Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 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.
BES opportunities
A few years ago, there was a lot of advertising about Business Expansion Schemes. Is this investment vehicle still available today? From what I have read up about them, they are subject to full tax relief. There is an element of risk but I would be willing to accept it because of the full tax relief. I have contacted a number of banks but they said they did not do any such product. Is there another type of product which would provide similar tax relief on an investment of £10,000 (€12,697)?
Mr D.H., e-mail
Business Expansion Schemes (or BES Schemes) are still available today in a somewhat more restrictive form than when they started out. However, if you want to get on board this year, you will need to act quickly, as the deadline for the current crop of schemes is April 5th - that is next Wednesday. The initial BES schemes operated until April 5th, 1998. At that time, individual companies could raise up to £1 million through such schemes and many of the banks did indeed have BES funds in which individual investors could put their money and which would invest, in turn, in a number of companies.
In the 1998 Finance Act, the amount that could be raised by any one company fell to £250,000. The argument was that this more effectively targeted the funds at smaller companies that would find it more difficult to attract finance from more traditional sources.
This effectively quadrupled the cost of such funds, as those administering them had to examine in detail a greater number of companies to spread the fund around.
The other drawback was that the risk both to the individual investor and the fund was greater as the investment was restricted to smaller, more volatile companies. Remember, these were companies which were seen to have difficulty raising money elsewhere. To many of the BES fund managers - especially the banks - this move did not make economic sense with higher administrative costs and greater risks attaching to possible returns on the investment and they pulled out.
As a result, most of the schemes available today are offered by accountants around the State. If you look in any of the national or even local newspapers at the money, it is quite possible you will see advertisements looking for investors in such schemes before the April 5th deadline. The current crop of investment opportunities include the production of a new record by an Irish musician, the development and manufacture of public-access pay-per-use Internet and e-mail units, mussel farming and hostel accommodation.
They are still subject to full tax relief - that is relief at your top rate of tax, rather than the standard rate more common with general tax allowances these days. The relief must be claimed within two years of the initial investment or it will be lost. The current provisions covering the scheme continue only until next year at which time the Minister and his officials will re-evaluate BES funding structures.
The key thing to bear in mind is that these can be high-risk investments. Some of the potential returns quoted are high, but there is also the chance of losing money so you should examine the projects carefully and not be swayed purely by the tax relief on offer.
In terms of other similar opportunities, you can also look at investment in films. There are somewhat different arrangements and the relief is restricted to 80 per cent of the capital invested.
Tax on foreign rent
I recently purchased an apartment in Paris for rental income. Could you advise me regarding my tax liability in Ireland and France?
Mr J.O'D., e-mail
Only one piece of information is really important in assessing this issue and it is, unfortunately, the one thing you failed to mention - where you are resident. I am going to assume you are based in the Republic as your e-mail address hints that this might be the case.
In that event, you will be liable for tax on the rental income in the Republic at your marginal rate. Once you are resident here, you are liable for Irish tax on all your income, regardless of where geographically it is earned.
If you are faced with local taxes in France, and I haven't quite been able to get an answer on that, these would be offset against your Irish tax liability under the tax agreement between the two states which is designed to prevent people in your position being taxed twice on the same income.
Remember, that it is your net rental income that is liable for tax. Costs incurred in renting the apartment - such as agent's fees, maintenance and repair, rates, etc - will be deducted before assessing the tax liability. However, mortgage payments and mortgage interest will not be deductible as the Bacon report provisions will apply. Further, you will not be entitled to mortgage interest relief on the property.
Converting currency
I am living and working in the US at present and I have a sizeable amount of money in US dollars. I plan to return home in the next few years. Should I keep my monies in US currency or should I change it over to pounds?
Mr P.K., e-mail
If I knew the answer to that with any certainty, it is highly unlikely I would be earning my living as a journalist. Even the experts in the currency markets have, at times, lost fortunes - not normally their own - attempting to predict the future path of exchange rates.
The best that can be said is that the dollar is currently in a very strong position against the euro, the determining currency in assessing the rate against the pound. As the pound is a member of the euro zone, it is merely a denomination of the euro and its exchange rate with the euro is fixed. The rate of exchange you need to examine therefore is that between the dollar and the euro.
The euro has been sliding since its introduction at the beginning of last year but there is no guarantee that this slide will continue. In fact, the consensus seems to be that the euro will recover against the dollar and other currencies in the months ahead.
There are a number of factors influencing this including economic recovery in the key euro-zone economies of Germany and France, rising euro interest rates and, hopefully, growing confidence that this new currency of the world's largest trading bloc has a future.
Of course, interest rates are also rising in the US and it is in the middle of the most prolonged economic growth spurt of recent times.
It is equally possible that the tensions within the euro zone could still see the currency weaken further, increasing further the power of the dollar against the euro and, ultimately, the pound. It is possible to hedge funds - enter a contract to convert your dollars at a rate that is acceptable to you and which will be protected regardless of how the exchange rate reacts - but this is more usually undertaken by companies and does carry a cost.
Like all these things, any call you make is essentially a gamble. The consensus may say that the euro will rise - meaning you should move more immediately - but I have lost count of the times the consensus has been wrong. As an example, when the pound was last above sterling, the consensus said it would stay that way for the foreseeable future. Within weeks, sterling had turned the tables. C'est la vie.
