ripped to shreds. It’s such “political dynamite” that I doubt if it will get anywhere near the Minister’s October Budget speech.

But playing the devil’s advocate, I suggested that such a tax actually makes a lot of sense in our debt-ridden, ageing economy where the demand is only going to get louder to higher pensions, more health care and more expensive long term care for the elderly.

I also argued that decades of misguided pro-property tax policies – which favour home ownership over all other kinds of savings, entrepreneurship, investments and even pension funds– need to be torn up if we are to break Ireland’s recurrent boom and bust property cycles.

Anyone lucky enough to have bought a home at the cheap end of the cycle and sell (or even become mortgage-free) at the top end, have been the biggest beneficiaries of those pro-property policies and tax subsidies over many decades. They also enjoy the ultimate reward:  an entirely capital gains tax-free profit when their property is sold.

I am one of them – an empty nester with a big old house.  If a CGT was about to introduced, I’d take the hint and sell now (and hopefully find a suitable, smaller property, something I wrote about last week.)  I have plenty of friends in the same position.  That drastic tax charge would certainly get the flow family sized properties moving again, and if supply was sufficient, bring down prices too.

A CGT tax might also – if it helped bring down prices and help restore some normality to the market - show that mortar and bricks are NOT a better pension substitute for a well-run, low cost, diversified, long term pension fund (which I also have). Or that it is our god-given right to magically reap a guaranteed, tax-free profit from our subsidised bricks and mortar…at the expense of renters, for example.

Memories are perilously short, but readers may recall how everything from the most ordinary, poky, 3 bed semi-d to a leafy Dublin 4 mansion was “earning” their owners the equivalent of a year’s salary. It was the most obvious sign of all that the property market was on a mad, bad, increasingly dangerous roller coaster.

I’m one of the lucky baby boomers and older retirees who happened to be in the right place and time to benefit the most from the upside of the booms and busts.

My husband and I were recipients of a £5,000 new house buyer grant to purchase our first house in 1986. It was sold in 1994 just as we started a family, but also just as the last great property recession was turning. We bought our current house – a big old decrepit Victorian end-of-terraced for c€125,000.  We doubled our mortgage.

Yet within a year, interest rates began their long deep retreat from double digits and property tax was abolished. The Celtic economy stirred and soon wages and salaries were up and taxes were coming down. Personal debt was puny.

But instead of reigning in the heated-up property market, the government encouraged it with more tax breaks and allowances for builders and developers. Addicted to stamp duty and other property taxes, it encouraged the banks to lend even more recklessly.

The rest is history.

By the summer of 2006 my old money pit of a house was worth €1 million - on paper. But by 2007 house values started falling sharply. The crash brought them all the way back down to c€300,000. Having paid off the mortgage – and not borrowed on the basis of its paper value - we were still “in profit” thanks in a big part to the legacy of favourable tax treatment (and economic growth) we’d enjoyed from the purchase of our first house.

Fast forward to 2017. My old money pit of a house is now “worth” c€700,000 even though it is now 122 years old and surely, a depreciating asset if only because of its age.

Yet if we sold it tomorrow, we’d still “earn” €575,000 tax free over it’s original asking price. (A 33% CGT would amount to €189,750).  Meanwhile young families (like we were once) struggle to pay exorbitant rents …if they can even find somewhere to rent.

So should a CGT tax be introduced to help wean us off this dominant, volatile and unevenly distributed wealth asset?  Maybe. But it won’t happen. You can all relax. We believe unearned, tax-free profit from property is a God-given right.

The next generation can make its own luck.

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

WHEN SELLING DOWN ISN’T POSSIBLE…RENT-A-ROOM TO THE RESCUE

The Irish housing crisis has affected pretty much every age group except one – older, late middle-aged people and retirees, the vast majority of the latter - 92% - who already live in owner-occupied houses.

Not only do the majority of retirees have a place of their own, but 83% own their homes outright, with just 8% renting, according to Tilda, the TCD research group into our ageing population.

And while half of these properties have quality issues that need to be addressed, Tilda, in its 2016 housing report confirm what most of us know already: there is a serious and growing mismatch in housing occupancy in Ireland, with hundreds of thousands of older, single people and couples residing in properties that are more suited to families.

A functioning property market is one that keeps the flow of all types of property moving between the generations. Instead, we have a market in most of our larger cities that is forcing prices relentlessly upwards for people wanting to buy, or who rent. The solution is to start building more appropriate properties for the rapidly ageing – and demanding - cohorts of current retirees and ‘baby boomers’ who are keen to downsize even before they reach 65.

Nearly 24 years ago, my husband and I moved from a small, two-bedroom starter home in Dublin’s city centre to a larger, Victorian terraced property about a mile away.

It has served its purpose. The Child is about to fly the nest (we hope permanently) and the next logical step is to downsize and let a new family upsize into this bigger house. With its proceeds, we would buy (or even rent on a long term lease) something smaller, using any balance to boost our part-time earnings and retirement income.

Unfortunately, this virtuous property circle has broken down. Just like everyone else looking for a home, there’s a chronic lack of suitable and decent value smaller properties in or around this neighbourhood.

I admire people who intend to move to the country in their retirement thus almost guaranteed to maximise their dual goal – a nice, smaller place to live and money in the bank for their old age.

But the countryside isn’t for us. We are privileged to live in a very mixed neighbourhood of Victorian and Edwardian terraces, private semi-d’s built in the 1930s and 40s, privatised council houses from the 1950s and 60s and rather too many dubiously constructed apartment blocks that went up in the boom years, but are lacking any storage for suitcases, let alone boxes of Christmas decorations. Cash investors-cum-landlords are buying a disproportionate number of the properties that are for sale…and I believe its just a matter of time before this latest price bubble meets its pin. 

There’s also no point fighting city hall.

The down-sizing supply roadblock for already privileged older homeowners is not a priority. No one cares that ‘baby boomers’ and home owning retirees can’t find the perfect smaller house or apartment in their neighbourhood.

But that doesn’t mean that there are no options other than cashing in and moving to the country (or to a sunnier country like Spain, or the bargain basement that is Greece…)

Here are three ideas that I’m checking out right now…

1) Turn a larger, older property into a “duplex” with two self-contained units. Live on the bottom floor and sell the top floor. You shouldn’t have trouble selling the upstairs to a singleton, downsizing retired couple who want to stay in the city or even a small family (especially if you have a convertible attic). You get to stay put without all the responsibilities of a large property.

The downside is securing planning permission and refurbishment costs, etc.

2) Convert part of the house to a self-contained rental apartment. You get to downsize and still own the entire asset.

The downside is cost of refurbishment, the inconvenience and costs of being a landlord and big income tax liability: you can only claim 80% tax relief on allowable expenses. About half your rent could disappear in tax.

3) Upgrade the house but rent out that spare floor (once you move downstairs) under the Rent a Room scheme and earn up to €14,000 tax free.

“This certainly appears to be the best option,” says (my) financial adviser and planner Marc Westlake of Global Wealth Management. “Earning €14,000 tax free from renting rooms in your home, or even self-contained flat [in an attic, basement or unused floor] is a no-brainer.”

The Rent-a-Room scheme is, ironically, just another roadblock in helping to release much needed family homes. But until the supply shortage is comprehensively resolved, it may very well become the default option for the growing number of home-owners who want or need to downsize.

Get a good team of advisers together if you decide to downsize, including your financial and tax adviser and solicitor. Check local planning regulations. (See www.citizensinformation.ie then search Rent a Room Scheme.)

PORTFOLIOMETRIX IRELAND…a new era of personalized investment portfolios

14 Fitzwilliam Square Dublin 2  +353 1 539 7244   info@portfoliometrix.ie

Fermat Point Limited, trading as PortfolioMetrix Ireland, is regulated by the Central Bank of Ireland.