Passing on ECB rate cut

QA:Q I'm currently in the process or remortgaging and I've gone through a broker for convenience. The broker has arranged an offer from IIB (KBC) bank. Is this bank likely to pass on the latest ECB reduction? If not, would I be better off approaching the other banks directly?

Mr PB, e-mail

A There are no guarantees in the rapidly changing world of mortgage finance in Ireland. Getting a loan at all is something of a feat, just now.

However, you are quite right to be alert to the fact that banks are not obliged to pass on in full or at all European Central Bank (ECB) interest rate reductions to mortgage customers - unless they hold tracker mortgages, which have now been withdrawn from the market.

I cannot tell you whether IIB/KBC or any other bank will pass on any particular rate. What I do know is that KBC was certainly the last of the lenders to decide to pass on the most recent, second half-point ECB interest rate cut.

I can also tell you that not all institutions have adopted a unified approach in passing on the rate cuts to existing customers, as against new customers. It is also true that the rate available to someone buying a property in which they intend to live can be different to the rate available for people looking to buy an investment property or, indeed, people remortgaging on their existing property.

Having said all that, the point of going through a broker is to avoid the hassle of you having to chase down all the rates on offer in the market. You need to check with your broker exactly which lenders' products he can offer. The more lenders he represents, the better, clearly, in ensuring you get the best rate available. You can then, if you wish, approach the few remaining lenders directly for information.

Mind you, in the current environment, despite headline rates, some lenders can really put you through the hoops in securing a mortgage, while your broker has at least short-circuited the process for you.

OVER-70 MEDICAL CARDS

Q We are in our mid-70s. My husband is in quite poor health and we are well within the medical card threshold. However, we have savings of €80,000 or a little over, which represents over 50 years of savings for our old age and which we are fully prepared to be taxed on (doubly taxed, as we have already paid tax on it plus Dirt tax, and now this third tax).

I have €7,000 stashed away which my husband knows nothing of and I don't intend to give it to the Government either. Any suggestions on how to get around that (besides putting it under the mattress)? There are plenty of women in my position.

Ms EM, Dublin

A It is possibly depressing but true that many women are, as you say, in a position where they have small personal cash savings kept quietly from everyone, including partners, in case an emergency arises.

Leaving aside the issue of tax, which has no bearing on the eligibility of people over the age of 70 for medical cards, the new regime outlined following the Government U-turn should not present too much of a problem for you if you are, as you say, "well within the threshold".

The rules regarding the means testing for people over 70 state that individuals with an income of €700 a week and couples with income of €1,400 a week will be eligible for a medical card.

This equates to annual income of €36,500 for a single person and €73,000 for a couple.

One important point to bear in mind is that these figures are for gross income - ie, before deductions for income tax and PRSI.

Then we come to the all-important issue of savings. The rule here is that only the actual interest earned on those savings is taken into account.

I know from your letter that your personal savings are held in areas that have been paying reasonably low rates of interest, so I don't think that is likely to be an issue. I can't comment on your savings with your husband, as you don't indicate where these are held. However, I gather they are likely to be held conservatively and are thus earning relatively low interest.

To put it in context, say the savings were earning an average of 5 per cent, and your combined savings of €80,000 would yield interest of €4,000 in a full year. Your €7,000 private pot would generate interest of €350.

In total therefore, in this illustration, your savings would generate "income" for the purposes of the means test of €4,350 in a year - or €86.65 a week.

So, if your gross income from other sources - your pensions - comes to less than €1,300 a week, you should have no problems.

Regardless of your personal arrangements, the rules of the medical card scheme state that all income from all sources is taken into account. Certainly, if your savings pot is large enough to bring you over the threshold, you really would need to declare it.

For what it is worth, regardless of medical card eligibility, you will continue to be exempt from the 2 per cent health levy, as you are both over the age of 70.

FIRST-IN, FIRST-OUT

Q In reply to question re Capital Gains Tax two weeks ago, you state: "Thus, when you sold 1,000 shares in AIB in early October, they were not the 1,000 shares you bought days earlier - at least as far as the Revenue are concerned."

Yet, I note on page 24, in Guide to Capital Gains Tax issued by the Revenue Commissioners, they state, under the heading "Disposal of shares within four weeks of acquisition", "The FIFO rules are modified in any case where shares of the same class are bought and sold within a period of four weeks. Where shares are sold within four weeks of acquisition the shares are identified with the shares acquired within that period . . ."

Am I misinterpreting the statement in the Revenue Manual ?

Mr MP, Cork

A You'd think after all the years of addressing queries on capital gains tax, I would not get tripped up on the revised First-in, First-out provisions.

You and the many other correspondents who were quick to notice the error last week are, of course, quite correct.

My correspondent last week - Mr MK from Dublin - bought 1,000 AIB shares in late September and sold them in early October - within the four-week period. The shares were bought at €4.775 and sold at €6.69. On the face of it, this gives a net gain of €1,915. From this you would need to deduct any expenses incurred in the transactions and also the €1,270 annual capital gains exemption. This would leave Mr MK with a maximum liability on €645, which would be taxed at 20 per cent, giving a tax bill of €129, which is payable by January 31st, 2009.

As it happens, what Mr MK really wanted to know was the price his remaining 501 AIB shares were deemed to have cost. The answer to that, under the four-week rule, is that 450 of them are deemed to have cost the €10.95 per share he paid for them back in 2000, while the balance - scrip dividend issue received between 2002 and 2004 - are deemed to have cost the €12.14 average price from that period.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.