Home Economics: Answering your property questions
Q: We bought a holiday cottage in Cornwall some years ago with the idea of retiring there next year; it is currently let. My wife's pension will be paid in the UK and mine is Irish. We are more than a little concerned about Brexit and how it will affect (a) the rental income, which is in sterling and (b) our pensions. Would we be better off selling up and is the tax position likely to change?
Sinead replies: I'd love to be definitive, but until the 'divorce' from Europe is complete, I'm afraid it remains unclear what will be affected by the decision of the UK to leave. In any event, many of the dissolutions will take up to two years to complete.
Sterling has taken a hit and that means that rents received in that currency are now worth less than they were. However, it's difficult to say whether this will continue or for how long.
Barry Flanagan of Taxback.com says: "If you are resident and domiciled in Ireland, you are taxable here on your worldwide income, including UK rental income.
Under the terms of the Ireland/UK Double Tax Agreement (DTA), income arising from 'immovable property' i.e. rent, may be taxed in the jurisdiction in which the property is situated. You would need to seek specialist advice to see if any taxable profits are arising in respect of the UK rental income.
"If there are, and if unrefundable tax is paid, then a Foreign Tax Credit can be claimed in Ireland in this respect. The interaction is quite complex and therefore specialist tax advice is often recommended."
There is no specific change in these rules due to Brexit, as this has always pertained. I can't see how selling up will materially improve your situation.
In respect of pension income, under the terms of the DTA, pensions other than those arising from Government Service are usually only taxable in the country of residence.
Those arising from Government service are normally taxable in the State which provides them. Again, it would be a good idea to check the position with a local specialist when you emigrate.
Q. I was given €20,000 by my grandfather about 10 years ago. It was put into my mother's post office account for safe keeping. I now wish to lodge it into my bank account. My issue is that since I will be applying for a mortgage soon (this is what the money was given to me for), I am sure I will be asked where it came from. I obviously do not want to have to pay Capital Acquisitions Tax on the €20,000. Could I say I sold my car or found an extremely rare vase that I sold? Any advice would be greatly appreciated.
Sinead replies: Goodness, you have tied yourself up in knots over this. Firstly, this column cannot, and would not, condone the evasion of any tax. It is a legal obligation to declare inheritances and gifts and they carry a responsibility to pay whatever tax is due.
In your case, however, your worries are unfounded. A grandfather may leave up to €30,150 tax-free to a grandchild, so your inheritance is within this range, unless you have already received other gifts which might bring it over.
The second query relates to using it as a house deposit. There is no need to fabricate its origin. State that it is an inheritance (the will can prove this, if necessary).
The bank may also want to see independent evidence of your ability to save. They don't often like deposits to be gifted this way, but I see no reason why they won't count the €20,000 toward your deposit.
The Ryan Review
Pressure is being heaped on the Central Bank to modify its rules on mortgage lending.
Until now, those calls have been largely domestic and, for the most part, ignored. Recently, however, the weighty IMF has turned its microscope on the issue by "suggesting" that the policy be reviewed. Now, as we know of old, when the IMF makes what appears to be a kindly, well-intentioned comment, it carries the weight of a rather large sledgehammer.
Rather than just tut-tut though, it has come up with an alternative which is worthy of our attention. Instead of the blunt 3.5 times income levels imposed by the CBI, it says in its statement that it agrees with restrictions on lending (which it encouraged), but would prefer to see ones which look at overall debt, rather than an income multiple. This makes eminent sense as banks already look at this in making their decisions but are not rule-bound by it.
It is generally accepted that no more than 25pc of your net income should go toward your mortgage repayments, and no more than 35pc-38pc on overall debt servicing. Using a debt-to-income ratio rather than a loan-to-income ratio is a nuanced approach which, as the IMF says, "better captures borrowers' repayment capacity". The CBI agrees. Unfortunately, until there's a central credit register, where such things can be monitored, it looks unlikely. The Credit Reporting Act was issued in 2013 at the IMF's insistence, but the register isn't expected to be operational until the end of next year.