Is tax due on Equitable Life compensation payment?

I recall reading, sometime last year, that a substantial amount was being paid to Irish residents from the British government’s £1.5 billion compensation fund for Equitable Life policyholders, arising from its maladministration of regulation of that company.

I received a (very) small payment as a result of this and I am wondering if this is taxable. The documentation says that it is not taxable in the UK but is that the case here?

In view of the total amount coming into the country, the Revenue may have considered this but, if it did, I didn't read anything about it.

Mr MH, Waterford

You’re quite correct that Revenue is looking into it but, as yet, has not made a decision on whether the Equitable Life compensation is taxable or not.

There are about 6,500 Irish former customers of Equitable Life who are currently receiving compensation cheques from the British government. As you have discovered, these cheques can be disappointingly small, and certainly far short of the losses suffered by policyholders at Equitable Life.

The payments are free of income tax, capital gains tax and, if relevant, corporation tax in the UK but the Irish Revenue is examining how the payments should be treated here.

In general, compensation payments for personal injury are free of tax but that is not quite the situation here. The payments are effectively returning some of the pension pot that you and others lost out on. That would seem to indicate that they might be liable to tax at some point. Then again, you are still out of pocket on the experience so it would seem a bit harsh to also face a tax bill.

Safekeeping for house sale money

I have just sold a property following the recent death of my husband and am totally unsure what I should do with the money. I will take some advice on how to invest it when I get things organised but, for now, I just want to put it somewhere safe.

I read recently about such an option but I cannot remember what it said. Can you advise?

Ms JO'C, Galway

Making a return on investment these days is increasingly hard for the ordinary investor, especially those who are risk-averse. Your position is somewhat clearer. You simply want to make sure the money does not disappear in the way so many investments did in the collapse at the end of the boom years.

The good news is that there are a number of ways you can ensure your money stays secure. Essentially this involves availing of one or more State guarantees.

First up, An Post allows you to put unlimited amounts into its deposits, which are backed by the State.

If you are looking for a return and can afford to leave your money in savings for a number of years, you could even look at putting some or all of it into An Post savings certificates or bonds.

You can still withdraw it if you really need to but, in the meantime it will earn better interest than you are likely to get with risk-free options elsewhere.

You can put a maximum of €120,000 into any issue of savings bonds which currently earn four per cent over three years, although this is weighted towards maturity.

With savings certificates, the term is five and half years, the rate is 10 per cent, and the maximum you can invest in any one issue is €120,000.

Of course, you could have a little more fun and put the money in prize bonds. You are not limited in the amount you can invest, you might win a prize and, even if you don’t, you can take the money out at any time knowing that it has rested under the watchful eye of a State guarantee.

The more prosaic option is to put it in a deposit account in your local bank. The Government increased the amount of bank savings covered by a State guarantee to €100,000 as the financial crisis took hold.

However, it is important to remember that this figure is per institution, not per account. So, if you have a savings account with, say Bank of Ireland containing €30,000, you can only lodge a further €70,000 in any other account at that bank if you want to stay within the term of the State guarantee.

Of course, there is nothing to stop you spreading the proceeds of the house sale among a number of banks to ensure you stay under the €100,000 threshold in each institution.

Yes, it is true that you will be making practically nothing in terms of interest and, yes, it is also true the value of your holding will effectively be undermined should inflation return in any real sense, but, in the meantime, your money is safe.

That gives you a window of opportunity to gather your wits and seek out advice from people you trust.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.