I have a mortgage of about £40,000 in Ireland on a home there. There are about 15 years remaining on the mortgage which I currently pay at an interest rate of 7.6 per cent. Given the strength of sterling should I bring this loan over to Britain, where I now live and where I could obtain a loan at one percentage point above base rates (8.25 per cent) or should I leave it where it is, given the hopes for lower interest rates post-EMU? The house is rented on a long-term lease at the moment, but I am keen to pay off the mortgage as quickly as possible.
Mr M.H., email
The key point to be made is that you should certainly capitalise on the strength of sterling while you can, but you should also keep your options open; after all there is no guarantee that sterling will remain in its current dominant position. Indeed, one school of thought argues that sterling is heading rapidly for a fall, although the jury is still out on that.
If you move the mortgage, you stand to lose on two counts. First, the rate you quote in England is higher than the current rate you are paying in Ireland. Second, you might find yourself locked in subsequent to the move, especially if you opt for a fixed rate in Britain's more uncertain interest rate environment. In addition, you will be facing new realities in a post-EMU environment with Britain on the outside.
There is no reason why you cannot take advantage of the strength of sterling by sending money home to your mortgage account here either directly or indirectly while still benefiting from the lower current mortgage interest rate you cite and from the prospect of further falls in interest rates in the coming months.
If, as you say, you are considering reducing the capital of the loan and that you want to pay the loan off as soon as possible, you can make lump sum payments to your lender.
If it is a bank and you are on a variable rate, these payments can be made at any time the sooner, the better as banks calculate mortgage interest on the regular basis. If, however, you are with that increasingly rare breed, a building society, the situation is slightly different.
Building societies tend to calculate interest twice a year, normally in June and December. By carefully lodging money against the capital sum at the appropriate time, you can very effectively reduce your capital bill. Get it wrong and your money is wasting away for almost six months when it could have been growing in other investments.
Of course, if you are tied into a fixed rate, lenders tend to penalise irregular payments quite heavily. In that case it would be best to invest the money you want to use to pay off the capital sum in another instrument such as a tracker fund or a PEP for the fixed-rate period. Ideally this should be for a minimum of three-to-five years. Once it matures and your fixed-rate period is over, you can pay it into your mortgage account with no penalty.
Can you please advise me on (a) the income tax and (b) the capital gains tax position on shares received in lieu of dividend and on windfall shares? Also, how can one best transfer shares between spouses and what are the costs involved?
Mr E.B., Dublin
The tax situation in relation to shares issued in lieu of a dividend (a scrip issue) differs depending on the status of the company in which they are issued and the date at which they are issued. Looking first at the income tax situation, such shares are liable to income tax since Mr McCreevy's Budget on December 3rd last if they are in a quoted company (unquoted shares have been liable for income tax since 1974). Shares in any company resident outside the State or in unquoted companies within the State, attract no tax credit, while shares in quoted companies resident in the State do. Looking at the capital gains tax scenario is no simpler. Scrip dividends taken between 1993/94 and December 1997 in quoted companies were considered bonus shares liable to capital gains tax upon disposal. As they cost nothing upon acquisition, they were charged as part of the original shareholding from which their entitlement sprang. That means the "acquisition cost" was the cost of the original shareholding upon which the initial dividend was due.
Subsequent to December 3rd last, all scrip dividends are treated like rights issues for the purposes of CGT. That means the dividend, which is passed up is allowed as an enhancement expenditure for the purposes of assessing the capital gain on the shares upon disposal. However, it is important to remember that this "enhancement" applies to the entire shareholding not just the scrip dividend.
The situation in relation to windfall shares is somewhat simpler. They are not liable for income tax. For capital gains purposes these "free" shares are considered to have been acquired at nil cost. As a result the capital gain is the full disposal cost. For discounted shares, the capital gain is the difference between the sale price and the discounted price at which they were bought.
In the case of recent windfalls, where both free and discounted shares were received at the same time, the Revenue has made an exception to the first-in, first-out rule governing share disposals and allows the shareholder to nominate which shares they are selling allowing them to maximise their benefit.
Finally, the transfer of shares between spouses has only become an issue since the Minister put a stop to the transfer of capital gains allowances between married couples in the last Budget. The easiest and most cost-effective way of transferring shares is by contacting a revenue stamp branch and presenting a stock transfer form. The cost will be £10 for each transaction each company in which you wish to transfer stock. The Revenue can even transfer British stocks although it takes slightly longer. Going through a stockbroker in all but the most complex of cases would incur unnecessary transaction charges.
Send your queries to Q&A, Business This Week, 10-15 D'Olier St, Dublin 2, or email to dcoyle@irish-times.ie.
