Should I cash in pension and use rent instead?

PERSONAL FINANCE:Your queries answered

Q

My husband and I have three mortgages: two apartments in Dublin and a house in Kinsale. The apartments were bought in 2005 and 2006 before we met and are in negative equity.

I started a personal pension three years ago. Is it worth keeping up this pension as it is likely that we will never sell the two Dublin apartments (or if we do, not for years). Am I better to use the two apartments as our pension? Luckily we can afford the repayments on the properties and have a savings account. We are both in our early 30s.

- Ms AC, Dublin

A

You are in a fortunate position in being able to make repayments and are sensible in at least thinking for the long term while it is possible to do so. Clearly, your properties are assets, though ones that are currently worth less than you paid.

A number of people did abandon pensions for “easy” gains on property investment in the boom years but most have lived to regret that decision.

A pension pot takes a long time to accumulate and, despite the Government mucking around with reliefs and levies, it is still one of the most tax-efficient ways to save. I would suggest you continue with the pension, even if you have to reduce payments in the short term because of cash-flow issues. At least, by your own account, you do not have the worry faced by so many people in meeting their mortgage repayments.

How do I put a capital loss against a gain?

Q

I have been participating in a company-wide share-save scheme for the last three years. The exercise price is considerably lower than the current price so I stand to make a profit for which I’ll be liable to CGT. At the same time, I have a small quantity of bank shares which haven’t performed so well (understatement) and, as I don’t foresee any short-term uplift, I was thinking of selling them to offset my tax liability. What are the rules for putting a capital loss against a capital gain? I’d like to handle the paperwork myself as I’m numerate and pretty adept at form-filling. Do you think this is recommended?

- Ms FO’C, email

A

The situation sounds pretty straightforward in what is more formally called a Save As You Earn scheme. On the one hand you will have a gain when you dispose of the shares acquired – the sale price minus what the shares cost you under the SAYE scheme. On the other hand you have the bank shares which are more than a little under water and likely to stay that way. The loss is also straightforward: purchase price minus sale price.

If the loss on the bank shares is greater than the gain on your company shares, you have no CGT liability and the excess loss will be carried to subsequent tax years until offset by other gains.

If there is a gain and it is below €1,270, and you have no other capital gain this year, your gain is exempt; otherwise it is subject to tax at 25 per cent and you will have to return the tax and the details to the Revenue on Form CGT Payslip A by December 15th if the transactions take place before the end of November and CGT Payslip B by end January for transactions in December. You will also need to complete a Form 11 tax return for 2011 next year.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into. Please send your queries to Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@irishtimes.com