Readers financial questions answered by Dominic Coyle
Dividends
I have been receiving dividends on a number of shares that I own for the past few years. I am in my 70s and on a pension. I have recently discovered that the companies have been holding back some of the dividend. When I inquired, I was told it was to pay tax to the Government. Is this right and, if so, what tax? Why should I be taxed when my income falls below the limit for income tax?
Can I get this tax back? The same question applies to DIRT which is taken off my savings account.
Ms A.C., Dublin
Before you start thinking that the companies in which you are investing are pulling a fast one, let me assure you that they are absolutely correct in deducting some of each dividend that they pay you. They are obliged to do so by the Revenue, except in certain tightly defined circumstances - and they do not include people in your position.
The withholding tax is deducted at the basic rate of income tax, currently 20 per cent and is offset against any income tax liability a person may have on the dividend, which is ultimately a form of income for the recipient.
People on the higher tax rate are obliged to pay the difference to the Revenue when they declare the dividend income in their annual return.
For people like yourself, however, there is the prospect of a refund. You will need to apply to the Revenue for this. Your local tax office should be able to provide the form.
However, you will have to fill out a separate form for every year on which you are claiming what is effectively a rebate of income tax.
On the question of Deposit Interest Retention Tax (DIRT), the same basic principle applies. The financial institutions are obliged to deduct the tax at source but you can claim it back. There is a specific form, Form 54D, that you need to fill out. Again, you will need to submit a separate form for every year that you are claiming back DIRT.
Emigrating
I am moving to the United States with my husband and we wondering whether there will be any problem in cashing an SSIA account while out of the country and transferring the money to a US account?
The account doesn't mature until 13 months after we leave.
The second thing is that we've been told by friends that, since we haven't been living in our apartment for more than five years, we will be subject to paying stamp duty on it when we rent it. Any truth in that?
Ms M.Q., Dublin
It says something for the state of the Irish economy that this column rarely receives queries from people regarding their rights and the practicalities involved in moving out of the State.
People inquiring about facets of a move in the other direction are far more prevalent.
The first thing to note is that you should certainly not encash your special savings incentive account (SSIA) just because you are leaving the State. It is true that only people resident in the State can contribute to an SSIA account but that includes people who are described as ordinarily resident here.
Ordinary residence applies to people who have been living here for longer than three years. Such people, who would clearly include those in your position, remain ordinarily resident in the State for three full tax years after they depart. In your case, assuming you leave Ireland before the end of the year, you would be ordinarily resident in Ireland until the end of 2008.
That is more than long enough to see out the end of the SSIA scheme. The downside of ordinary residence is that you must pay tax in Ireland. However, there is an exemption for all income coming from employment carried out abroad so you should be covered.
If you do not want to continue contributing to your SSIA, the next best option is to freeze contributions and leave intact what is already in the account.
In either of these cases, you will be able to draw down the account when it matures and pay tax on the growth in the account as a result of interest or investment gains at the basic rate then prevalent in the State plus three percentage points. The Government contribution is tax free.
However, if you cash in your SSIA now, you will be taxed at 23 per cent on everything in the account - the gains, the Government contribution and your own contributions.
Whenever you cash in the account, there will be no problem moving the money to a US account. Controls on the movement of money across national boundaries have been considerably loosened in recent decades.
Turning to the property, it is true that you may face a clawback on the stamp duty exemption you received on the purchase of your property if you rent it out within five years of purchasing it. The amount of stamp duty that you might be asked to pay would depend on the amount of time remaining before the five-year threshold.
If you sold the property, no such clawback should arise.
Eircom
I missed your column dealing with the Eircom calculations. I'd be extremely grateful if you could quickly run through the figures?
I have Eircom/Vodafone shares and I'm really anxious to work out the CGT position.
Mr R.F., Dublin
I'm not going to go back into all the arithmetic involved in working out the Eircom loss as that was covered last month but I'll do a quick run through the basics.
You paid €3.90 a share for your original Eircom holding, assuming you applied for the shares ahead of the original flotation.
At the break-up, €1.69 of that was accounted for by the fixed-line business that was subsequently taken private, according to the Revenue. At that point, the O'Reilly consortium paid investors €1.335 per share.
On that portion of the business, you lost 35.5 cents for every share you owned.
You still have the Vodafone shares. The mobile business was deemed by the Revenue to be worth €2.21 of the original purchase price but you received slightly less than one Vodafone share for every two Eircom shares originally held.
The important thing for you to remember is that every Vodafone share you currently hold is deemed by the Revenue to have been purchased for €4.66. In other words, when you sell the shares, any price below €4.66 leaves you with a loss to add to the 35.5 cents loss on the fixed-line business. Anything above €4.66 is a gain against which you can offset the Eircom losses.
It is complicated further by the need to convert the sterling Vodafone gains into euros.
Earlier this week, Vodafone was trading at 144.25p sterling. At the prevailing exchange rate of around 70 cents to the pound, that translated to around €2.06 a share. It's going to be some time, if ever, before your Vodafone shares turn a profit.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or 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 the columns of the newspaper. No personal correspondence will be entered into.
