PERSONAL FINANCE:Your queries answered

Q

We are about to inherit a considerable sum of money and are looking at investment options. The conditions for savings bonds state: “Interest earned on savings bonds is exempt from DIRT, income tax and capital gains tax in Ireland and is not returnable as income to the Revenue Commissioners” but the leaflet and notes for the National Solidarity Bond just highlight the DIRT on the 1 per cent annual interest, and that the 40 per cent bonus is DIRT free.

Our accountant has cautioned against the National Solidarity Bond because, in his opinion, the interest (annual and bonus) would be “returnable” to Revenue in our annual tax returns and subject to PRSI and levies. This is because the leaflet and notes for the National Solidarity Bond give no clear statement of exemption from these additional taxes when deposit interest is returned in annual tax returns, unlike the condition for savings bonds and certificates – both of which are totally clear on the subject.

Is the National Solidarity Bond interest returnable in annual tax returns and subject to PRSI, levies etc or is it exempt like savings bonds and certs?

– Ms AK, Offaly

A

Your accountant is clearly being very diligent in his approach to this and – given the nature of the investment – he iscorrect.

There are a couple of things here. I have spoken to Revenue and they confirm:

a) the income levy does not apply to interest earned;

b) deposit interest is not exempted from the health levy;

c) if you are an employee with no trading or professional income, there is no liability to PRSI. However, proprietary directors pay PRSI on interest.

Revenue says the annual interest payment on the bond should be included in your income tax return.

Secondly, you need to consider whether the National Solidarity Bond is indeed the best place for your money. The bonuses under the bond are very much loaded towards the end of the 10-year term. As a result, if you need to take your money out earlier, you could find yourself getting a much lower return than you expect. Equivalent savings bonds and certificates offer only slightly lower returns over the same period but mature between three and five-and-a-half years and are therefore more flexible, should your requirements change. Something worth considering?

Savings mature after guarantee deadline

Q

I recently put €200,000 in a six-month savings account at AIB. As it will be after December when this matures, are these funds secure?

– Ms MMcD, by e-mail

A

Your money is safe. I can understand the concern, as the current extension of the bank guarantee, the Eligible Liabilities Guarantee, expires in December. However, the guarantee does provide cover for up to five years after that date for products that were issued by participating institutions before the December deadline.

In your case, your savings will mature in the first half of next year, were taken out before December, and are with one of the covered institutions, AIB, so you are covered.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2 E-mail: dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.