Q&A: Q: I HAVE come across an offer from Northern Rock in the UK. It is offering 7 per cent per annum fixed on sums invested for five years. I think this is a very good offer.
Assuming I am comfortable with the currency risk, and I was to convert €100,000 into sterling and deposit it with Northern Rock in the UK, would I expose myself to Irish and British taxation? I am Irish-resident.
If I was exposed to both Irish and UK income tax on this investment, it might not be so attractive.
Mr S.F., e-mail
A: Despite the current climate of rising interest rates, I can see why 7 per cent per annum is still an attractive proposition.
However, in this case, I doubt if you are going to be eligible to invest in the Northern Bank offer.
The account to which you refer is a fixed-rate bond. Its terms and conditions state explicitly: "A fixed-rate bond can be opened for the personal use of any UK resident over 14 years of age, but cannot be opened if [ among other things]: your registered address is 'care of' or not within the UK; an account holder is not resident in the UK for tax purposes."
As I assume from your letter that you are resident here, you would not meet either of those conditions.
In general, under modern money-laundering rules, you will struggle to open a bank account in a country where you do not have an address.
Q: My parents are both in their 70s and are small farmers. They have never been in the tax net and are in receipt of a small old-age pension. They have a modest amount in savings in a number of financial institutions. What are the rules around Dirt for the over-65s?
As my parents are about 10 years past the 65-year threshold, can they reclaim the full 10 years' Dirt deducted, or is there a maximum number of years they can go back?
In future, can the banks credit interest gross of Dirt, thus avoiding my parents the hassle of a reclaim?
D.P., Leitrim
A: As I'm sure you are aware, Deposit Interest Retention Tax (Dirt) is deducted at source (ie by the banks) from any interest earned on bank or building society savings, as well as money on deposit in credit unions and An Post. The rate is 20 per cent, which means savers effectively get 80 per cent of their deposit interest.
The 20 per cent Dirt is full and final taxation on the interest, although there may be exposure to pay-related social insurance (PRSI) and the health levy, which is why people are required to return details of interest earned in their annual tax return despite the fact that they have already paid Dirt on it.
The good news from your parents' point of view is that there are certain limited exemptions from Dirt. Most significantly, this occurs when a saver is both over 65 and has an income below the income-tax threshold. In 2008, the threshold for a single person is €20,000 and €40,000 for married couples.
To be perfectly honest, I would have expected your parents' bank to be proactive in this area, telling them of their entitlements, given that they are probably longstanding, if small-scale, customers.
Your parents will be able to claim back Dirt they may have paid in recent years, but they are unlikely to be granted relief for the full 10 years.
The Revenue has a four-year limit on back claims for relief, though, if I were you, I would still pitch for the whole period.
To claim any refunds, your parents will need to fill out the Revenue form 54D. The forms should be available from any tax office.
Your parents will need a separate form for each year under which they are making a claim and will need details of the interest paid on their savings in each of those years - information they should be able to get from the bank if they no longer have the relevant bank statements.
As to the future, again, your parents' bank should really have informed them of changes in the 2007 budget, which mean that people in their position can receive interest on their accounts free of Dirt.
Your parents need to fill out a DE1 declaration form, which should be available from their bank. You can also get these forms from any tax office and some citizens' information centres. If they have more than one account, they will need to fill out a separate form for each one.
The forms are then sent back to their bank or other financial institution.
Your parents do not need to fill out such forms every year. The declaration continues to be valid unless their circumstances change in such a way that they would be liable for income tax, or they move financial institution.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by 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 this column. No personal correspondence will be entered into.
