An Irish Times guide to the world of personal finance.
Inheritance
We are in our 80s and our total assets consist of our Dublin home, bought many years ago for £3,000, on a large site (approximately 5,000 sq ft).
We have been refused planning permission three times to build a second dwelling. The home is now valued at €2.1 million, which we wish to bequeath equally to our children. One lives in the United States, one in Britain and one in Ireland.
Will they have to pay inheritance tax, how much and where? Can we reduce the tax to the only one with children?
Mr P.G., Dublin
The simple answer is that your bequest to your three children will be liable for capital acquisitions tax (better known as inheritance tax). Under Revenue rules, the inheritance will be taxed in the Republic as that is the domicile of the "disponers" (i.e. yourselves).
Under current limits, subject to change in next week's Budget, each of your children is able to receive €422,148 free of tax. Totting up, that means a total of €1,266,444 - a long way short of the value of the likely inheritance.
As you have guessed yourself, you can at least reduce the tax bill for your one child who themselves has children by leaving them up to €42,215 free of tax. As it happens, you could further reduce the bill for any of your children by bequeathing a portion of up to €21,108 to their spouses.
Pensions
I am 54 years old and hope to be in a position to take early retirement at 60 if I can get a good deal with my firm. I will be working in the same firm for 31 years by then. I have been pumping a substantial amount of money into AVCs each month and now, with all I read, I am a bit concerned. Should I continue to put money into AVCs or go and buy another property (besides my own home)? I am single and would like to maintain a reasonable lifestyle when I retire. I do also have a pension.
Mr P.C., Dublin
While I understand the nerves being felt by anyone paying money into products linked to the stock market these days, I would be loathe to encourage anyone to stop paying money into their pension provision. There are two things to consider:
Pension provision by its nature is a long-term investment;
n Tax relief on contributions to pension schemes, including Additional Voluntary Contributions, make them the most tax efficient of investments.
The markets may be poor right now but they have been for three years. That is one of the longest bear spells in history and the chances are that, if you pull out now, you will miss out on the recovery to whatever extent that occurs.
While forecasts are no more than that, it is worth noting that stockbroker Goodbody is looking for a 10 per cent boost in the value of stock markets in 2003, with the Irish Stock Exchange pencilled in for a rise of around 15 per cent.
Of course, there is no guarantee on these things. It could be that the markets fall yet further before they recover but the downside looks increasingly limited and the prospects for at least a partial recovery are growing.
In any case, you have a minimum investment period of six years before you retire and, if the deal from your firm is not to your liking, the period could be anything up to 11 years.
The returns on residential property in Ireland in recent years have resembled the returns on stock market investments in the late-1990s.
However, that rate of growth is slowing - not a bad thing in itself - and there is no guarantee that the return on property would better that of equities over the period you are considering.
In fact, over time, equities tend to produce the best returns of any assets, followed by property, although a six-year term would be too short to reflect these studies.
In any case, property would have to outperform equities by quite some way to compensate for the more generous tax relief available on pension investments.
As a person in your 50s, you are entitled to invest up to 30 per cent of your gross income in AVCs, while qualifying for relief at your top rate of tax.
SSIAs
I opened an SSIA in August 2001, which has been receiving the maximum allowed inputs. In 2001, this was £200 from myself and £50 from the Government. These amounts equate to €253.948 and €63.487 respectively.
On the commencement of the euro in January 2002, the inputs changed to €253.95 from myself, which is rounded correctly, but the Government input is €63.48 and not €63.49.
This is an incorrect rounding according to the euro conversion rules and the Government is, in effect, saving one cent per transaction.
Of course, this is not a huge amount per individual account, perhaps 70 cent over the account lifetime, but it adds up to approximately €350,000 for all SSIA account holders.
In terms of principle, the Government is shy of honouring its 25 per cent legal commitment.
It would be interesting to hear from you and your readers if similar SSIA accounts are receiving €63.48 or €63.49 so that I can ascertain if it is a Government error or my own account provider.
Of course, all of this could have been avoided if the Government would have set values in euro in the first place, as even in 2001 they should have known that the euro was just around the corner.
If this is a widespread error by the Government, then I think they should recognise its mea culpa. However, as SSIAs favour the well off, I would of course be willing to forego the one cent loss per transaction so that the Government can use it wisely, but it's important that we all at least know about the error.
Mr M.K., Dublin
I'm sure the Government, and most particularly the Minister for Finance, Mr McCreevy, would approve of your generosity in giving up claim to a one cent discrepancy for the good of the State - a sum that would add up to €840,000 over the lifetime of the scheme.
Unfortunately, the problem is almost certainly with your own financial institution rather than the Government, which, as you probably know, has a euro policy of not disadvantaging the customer in any euro-related transactions. That translates into a simple policy of rounding up and not down.
The Department of Finance confirms that this policy applies to Specials Savings Incentive Accounts and, therefore, you should not be losing out - even by a cent a month.
For what its worth, the euro limits were rounded up when the currency came into the public domain at the start of the year. The SSIA limits for monthly contributions are now €12.50 and €254.
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.
