Home economics: Answering your property questions
Advice from our property expert on whether it is worth paying off your mortgage early and on the Nursing Home Support Fair Deal Scheme.
Question: I have recently returned from the UK where I bought a house which is now let. My new job here, although well paying, doesn’t have a pension scheme and I consider the house to be part of that plan. I have around €500 per month ‘spare’ to spend over the next few years and wonder whether it would be better to pay down the mortgage on the rental or put it into a pension? If they are both the same aim, does it matter? I know I get tax relief on the pension, but am concerned returns could be volatile.
Sinead replies: This is always a dilemma and what suits one person will not another. However, you have pinpointed the key benefit pensions have over property — the tax incentives.
There are three:
1 you get full tax relief at your marginal rate on premiums going in;
2 the investment fund itself grows tax free;
3 and there is a tax-free lump sum on the other side.
While many use property as part of their retirement portfolio, Bob Quinn of The Money Advisers says the end game should be based on the most tax-efficient manner available to get there.
“Depending on how you manage your tax affairs on the UK rental, mortgage interest may be off-settable against the rental income thus reducing the mortgage anyway. Is that the best approach?
Pension products can often times come with onerous terms and conditions. It can be difficult to access before age 60, for instance, can lose money if you pursue a high risk investment strategy and can often times be steeped in hidden fees and charges.
If you opt to set up a pension, ask your pension adviser the following: what are the ongoing fund charges? What is the investment strategy?”
My advice is to see a fee-based advisor (i.e. not on commission) to advise across the board. It will be money well spent.
Question: Our father is in an acute hospital but ready for discharge. We’ve decided a nursing home is the best option as he cannot be cared for at home — our mother passed away some years ago. His house is valued at around €550,000 and he has a pension of some €24,000 p.a. plus the State pension. He also has savings of €80,000. Our query is if he enters the Fair Deal Scheme, and we sell the house, is the money realised ‘capped’ in the same way as the house would be, i.e. at 7.5pc for three years? If not, how can we protect it?
Sinead replies: The purpose of the Nursing Home Support Fair Deal Scheme is to allow people retain the family home instead of having to sell up to pay for residential care. The ‘value’ of this asset is capped at a maximum of 22.5pc which can be deferred until after death. If you sell the house, the proceeds are considered ‘cash’ from which 7.5pc p.a. is payable for life, i.e. not capped.
It is an unfortunate quirk of the scheme and leaves many wealthier families opting to keep the house, even vacant (letting it creates rental income, of which 80pc is taken to contribute to the care), rather than sell, for this very reason. I suspect there are hundreds of such properties around the country, un-rentable and un-saleable, which is a shame.
One option is to avoid Fair Deal, paying privately for the nursing home until savings run out. There is full tax relief at whatever rate your father pays, although with average costs at €1,200 p.w. this is clearly a big decision.
Fair Deal’s ideal applicants are those with no assets and little income. It is people like your father who subsidise them. I totally understand your dilemma and suggest you run all the figures before making a decision.
Your pension can be a valuable nest egg due to tax relief
The Ryan review
It’s unlike Equality Minister Aodhan O Riordain to be behind the door with announcements, but a discreet tweet as the year turned reminded his followers that “rental ads refusing rent allowance are now illegal”.
This is following an amendment to the Employment Equality Bill to stop discrimination against tenants in receipt of rent supplement, adding ‘income source’ to the nine existing grounds.
Many landlords view these as unattractive tenants, or even troublesome ones, and some go so far as to state on their viewing ads that they are not welcome; others calling letting agencies suddenly find themselves on a dropped line when they mention social welfare.
Naturally, organisations like the Fr Peter McVerry Trust and Focus Ireland have welcomed it, but I know from correspondence to this column that many landlords will be furious.
Those who have had direct, as opposed to anecdotal, experience with bad, non-paying or disruptive tenants will be empathised with, but I wonder how fair it was to tar all social welfare tenants with the same brush?
I also wonder how it will be policed. Some viewings attract 10 or more parties, so weeding out those on social welfare isn’t difficult.
If you can turn down someone for lack of reference, or being a student, why not discreetly bat away the rest?