Scrip dividends

I have a small number of Telecom Eireann shares and am planning to hold onto them for the long term. Any dividend is likely to be small, so I would prefer to take them as additional shares. Do you know if Telecom Eireann will offer scrip dividends? And, if so, how do I register my preference for them?

Mr N.McC., e-mail

At this early stage, there is no way of knowing whether Telecom will offer a scrip alternative to the cash dividend. It will be up to the Telecom board to decide its dividend policy when the appropriate time arrives. Certainly, there is no way of compelling a company to offer a scrip alternative.

If Telecom does decide to go down the route you would prefer, the company will inform all its shareholders - no matter how small - of how they should go about indicating their preference to receive dividends in this manner.

As far as I am aware, it would have to get the shareholders to indicate their preference every year it decided to offer the scrip alternative, whether these years were consecutive or not.

ISEQ trackers

I returned from the US, where I had lived for a number of years. While there, I had invested in mutual funds that tracked the Standard & Poor's 500 index of US shares. I was wondering if there was anything similar in Ireland - i.e. a fund that would track the ISEQ? I notice that some financial institutions offer PIPs and PEPs, or tracker bonds that invest in a wide portfolio of shares. But no product that I have seen so far tries to duplicate the ISEQ exactly. In any case, the management fees for the PIPs and PEPs are pretty high (about 10 times as high as the fees for a US index fund). I have a feeling that an ISEQ index fund must exist somewhere, but it may be limited to large-scale investors.

Mr V.H., e-mail

There are a couple of issues to note in relation to your question, neither of which will come as much, if any, surprise to you.

First, on the question of charges, it is generally true that the charges on index funds are lower than for other financial products. This is largely because they are passive investment products. They require less management than their active peers.

However, the scale of charges in the Republic is probably going to be higher than in the US because it is a smaller market with less competition. After all, how many US institutions have Standard & Poor's 500 tracker funds?

Having said that, as you have found out, few trackers aim to precisely match the weightings of the index they follow - in this case the ISEQ. This is because it can be difficult to get hold of some of the more illiquid stocks in the proportions required to reflect the index.

There is also the question of newcomers to the market. Telecom is a case in point. The institutions, including the tracker funds, are scampering after the available stock to try to get their funds to reasonably reflect a market in which it is now the second-largest player - accounting for roughly 16 per cent of the ISEQ. None of the institutions will have received that much in the flotation and they are likely to take some time to build up their holdings.

The reason they cannot just go out and buy what they need - apart from availability - is price. Quite simply, if they have to pay too much for the shares in the first place, over the market price, the return on the fund is not going to match the index.

The other factor is that the ISEQ is, relatively, a very small market, heavily dependent on performances elsewhere. Most investors appear to want a wider exposure by size, sector or geography.

Nonetheless, I would be surprised if there was not at least a small selection of funds that promise to faithfully replicate the ISEQ. The best I can suggest is to contact the funds appearing under the Irish Equity heading in the unit fund lists on page four of this section of the newspaper today. At least one of them claims to be an ISEQ tracker rather than simply an Irish equity tracker.

Renting houses

My partner and I are emigrating to Britain shortly. We hope to keep our house in Dublin and rent it out. Can you please explain how rental income will be taxed both here and in Britain.

Mr J.M., e-mail

The simple answer is that income on the rental of property in the Republic is taxable here, regardless of the tax situation of yourself and your partner. It will be the responsibility of your tenant, or agent if you have one, to deduct the tax at the standard rate from the rent and pay it to the Revenue.

Basically, you will be taxed on your gross rental income, less any outgoings to cover the cost of, say, repairs and maintenance, insurance, agency fees. Until April 23rd last year, you would have been able to offset mortgage interest paid on the loan to purchase the house against the rent before arriving at your taxable amount. However, since the implementation of recommendations in the Bacon report, this is no longer the case, raising your tax liability.

The tax is levied on a same year basis. That is to say rent paid in the year to April 5th, 2000, will be liable to tax this year. You need to complete an Irish tax return in respect of the rental income, even though you may be living in and taxable under the British system.

A final point to bear in mind is the situation with mortgage interest relief. This relief is not allowable for those people who have decided to let out their homes. Indeed, even those homeowners letting out part of their homes - a room say - would lose mortgage interest relief in proportion to that part of the house deemed to be for the use of others.

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.