Q&A:Q In April 2000 I invested €1,000 in a Business Expansion Scheme. In December 2005 I received a letter saying the scheme was being extended until 2008. Since then I have been promised updates but these never came. Eventually I was told personally that the scheme was finished, the company was being wound up, my money was gone, and a letter to that effect would be sent to all investors.
This was never was sent. On doing some research I found a Sunday Business Post article (February 4th, 2007) which said that this particular scheme had worked out well for investors .
What’s the best way to investigate this further?
Mr D.K., email
A There are a number of distinct issues here. Business Expansion Schemes (BES) have been a valuable way for smaller businesses to raise funds to boost their development as well as an interesting option for investors. However, there is no guarantee of success.
You cite the Sunday Business Post piece on BES which focused on the use of the scheme in the music industry, the same sector in which the company you invested in, Riverman Music, operates.
While the distinct BES named in that article “worked out well for investors”, there is no guarantee that this is always so – either in the music business of generally.
In your case, it appears the €1,000 investment has not been so successful.
The first warning light would have been the notification that the scheme was being extended from its original maturity date of 2005 to 2008.
Then, you tell me investors were notified of an impending letter detailing the state of play with the investment but this never came. Eventually, a named individual, whom I cannot trace, met you to say the investment was gone and the company was being wound up.
I can tell you that Liveryman Music is still a registered company in Dublin, although the latest accounts do feature a deficit in shareholder funds and a statement from its auditors that it is solvent only because its directors are not demanding repayment of loans made to the business.
On that basis, it may well be the case that your investment has failed.
However, the lines of communication sound very odd indeed and deeply unsatisfactory.
I have spoken to the Revenue, who would keep details of registered BES schemes for tax purposes. They tell me that your first step is to liaise with the agent – the group that marketed the BES on behalf of the company. You tell me that this has proved unrewarding to date.
Your next port of call for information is the company itself.
If you still cannot get the information/assurances you require, I am told you should contact the Office of the Director of Corporate Enforcement.
Bequests and stamp duty
Q My father died in 2009 leaving his house valued at €300,000 to my brother and I. He had no other assets. I wish to live in the house and buy my brothers share out for €150,000. Am I liable for stamp duty or capital acquisitions or any other tax on this, or is my brother liable for any tax on the €150,000 I will pay him for his share of the house?
Mr J.C., Cork
A First off, there should be no issue of capital acquisitions tax on any transfer between your brother and yourself. The property has already passed from your father to you two and it is at that point that capital acquisitions tax (CAT) would be an issue, if at all.
As it happens, the amount involved is below the threshold for inheritances from parents to children and, in the absence of previous gifts or inheritances from your parents, I would guess you paid no CAT.
The only tax to which you will be liable, as far as I can see, is stamp duty. Home purchases under the value of €125,000 are exempt from stamp duty. Above that level, stamp duty on second-hand homes is levied at 7 per cent on the next €875,000 and 9 per cent thereafter. In your case, this would involved payment of stamp duty at 7 per cent on €25,000 of the purchase price – or €1,750.
As far as your brother is concerned, he received the property with a value of €150,000 through the inheritance. This, for capital gains purposes, is the value of the house at the start of his ownership. If he sells his share in the house to you at that price, he will have no capital gains or other issues.
Gifts and capital gains tax
Q Can each parent give €3,000 to a son, his wife and their two children,- ie €24,000, each calendar year with no tax – capital acquisition, inheritance or, indeed, income – implications for any of the parties concerned.
N.R., Galway
A Yes they can, and they can give this sum each tax year if they so choose.
Threshold sum for gifts
Q How does the annual gift of €3,000 relate to the threshold sum. Can the threshold be gifted in one sum or must it be given at €3,000 per annum (maximum)?
Mr A.R., Dublin
A The annual €3,000 limit on gifts without being subject to capital acquisitions tax (CAT) is an exemption. As such, it does not impact on the thresholds at all.
You can gift up to the threshold in one lump sum or a number of smaller sums over time – as long as the beneficiary has not received a gift or inheritance from someone else in the same category.
Mortgage dilemma
Q I have two investment properties both mortgaged with Permanent TSB. Both mortgages are fixed at 4.99 per cent to expire on in June, though the mortgages run for 25 years.
When I was purchasing the second property three years ago I pushed myself to the limit. With wage reductions and with rents coming down, I am struggling each month to make the payments.
When the fixed rate expires, I am due to revert to the standard variable rate.
I will not have the option of changing banks/lender as one or both will be in negative equity.
However, I would like to extend the term of the loan from 22 to 27 years (or longer) to bring the monthly payments down and also hopefully avail of a lower rate than 4.99 per cent. Have you any recommendations? I need to bring the repayments down as my disposable income is negligible.
Mr S.C., e-mail
A I think your predicament is neatly presented in your second paragraph. Three years ago, just as markets were at or slightly beyond their peak, you pushed yourself to the limit to buy the second investment property. You appear to have made no allowance for periods of vacancy, falling rents or a decline in your own earnings from other sources.
Now you have negligible disposable income and face the prospect of a further 22 years mortgage payments on properties that are in negative equity.
The only good news for you is that the current variable rate on offer from Permanent TSB – despite two half point increases since September – is 3.69 per cent. The bad news is that this rate inevitably will rise over the coming years as the European Central Bank raises its rates.
What should you do? Certainly, one option is to approach the lender and look to extend the term, even if you are ramping up the overall amount you will have to repay.
However, I think you really need to consider selling one of these properties – even at a loss. It will significantly reduce your payments and make your financial situation less stressful.Whatever you do, keep talking to the lender.
From next week, the QA column will appear in the enlarged Pricewatch section of the main newspaper on Mondays.
Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2, or e-mail dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
