Questions & answers

Dominic Coyleanswers your questions

Regarding the upcoming maturity of SSIAs I have a query about the residency requirement. I started my SSIA in April 2002 and have been living in Spain since August 2002 which means I am outside the State for more than three years. I am working with the EU and part of the Treaty of the EU (Protocol 36, Article 14) states that for tax purposes servants of the Communities will retain their domicile in both their country of origin and current country of residence. Would you consider that this should enable me to qualify for the full benefits under the SSIA scheme, as EU law will take precedence?  Mr E F, Spain

I'm sure this is the last thing you want to hear after five years of disciplined saving in the Special Savings Incentive Scheme but I believe you may not be eligible under the SSIA rules. The key factor, in your case, is residency.

The SSIA rules state you must be tax resident or ordinarily resident in the State to remain eligible to hold or benefit from an SSIA. You remain ordinarily resident for three years after the year in which you leave the State as long as you continue to pay tax in Ireland on all income apart from income earned wholly in  the exercise of your foreign employment. In your case, this means that, having left the State in August 2002, you would have remained ordinarily resident here for the balance of 2002 and for the three succeeding years - ie until December 31st 2005.

I have checked with the Revenue - quoting the protocol you cite and it states only that the rules of the scheme, including residency, to be compatible with EU law. To be honest that, in my view, does not even address the qquestion.

It is worth noting that domicile is not synonymous with residence for tax purposes and the fact that an EU protocol confers rights to domicile would not, of itself, indicate that you fulfil the residency requirements of the SSIA scheme I would strongly suggest that you formally check with Revenue. There is a significant cost implication here. If you are deemed ineligible, your SSIA provider is obliged to deduct 23 per cent exit tax on the entire SSIA fund - including the contributions you have made from after-tax income, the Government bonus and any investment or interest gain.

This would have the effect of wiping out the Government bonus and would make a nonsense of your efforts over the last five years. You would also be precluded from availing of any further incentive through the Minister for Finance's initiative to transfer SSIA funds to a pension.

Pension addition

My SSIA matured at the end of April and I want to invest the entire amount (€17,500)in my company pension. Can you advise if there is a tax-efficient or beneficial way to do this? My earnings are above the maximum limit for the Government Incentive plan so I can't take advantage of that but is there any other bonus available to me? Alternatively, as pension investments are tax free, can I claim back tax paid on SSIA savings invested in my pension?Ms F O'C, e-mail

Your earnings are above the Cowen incentive limits so that clearly does not apply. The important thing to remember is that, under the incentive, you effectively receive an incentive of €1 for every €3 you invest up to a maximum of €7,500.

Under normal pension incentives, higher rate taxpayers, such as you, receive almost €1 for every €1 you invest in a pension. As a member of an occupational pension scheme, the best way to top up your pension with these SSIA funds would be to open an AVC that allows you to make Additional Voluntary Contributions over and above regular deductions for your occupational scheme or a Personal Retirement Savings Account (PRSA).

There are certain limits to the tax relief depending on age - up to 15 per cent of relevant earnings annually for people under 30 rising as high as 40 per cent for those aged 60 or above.

Scrip tax
For some years the two major banks paid their shareholders by way of additional shares rather than dividend. Should the value of these shares be treated for tax purposes as income in the year of receipt or by way of capital gains when they are sold in due course?
Mr Ray Doherty, e-mail

Scrip dividends - the practice of taking your dividend by way of shares rather than in cash - ensures that your involvement in a company is not diluted. They have become a common feature of investor return in recent years. For tax purposes, however, they are treated no differently than a cash dividend. In the first place, as with cash dividends, dividend withholding tax (DWT) at the standard income tax rate of 20 per cent is deducted from the scrip dividend. Essentially, the company assesses your dividend, applies the 20 per cent DWT and then divides the balance by the relevant share price to determine the number of shares that it will purchase.

The investor still needs to note the full amount of the dividend on their tax return. Higher rate taxpayers will be liable to further income tax on the dividend regardless of whether it is taken by way of cash or shares. Capital gains tax may apply to any subsequent sale of those shares with the price at which they were effectively "acquired" being the base cost. Alwa remember, with share sales, the first-in, first-out rule applies. Shares acquired through a scrip dividend will be deemed to be acquired subsequent to the shares on which the dividend was determined.

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