Some personal finance queries answered
Q: On a couple of occasions you have mentioned that social security payments are not subject to the levy. I need some clarification with regard to my situation.
During my working life I lived in two other EU member states which now pay me a part pension in respect of contributions paid there. In addition, I receive a part contributory Irish social security pension. This is my sole income. Are any, or all of these amounts, subject to the tax levy?
Ms J.G., Dublin
A As you say, social welfare payments are specifically exempt under the provisions of the income levy. The good news in your situation is that this expressly includes social welfare payments from abroad. This is stated explicitly in the explanatory notes issued by the Office of the Revenue Commissioners.
As long as your sole income derives from these types of payments – regardless of country of origin – you will not face any liability to the income levy.
Public sector redundancy
Q I will be 60 at the end of June. I am employed by the HSE, have 16.8 years of service and pay a Class D stamp. I had intended to work for another year, but given the heavy hints about taxing lump sums I wonder if I should retire before the next budget. Will the budget be in December 2009 or in early 2010?
I would be glad of your opinion as to when I should retire.
Ms P.M., email
A As you will see elsewhere on this page, the arguments about the wisdom and practicality of taxing pension lump sums are not conclusive.
You are quite correct that the Minister for Finance Brian Lenihan was dropping some very heavy hints on Budget Day that he would consider the issue of taxing pension lump sums in his next budget. However, those comments must be read in the context of the public sector redundancy programme he also announced. Clearly, with the Government looking for savings on the spending side – where public sector pay is one of the largest elements – sooner rather than later, it is in his interests to accelerate the decision-making process on early retirement/redundancy by people in your situation.
Of course, that’s not to say he won’t follow through on this issue. We simply don’t know. What we do know is that the Government is awaiting a report from the Commission on Taxation and that one of the issues it is discussing is the question of taxing pension lump sums. The committee is due to report in July.
My suggestion is that you might wait until that report is published before making any irrevocable decision on accepting the Government redundancy programme. The Minister is very unlikely to move until the next budget at the earliest. That 2010 budget should be unveiled in early December.
You will remember that Mr Lenihan brought last year’s budget forward to October but such a move is rare, and all the more unlikely given the recent emergency budget.
Medical cards and health levies
Q I am a 69-year-old pensioner. My wife is 72. We are both in receipt of full medical cards. Our income is a combination of small State pensions and personal pensions.
What is our position with regard to payment of both income and health levies? We are getting conflicting advice from different sources.
Mr D.D., email
A It is very frustrating that people in your position cannot get access through the appropriate public services or medical centres to factual material that is readily available.
The situation is reasonably straightforward. In relation to the income levy, anyone in receipt of a full medical card from the Health Service Executive in the Republic is exempt from the levy. If the card was issued by the Northern Irish authorities, the situation is less clear cut, but that does not apply here.
The health levy, equally, does not apply to people who hold a full medical card.
It is worth noting that, even without a medical card, your wife is not subject to the health levy as she is over 70. The same will apply to you when you pass that milestone.
As long as your combined gross income remains under the threshold of €1,400 per week, you will remain eligible for a full medical card. If you were to lose your entitlement to a medical card, you would not be liable to the income levy if either of you is over 70 and if your combined income is below the threshold of €40,000 a year. In this situation, you might have to reclaim income levy deducted from your payments.
Dealing with negative equity
Q I purchased a house in 2006 for €328,000 with a 100 per cent mortgage. My mortgage loan is a standard variable rate. Unfortunately the house is now worth considerably less than I paid for it – how much I don’t really know since no houses in the area have sold in the past 12 months. However, I am certainly in negative equity.
I am a public servant increasingly concerned about my long-term ability to continue meeting mortgage repayments due to income cuts and promotion embargoes etc. Does the fact that I am in negative equity mean that I am stuck with the mortgage deal that I have at the moment?
Ms C.B., email
A Certainly, being in negative equity reduces the options available to you. In today’s tighter lending environment, it is frankly unlikely that any other lender would consider taking on a client already in negative equity on a home loan acquired at the peak of the market.
However, all is not lost. It is certainly possible that your existing lender might consider amending the terms of your mortgage, especially if they see that you are adopting a reasonable approach to your payments. In the current market, lenders know there is little value in repossessing a property that is, and is likely for some time to remain, in negative equity.
While it may not be an imminent dilemma, you should ensure that you contact your lender as soon as repayment issues arise. It is always easier to secure an arrangement if the bank feels you are a responsible borrower and therefore a reasonable risk.
Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. 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 questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
