Personal finance Q & A

Your queries answered by DOMINIC COYLE

What will a UK move mean for tax on rental income?

I purchased an apartment in 2006 for €300,000. My mortgage is about €1,300 per month. I have managed to keep my repayments up to date. It now looks likely that I will have to move to the UK to get a new job, where I would hope to rent accommodation. In such circumstances I will have to pay tax and so on in the UK.

I would hope to rent out my apartment in Dublin for about €800 per month. It would be impossible to sell the apartment at present and, in any event, it would be in negative equity.

My question is: what are the tax implications for the potential rental income of €800 per month while I continue to pay the mortgage of €1,300?

– Ms MW, Dublin

IT IS TO your credit that you have, to date, managed to keep up with your payments.

The bad news, in tax terms, is that you are going to get no breaks from a forced move to the UK. In fact, you could be even worse off. As the home will no longer be your principal private residence because it is no longer owner-occupied, you could lose some mortgage interest tax relief.

As you bought your apartment in 2006, I presume as a first-time buyer, you would be entitled to claim mortgage interest relief up to the end of this year. While the rules on the relief are tightening all the time, it would still be worth about €2,000 to you this year and that could make the difference in meeting the payments when resources are tight anyway.

On the other side of the equation, rental income is taxable – at least once you have deducted allowable costs. Even though you would be residing in the UK, your liability to tax on rental income remains in this jurisdiction. And because you are resident abroad, any tenant would be expected to withhold the standard rate of income tax – currently 20 per cent of the gross rent – and return it to the tax authorities. Failure to do so could leave them liable. If you have an agent managing the property, it is the agents responsibility to withhold the standard income tax on gross rental income. You will then have to file an annual return accounting for the income and any deductions allowable.

You find yourself in a catch-22. You are almost certainly in negative equity and any sale would only crystallise that and leave you facing a lump sum debt with your bank. In the absence of proposals on dealing with that sum, your bank could refuse to release the deeds – its security on your loan.

It’s not very encouraging.

My pension rules have changed

I am a nurse, and plan to retire shortly, when I reach 64. I took out an AVC policy in May 2007. I expected to receive lump-sum benefits, some taxed and some untaxed. I am with the HSE only eight years, and consequently my pension will be quite small.

When I notified my AVC adviser, Cornmarket Financial Services, that I was retiring, I was informed that the rules governing my AVC plan were changed in the budget 2010, and I could not access any lump sum benefits until I turn 75, as my total income would not exceed €18,000.

My view is that my AVC Plan is governed by whatever Revenue rules were in force in May 2007, when the qualifying income was € 12,000, roughly the amount of the State pension. I will qualify for the State pension in 2013, and should then be able to draw down a lump sum, as I expected when I took out the plan in May 2007. If Cornmarket is right, I will be in a difficult financial state until I turn 75, if I live that long. Can you help ?

– Ms A McE, Dublin

YOU SEEM TO have been caught in the shifting sands that have become a regular, disconcerting aspect of pensions. It is particularly unfair because people are making relatively long-term investment decisions on the basis of information that may no longer be accurate at a later point in the investment.

No fault rests with Cornmarket. As they have said, the issue is the changing rules governing the use of AVCs. Back in 2007, as you state, you were entitled to transfer your AVC funds on retirement to a flexible Approved Retirement Fund (ARF) after taking a tax-free lump sum, provided you had guaranteed income for life of €12,700, a sum roughly equal to the State pension.

In the 2011 Finance Act, this “guaranteed income” threshold was increased to €18,000 as part of a series of measures enabling everyone on a defined contribution pension to avail of the ARF option.

You cannot insist on being treated under the rules in place in 2007, fair though that would seem. As such, you are likely to find yourself locked into an AMRF – the Approved Minimum Retirement Fund – which, as you say, will effectively lock your AVC funds away until you are 75 or can guarantee annual income of €18,000. To be fair, the reason for the rules is to ensure that people do not run out of funds.

The only glimmer of hope is that, while you will not be able to access your lump sum, you will be able to draw down any investment or interest gain on the AMRF each year – subject to paying the relevant income tax.

Bridgestone app bug repaired

We wrote last week about a Bridgestone Best restaurants app for the iPhone with which a reader had a problem. Following publication, Bridgestone Guides’ Sally McKenna informed me that an updated version was issued very shortly after the problem emerged, “correcting the bug”. Anyone who acquired the original version should have received the update, although they will have had to sanction its download to their phone from iTunes.

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