Can bank delay giving mortgage interest relief?

Q&A:I bought my house in 2008 as a first-time buyer. I was pleased therefore about the announcement in the last Budget of the increase in mortgage interest relief for first-time buyers who bought in 2008 to 30 per cent.

Initially I was told that the increase would be delayed due to issues in Revenue systems. However, I have read that has been sorted out now. Yet my mortgage provider, First Active (Ulster Bank), has yet to pass on the increased relief.

When I called them, they said they legally have until the end of the year to apply the increase and couldn’t give me a date between now and December 31st when it would be applied.

I appreciate that, when it does happen, it will be back-dated but I could do with the money sooner rather than later. Are they, as they told me, legally entitled to wait and why the hold up? It seems unfair that they get to hang onto my money like this.

Ms F.O’C., Dublin

You would imagine that, of all the banks, Ulster Bank would be the most assiduous this year in a focus on customer service after the chaos of its computer “glitch”. It is somewhat depressing to hear the lender adopting such a high-handed approach to customers with whom they presumably expect to nurture a long-standing relationship.

It certainly seems short-sighted and, from your point of view, unfair.

The improved mortgage interest relief for first-time buyers was introduced by the Government precisely because so many people in that category were feeling the pinch due to the high prices paid for their homes in the bubble and the generally reduced economic circumstances prevalent now.

While, as you note, any increased relief will be back-dated when Ulster Bank finally gets its act together, that is not the point,

The Minister was hardly introducing higher mortgage relief because he felt the people affected were so comfortably off that they could leave it lying around untapped for the best part of a year; if that were so, it would have been hard to argue for its introduction in the first place.

The issue is that measures passed in the Finance Act should be implemented as soon as possible. I don’t recall any reference at the time by the Minister to banks being able to string their customers along for the full year simply to preserve their battered balance sheets.

There is generally time allowed to implement such changes, largely because they entail programming changes by lenders which cannot be done instantly, and that is perfectly fair. You are also correct, if memory serves, that there was some initial issue with the Revenue’s own computer systems requiring adjustment to allow for the measure.

However, taking the full calendar year to do so – or assuming that right for themselves – is to my mind an abuse, even if that law is so loosely worded that it may allow it.

Revenue tells me that the technology workout has been ongoing and that lenders do have until the end of the year to pass it on.

What taxes are due on my distribution bond policy gain?

In October 2000, I took out a distribution bond policy with New Ireland Assurance. The investment was for £5,000 (€6,349). The number of units allocated was 2,323, £2.15 (€2.73).

In the Irish Domestic Funds Net list published in Monday’s Irish Times, the New Ireland Deferred Dist.1 is priced at €317.30. That equals a €7,372.21 value of my investment, a gain of €1,023. What taxes are payable on this gain if I cash in now. I am aged 77 and am exempt from DIRT.

Mr B.O’M., email

It’s a pleasant change in what has been a torrid time for investments to see someone who has good news to report. Mind you, you have been very patient – leaving your money untouched for the past 12 years.

I don’t believe you will have any tax liability on your investment if you cash it in.

There are two tax regimes for unit funds – “net” and “gross roll-up”. The latter was introduced in 2001.

Under gross roll-up, no tax is deducted from the fund as it is invested – i.e. any investment gain stays in the fund and “rolls up”, with tax eventually being paid when you withdraw the money.

Back in 2006, the government decided to adjust this slightly to stop people locking money away in unit funds to avoid tax by introducing the notion of “deemed disposal” under which gains in a fund were taxed every eight years – regardless of whether they were withdrawn from the fund or not.

However, back in 2000, when you invested, gross roll-up was not an option. At that time, all funds were “net”, which means tax was deducted from the fund each year and paid over to the Revenue.

As Revenue has received their tax cut annually, you should have no tax liability.

DIRT does not apply to unit fund gains, and nor does capital gains tax. Instead, gains on “net” funds are treated as income and subject to income tax.

The good news is that, since you wrote, the value of your fund has risen again and last Friday stood at a unit price of €3.21, giving your investment a worth of €7,456.83 and a gain of €1,107.83.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.