Limited options illustrate the personal misery of crisis

Q&A:Q I have a mortgage of around €80,000 and have been making interest-only payments for the past couple of years.

Now the bank are pressing to apply the terms of my original mortgage, and want the whole cleared in 18 months.

Because of the economic climate my business has recently failed, and I now have no income and am relying on some small savings.

I am married, and am 62 years old. I have €65,000 frozen in an Approved Retirement Fund (ARF); this is money I would gladly give to the bank but, because of legislation introduced by Charlie McCreevy some years ago, I cannot touch this money until I reach the age of 76. I can only take any excess over €63,500 (£50,000).

It seems I may have to sell my home to clear the bank unless I can find a way to access the ARF. I am at a loss as to what to do.

Mr G.S., e-mail

A You are truly in a very difficult situation. One can understand why the banks – even outside the current exceptional circumstances – would be looking to see some delivery on their loan. On the other hand, your story illustrates the true scale of personal misery behind the scenes of the financial crisis.

Unfortunately, I am not aware of any provision that would allow you to unravel your ARF ahead of schedule.

The legislation in this area is particularly tightly written to ensure that the flexibility inherent in ARFs is not abused – leaving the State to pick up the pieces.

Essentially, an ARF allows you to save for retirement, and receive the accompanying tax benefits without being railroaded into acquiring an annuity when you retire. You can simply leave your ARF invested and draw it down as needed.

That is all very well – until you find someone in your situation. While the ARF can be drawn down at any time in retirement – depending on the terms under which you set it up – it is dependent on you having annual income (including the State pension of €12,700).

If not, as in your situation, your ARF effectively becomes an AMRF (Approved Minimum Retirement Fund), in which a minimum of €63,500 must remain until the age of 75.

It does indeed appear that your options are limited, but I would certainly take no action without consulting a professional financial adviser. You might try MABS (the Money Advice and Budgetary Service, which is funded by the State) on 1890 283 438.

‘Ordinarily resident’ – which is correct?

Q The Irish Revenue publication Going to Work Abroad states (section 2.4) that “you will cease to be ordinarily resident in Ireland having been non-resident for three consecutive tax years”. The implication is that for three years after leaving Ireland you remain liable for Irish taxes on worldwide income, other than income from trades, professions or employments which are not carried out in Ireland.

On the other hand, the report of the Taxation Reform Commission states (pg 140): “For the year in which the individual leaves Ireland to become resident elsewhere, he or she is not regarded as ordinarily resident in Ireland.”

These do not appear consistent. Which is correct?

Mr T.K., Dublin

A You are not really comparing like with like here. The differing definitions of “ordinary residence” depending on a person’s individual circumstances – to which the Commission on Taxation report refers – is given by the commission as a reason why the rules should be changed, providing a uniform definition for “ordinarily resident”.

The situation cited in the Commission on Taxation report relates only to those people who are resident outside the State and who make a gift of property to the State. Presumably following lobbying somewhere along the line, the rules were altered so that such people would not be deemed to be ordinarily resident, even in the year they left the country.

It gets better. People who had donated property to the State were allowed to visit Ireland for up to 182 days a year for “advising on the management of the gifted property”.

This was on top of the standard threshold of 183 days, below which people not resident in the State for tax purposes can spend in Ireland without jeopardising their non-resident status.

The normal threshold plus the 182-day exemption means that people could effectively be in the State for 365 days in a year and still be considered non-resident. Only in Ireland could you get tax rules like this. Not surprisingly, the Commission on Taxation suggests the 182-day exemption be discontinued.

The Revenue rules on ordinary residence lay down that you remain ordinarily resident here for three years following the year in which you leave the State – that’s three years on top of the year in which you leave.

Please send your queries to Dominic Coyle, Q&A , The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. 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 questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.