An Irish Times guide to the world of personal finance

SSIAs

My son works in Poland. He comes to Ireland each summer. Is he entitled to apply for SSIAs when he is here next summer when he "is residing in Ireland"? He has a PRSI number.

Mr J.S., Galway

I doubt it. His physical residence in the Republic for some time during the summer does not qualify for residence under the terms of the tax code and so for the special savings incentive account scheme. Residence in relation to this is a matter of where one "resides" for tax purposes. Thus, most of us living in the State will be tax resident in the Republic. You can remain ordinarily resident in the Republic for three tax years once you go abroad, provided you have been tax resident in the State for more than three full years.

If your son can claim ordinary residence, he is entitled to open an account and does not even have to be here to do so.

However, unless he intends returning home within three tax years of leaving the State, he will lose any ordinary resident status he may have. At that point, his account will be closed and he would be taxed at the standard rate plus 3 per cent (currently a total of 23 per cent) on everything in the account - his initial investment on which he will already have paid tax, the Government contribution of €1 for every €4 invested and any investment gains.

The fact that he has a PRSI number - now known as a PPS number - does not indicate his entitlement one way or the other. Everyone who has ever worked in the State will have a PRSI number and, more recently, everyone in the State has a PPS number.

I opened an SSIA account with the Irish Permanent in August and I would now like to change to a deposit SSIA in a different institution. Is this possible and if so, how do I go about it? If it's not possible and I stop contributing to this account, can I withdraw the funds that are currently saved?

Ms H.T., Dublin

The simple answer is that you can, at the moment, but you need to weigh up your reasons for any such move. The rules of the special savings incentive account scheme allow for a saver to close one account and open another at any time up to the cut-off date for new accounts - the end of April this year. The catch is that you will be taxed at 23 per cent (the standard rate of income tax plus 3 per cent) on anything in the account you currently operate. That includes your own contributions, which have already been taxed, the Government contribution and any investment gains. In essence, that means you are likely to lose money on your existing Irish Permanent investment. After all the Government contribution adds 25 per cent to your investment, just a little more than the tax rate and the investment return in the early stages will be low and, such as it is, also subject to tax.

You do not say what type of account you have with the Irish Permanent. If it is a deposit-based SSIA, you will have to calculate carefully the benefit over the five-year period of setting up such an account with a different institution. That is possible with a fixed-rate option, but if you opt for a variable rate product, you are, like the rest of us, reduced to guessing the future direction and scale of interest rate changes.

Essentially, you will have to assess whether any new deposit account will sufficiently outperform the one you hold to cover any loss on your existing investment as well. Given the proximity of rates between institutions and the competition between them, this is by no means certain. Of course, if you are currently holding an investment-based SSIA, there is the possibility of greater divergence in performance.

It has not been the best of years for such investments but they are intended as longer-term savings vehicles and many people consider even the five-year term of the SSIAs as too short to justify the risk over deposit-based rivals.

If you are no longer comfortable with the greater risk in investment SSIAs, there may be an argument for shifting to a deposit-based product but the loss on your existing investment will be higher because of the effect of charges on the account.

I have tried for some time now to get an answer to this question, without success. Maybe you could help. I have £200 per month to invest. I can invest in an SSIA for five years and use the proceeds to make a lump sum repayment on my mortgage.

Alternatively, I can make additional mortgage repayments for five years. Which would be the most effective in terms of reducing the entire amount I pay for my mortgage. My mortgage is for £90,000 and it commenced in August 2001.

Ms D.G., Kildare

The general view is that, with interest rates as they now stand, you would be better advised to invest in the SSIA and use the lump sum at the end of the savings term to pay off a chunk of the capital on your mortgage.

The justification for this argument is that the interest rate on your saving - especially once you take the Government's 25 per cent contribution into account - is greater than the interest you are paying on the mortgage.

Concerning the special savings incentive accounts, I wonder if you know of any Irish institutions offering ethical investments, such as are advertised in Britain?

J.P.H., Dublin

The only one of which I am aware is Friends First, which offers its stewardship funds. As yet, the ethical funds market in the Republic is undeveloped and, while this may change in the future, your window of opportunity is closing, as SSIAs need to be set up before April 30th next.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or 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 queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.