Dominic Coyle answers readers' queries on various financial issues

Scots Provident

Scottish Provident has recently asked members to choose by January 28th between cash and loan notes for compensation (£500 minimum + variable sum) after demutualisation. A lot of Irish people will be affected and the correspondence received from Scottish Provident and its helpline give practically no advice. The Questions and Answers provided by the company says that the loan note option may allow CGT deferral and potentially allow a benefit from future CGT allowances but when I phoned the helpline, they were unable to clarify. Can you confirm the Irish situation? Can a single person taking £3,000 compensation in loan notes redeem £1,000 of loan notes each year over the next three years to utilise the CGT annual allowance?

Mr C.W., Mr M.O'D., Ms E.M., e-mail

The above is a composite query, taking elements from a number of very similar questions submitted on the issue of windfall payments to members of Scottish Provident following its demutualisation last summer and subsequent purchase by Abbey National.

The institution's 70,000-plus Irish policyholders have been receiving letters in the past week or so outlining their options, but many are unfamiliar with those options and are worried by the tight schedule. They have to choose how they wish to receive payment and reply to Scots Prov by January 28th - 10 days' time.

There are two choices each policyholder needs to make. First, do you want to receive the money due to you as a cash lump sum up front or will you take it instead by way of loan notes redeemable over time and attracting interest in the meantime? Second, do you want to receive the money in sterling or in euro?

Around 40 per cent of Irish policyholders will qualify apparently for only the minimum payout - £500 sterling (€811). There is really no issue for most of these people. The amount at stake is less than the annual €1,270 tax-free allowance on capital gains. So, unless there are other capital gains tax (CGT) liabilities falling due this year, they will not face an issue on capital gains tax.

For the rest, the idea of the loan notes is to allow you to spread your capital gains tax liability over a number of years to avail fully of the annual tax-free allowance on capital gains. Scots Prov will pay interest on the loan notes at a rate that the company says will be determined before the loan notes are issued but not in advance of the January 28th deadline for decisions by members.

Members opting for the loan notes issue will be able to withdraw their money at six-monthly intervals to suit themselves and, according to the company, can opt to do so in sterling or the euro equivalent on the day of the drawdown.

The fact that you are single makes no difference under the rules for capital gains tax, as the allowance is not transferable within couples.

Turning to the currency issue, you have to decide whether to opt for the euro, or take a gamble on the exchange rate between the euro and sterling. Simple, yes? Except that deciding on the future direction of exchange rates is anything but simple. Most people would probably be best advised to take the money in euro unless they are comfortable with the idea of risk and familiar with the nature of exchange rate fluctuations. Remember too, that commission will still apply on any eventual conversion of sterling into euro.

SSIAs

I am in my early 20s, single, and two months ago started working for a foreign company in Ireland. I am an Irish resident, Irish taxpayer and have a PPS number. I wish to avail of an SSIA account but have a concern about collecting the proceeds at maturity. Being with a foreign company, I may well be transferred outside of Ireland any time within the five-year period of the SSIA. If I transfer in my job to work abroad after say one year of opening the SSIA, would I have any difficulty in claiming the full proceeds at the end of the five-year period including Government contribution plus interest, even though my home address will still be in Ireland?

I read somewhere that Irish residency holds for three years after leaving Ireland. This being so, would I lose all the benefits/advantages of SSIA if I moved abroad any time within two years of starting the SSIA account? My question really is: Would all SSIA account holders have to sign some form of declaration at the end of the five-year period confirming that they are resident in Ireland or have been within past three years before being able to lift the money?

Ms J.W., e-mail

You will have to sign forms when you first set up a special savings incentive account and again upon maturity when you want to draw down the money. Both will require you to confirm you have followed the eligibility requirements for access to the scheme during the course of your investment. Should you become non-resident for tax purposes, obviously you would not be able to sign to the contrary on the form required at the end of the SSIA term.

The institutions offering accounts under the scheme are required to pass on to the Revenue any suspicions they may have about a person who either makes a false declaration in relation to the scheme or who, they believe, no longer fulfils the eligibility criteria during the scheme.

Returning to your first question, you are right when you say that ordinary residence lasts for three years following the year of your departure from the State for tax purposes. However, it is possible to work abroad and be tax resident in Ireland. In such cases, your global income would be taxable in Ireland. You would need to check with your company under what jurisdiction you would fall in the event of any move abroad and whether you can elect to remain tax resident in Ireland.

Of course, there is a lot more to tax residency than eligibility to hold an SSIA, attractive and all as the scheme is, and you would need to weigh carefully any decision about residency where there is a choice open to you and to take professional advice.

For most of us, there is no choice and, in that case, you might find yourself falling outside the rules for the scheme should you be moved abroad within the first couple of years of the operation of your SSIA account. However, unless you have some pretty clear indication that you will be moved imminently, I think you are unlikely to lose out by starting such an account.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier St., 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.