Money Doctor: Giving income to college-bound child
Q MY ONLY daughter is going to third-level education in the UK. I have been told setting up a deed of covenant is the most tax efficient way ofgiving her an income. Can you advise, please? JAMES, RAHENY
A A deed of covenant is a legal instrument under which a person guarantees to pay an annual sum to a relative for more than six years. In your case, if you are on €50,000 annual income, you can give €2,500 each year (5pc) for six years and not pay tax on this amount. It can be useful for anyone maintaining a relative. However, money received under a covenant will be treated as income in the hands of your daughter. As long as she does not exceed the tax exempt annual income thresholds, your payments will be tax-free. For other beneficiaries, it may have implications if that person is receiving a means-tested payment, for example Disability Allowance.
With most covenants, there is a limit of 5pc of the donor's income. There is no income limit where a covenant is between: a parent and a son/daughter over 18 years with a permanent disability; a grandparent and his/her grandchild who has a permanent disability, regardless of age; others to people with permanent disabilities, regardless of age and separated parents for maintenance payments
There is also a 5pc income limit on other covenants to people aged 65 or over.
Q I have a tracker mortgage with Bank of Scotland who have just announced they are closing. Can they cancel my loan or change the terms in any way? John, Monkstown
A Lloyds/HBos, who own Bank of Scotland Ireland (and in turn are 47pc owned by the UK taxpayer) are still very much a banking force to be reckoned with.
Your contract will be honoured and will only change if either you cannot meet the interest-only payments, or the bank collapses. The latter is highly unlikely given the dramatic events over the past two years between government intervention and the efficiencies brought in by the bank to restore profitability. One of those steps is the closure of the Irish operation of Bank of Scotland Ireland, but term loan contracts will be allowed continue to maturity.