Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 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.
Pensions
I am a public-sector worker purchasing additional service under the local government superannuation scheme. However, at present I am not getting tax relief on these additional contributions on a current-year basis. I understand that I will be able to claim relief of up to 15 per cent of gross earnings on submission of my P60 to the Revenue. Obviously this will take some time and, meanwhile, I am considerably out of pocket. Can you tell me if I am entitled to this relief on a current-year basis and also what is the position regarding private pension schemes?
Mr V.B., e-mail
The simple answer is that you are not entitled to tax relief on a current-year basis on your payments into the superannuation scheme. If you were paying additional contributions on a regular basis and they were deducted from salary at source, you would be eligible for current-year tax relief.
The payments you are making in buying back years of service, however, are on a lump-sum basis. As with all such lumpsum payments, which attract tax relief of any sort, this relief must be applied for by you at the end of the tax year.
Looking to the second part of your question, you would not be entitled to take out a personal pension, given your membership of the public service pension scheme. What you can do is take out AVCs - additional voluntary contributions. There are certain AVC schemes, access to which has been negotiated by publicsector unions and you might also be entitled to set up an individual scheme with approval from your superiors. I would suggest you talk to your union office or the Government department for which you work.
I will have a State employment pension in 2004. I pay £4,000 (€5,083) per annum into the fund and am only allowed AVCs so that my pension will rise to the allowed maximum of 40/80th of final salary. I understand that you once said that I could take out up to three years of AVCs on the date of retirement (with tax relief allowed). Is this true, because I feel it would be better if I invested the annual amount and took out the three years in 2004? The return on the pension fund is poor and also, if the amount paid in gives an amount exceeding 40/80ths, I will lose an amount.
Mr S.C., e-mail
It's difficult to keep track of every statement over the years, but I am pretty certain I never said there was an entitlement to take up to three years' AVCs contributions in cash at the time of retirement from public sector employment. What you are entitled to do is to take up to a maximum of one-and-a-half times your final salary as a lump sum when you retire. The detail is 3/80ths for every year of service, up to a maximum of 120/80ths (one-and-a-half times) salary for those who have served 40 years.
I am not too sure what the relevance of the return on the pension fund is because, at the time of retirement from the public service, you will be on a defined-benefit pension and, therefore, the return on the fund will not matter to you at that stage. If the return on your current AVC fund is poor, now is the time to consider investing elsewhere, although you will have to go some way to better AVC performance outside the pensions area given the impact of tax relief on payments into AVCs and of charges/taxes on any other fund/property in which you wish to invest.
In relation to the 40/80ths limit, you should take advice on how any surplus could be used to augment the spousal provision of the pension or other areas, given that your pension will already rise in line with wages regardless of inflation - an extremely generous position.
Mortgage charges
Could you tell me please whether all the charges on the original mortgage must be duplicated for a topping-up, a few years later, with the same lending institution by the same solicitor?
Ms J.D., e-mail
Not necessarily. The first charge you need to consider is the administration/application fee charged by the lending institution. With increasing competition, most lenders are waiving this and, indeed, you may not have paid it first time around if you recently took out the mortgage.
Legal fees might come into play. Whether they do or not depends largely on the amount of the original loan, its relationship to the value of the property and the amount of money being sought in the topup. If the amount you are looking for - on top of the original loan - exceeds the mortgage sum originally sanctioned, you may well find yourself facing legal charges. These will be paid through your solicitor.
However, it does no harm to challenge any such decision, especially if the new "topped up" loan as a percentage of the value of the property is the same or less than the original loan was - a situation that would be quite common with the recent rate of increase in property values.
The third charge you might face is the cost of a valuation report. Again, this is most likely where the topped up loan exceeds the sum originally borrowed. The institution will, not unreasonably, want to know that it is not exposing itself to any greater risk than it did at the time of the original loan.
Commercial property
With regard to the Bacon Report III, if one buys a commercial property (e.g. a disused former shop) and intends to do it up, would you be liable to the 9 per cent duty? Does the 9 per cent simply apply to second residential houses. (Note, I own my own principal property at present). If you converted the upstairs into living quarters, how would this work?
Mr C.E., e-mail
Bacon III deals with the situation in the private residential sector. Purchase of a commercial property does not render you liable to 9 per cent stamp duty or to the 2 per cent anti-speculative tax on second homes. Those measures relate only to the acquisition on a second residential property, with certain exceptions.
The fact that you might convert the upstairs of the property to living quarters would not, I believe, expose you to inclusion under Bacon and the subsequent Finance Act (No. 2) 2000, although, given the implications, I would certainly take advice from a tax professional on the issue.
It is not clear whether you have already bought this property. If you have, you might also look at the terms of the Living Over the Shop Scheme run by the Department of the Environment and local government. This offers a range of incentives and relief to both owner-occupiers and investors, and is designed to rejuvenate certain parts of Dublin, Cork, Galway, Waterford and Limerick.
The various local authorities had until this week to submit their plans under the scheme and it will be next March at least before individual streets in each city designated for relief under the scheme are announced.
