An Irish Times guide to the world of personal finance. This week's topics include Eircom shares, SSIAs and housing.
Eircom
I have some Eircom shares that I purchased as a long-term investment. I did not purchase them with a view to sell them quickly; I planned to keep them for at least 10 years. I believed they would help supplement my pension in the future. I did not return the shares after the "compulsory" sale and I am still in receipt of them.
A few weeks ago I read about the court case brought by someone with a similar goal concerning those shares. The other Eircom shareholder claimed that his Constitutional rights as a property-holder were being infringed by this forced sale. I did not see the outcome of the court case in the paper.
I received a letter from Eircom recently stating that if I do not agree to the sale by April 23rd next they, Eircom, will apply charges for maintaining the shares in my name.
They also said that I should seek the advice of a professional such as a stockbroker or a banker. As stockbrokers make their money on transactions that are placed through them, there is no great urgency for them to be interested in my small number of shares, particularly as the transaction won't even be going through a stockbroker.
When I asked my bank manager about the Eircom situation in relation to the court case, I was told they were not aware of the court case. They said that I had to sell.
Do you have any idea what the current situation is with the court case?
I believe it is a rule of the stock exchange that is being applied to make me sell my shares. If it is a stock exchange rule, I find it curious that it somehow supersedes the Irish Constitution.
Mr J.H., e-mail
I know it is very hard to accept that you can own shares one day and have them taken from you without your consent the next, but that is the law and Valentia is acting quite correctly in implementing its provisions in relation to Eircom shares.
Like many others, you hoped to hold on to Eircom for the long run; like those others, you have lost out. If the holding is as small as you suggest, I don't suppose it was going to make a substantial addition to your pension.
One thing is for sure: fighting this thing though the courts is a pretty sure way of throwing good money after bad. The case to which you refer was dismissed by the courts.
There is a group investigating the possibility of taking a case for judicial review of the constitutionality of the Companies Act, under which the owner of a company can compulsorily acquire shares once they pass certain ownership thresholds but, even if it gets off the ground, there is no certainty of success.
It is tempting to say that what is happening here is a classic example of the chaos caused when amateurs get involved in investment.
You may feel the law is unfair but it is the law and it was the law when you first purchased the shares.
Small investors may claim they were unaware of this but that is, unfortunately, their fault. This law is not new and it is the responsibility of those investing to be aware of the law in relation to such investments in the same way as it is your responsibility to declare for tax any gain made on such dealings.
One further point. Eircom's actions are not guided by rules of the stock exchange but by the law.
SSIAs
I plan to invest in a Special Savings Incentive Account and, in the event of breaking the savings scheme, I want to pay minimal penalties. At the same time I also want to take a medium/high risk. Could you recommend an institution and whether I should use fixed or variable rates?
Mr R.G., e-mail
I think you want to talk to a financial adviser and quickly. You seem to be hopelessly confused between deposit-based and investment-based special savings incentive accounts. If you want, medium/high risk, you are looking at an investment-based SSIA.
The consensus advice seems to be that such investment will need more than the basic five-year term to be worth the risk, given the impact of charges.
If you are realistically looking at the prospect of breaking the SSIA within the five-year term, there seems little point going down that route.
As to the penalties, if you break the SSIA rules, you will be taxed at 23 per cent on everything in the account - your initial investment (on which, remember, you have already paid income tax), the Government bonus and any investment return or interest. This penalty is standard whatever you do.
As a general rule, the earlier you pull out of an investment-based product, the higher the cost, as you tend to pay charges and management fees up front.
Housing
My wife and I moved to the west one year ago from Dublin after 20 years and wish to sell our Dublin home.
1) Do we have to pay stamp duty on our new home in the west? (Our solicitor still has not registered it.)
2) Do we have to pay capital gains tax when we sell our Dublin home?
Mr S.H., Mayo
You will have to pay stamp duty on your new home. It is calculated on a sliding scale. Houses bought for less than €127,000 (£100,000) are exempt for stamp duty.
For non-first-time buyers, the rate on property in the next band (up to €190,500) is 3 per cent, then 4 per cent up to €254,000, 6 per cent up to €317,500, 7.5 per cent up to €635,000 and 9 per cent thereafter.
You should not have to pay capital gains tax on your Dublin home provided you have not let it out in the interim. The Revenue does allow a grace period between buying one family home - or principal private residence in official parlance - and selling a previous one.
If it has been let since you moved out, you will have to pay capital gains on a portion of the sale price, in proportion to the period of your ownership during which it generated rental income.
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.
