The best options for any surplus money left over each month - Limerick financial planner

Question
Liam, I’ve inherited money from my late mothers estate, and I would like to give my husband some money from it so he can invest it or do whatever he wants with it. Can I do this without him having to pay any tax?

Answer
Yes, you can.
Since the January 31, 1990, gifts between spouses have not been liable to gift tax (Capital Acquisition Tax) so you could give your husband as much as you like and as often as you like and no tax liability on yours or his part will arise.
And many couples take advantage of this when it comes to making pension contributions. One spouse gifts the other spouse a sum of money that can be used towards topping up their pension contributions to their maximum limit if they haven’t done so already or if they don’t have the money themselves. And they are receiving this money tax free and getting further tax relief on the contribution made.

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Question
Liam, I have surplus money left over each month and I’m not sure what to do with it. Is it better to increase my pension contributions, overpay on my mortgage, or top up what I’m contributing to my company's share purchase scheme?

Answer
You’ve suggested three great options and if your surplus was big enough I’d tell you to use it towards all three.
But if it wasn’t and I was asked to pick just one, it would be to your pension.
Contributions towards a pension come from after tax income, so, if for example you save €100, it’s only going to cost you €60 after tax relief (assuming you’re taxed at the marginal rate) What that means is that your return on investment (ROI) is 67% because that’s what you need to earn if you wanted to turn €60 into €100.
Overpaying on a mortgage comes from after tax income so for every €100 you save, you’ve had to earn c.€135 first. And the return on your mortgage is whatever interest rate you’re being charged. So, if it’s 3.5% that’s your ROI in that instance.
And with an ESPP (share purchase) scheme you are buying shares at a discount of 15% from their market value, which is terrific, but what they will become in the future when they vest and are available to sell is unknown because you don’t know what their future value will be but it’s very unlikely to be better than 67%.

Question
Liam, we’ve just gone sale agreed on our first home and I just want to ask your opinion on home insurance. We’ve read a few articles online but we’re still a little bit unsure about the best option for us. Should we get our home insurance with the bank we are getting the mortgage through, or should we look for a different provider?

Answer
First off congratulations on going sale agreed, exciting times ahead. What I would do first is get a quote from the bank you are arranging your mortgage with and then compare it against what others are offering. You can use online platforms who will quickly come back with quotes from a number of different providers and then you’ll then be able to see who is the most competitive.
When comparing the cost you need to do it based on the reinstatement value of the property, which is different from the market value. And forgive me if you know this already but it's a mistake sometimes people make and they end up paying more than they need to.
When a valuation is being carried out on the property (which the bank will organise) you will get a copy of this report and on it will be the reinstatement value and that is the number you use when comparing cost.
So, when you know what that number is get your quotes and make sure everyone applies every discount allowable i.e. FTB, alarm, smoke alarm etc. My gut is telling me the bank might be the best and most cost-effective option in year 1 because of the discounts they’ll offer, but they could become less competitive from year 2 onwards, so you’ll need to review the costs again when it's up for renewal.

Question
Liam, I’m buying a property with a friend of mine as we are both single and our income and savings aren’t big enough to allow us buy a property in our own right. Our plan is to hold the property for a couple of years and hopefully it will go up enough in value and if it does we can sell it and split the profits and buy a property in our own right. That’s the plan anyway. We know we are taking a gamble on house values increasing but we’re happy to do this. Is there anything else we should be thinking about before we proceed?

Answer
Buying a property with a friend or indeed a sibling was a very common transaction in the days before the property crash in the early noughties for all the reasons you’ve just outlined. And it can work out fine but sometimes the rush to get on the property ladder blindsides those involved.
Because it’s easy to get caught up in the excitement of buying a property and of course you tell yourself you’ll never fall out and nothing bad will ever happen but even the best laid plans don’t go according to plan.
What happens if one of you wants to move out? How much are each of you entitled to if and when you sell the property? If you move out, do you still have to contribute to the mortgage payments?
Uncomfortable conversations to have but the lessons learned from the not too distant past when things like this happened which tore relationships and families apart, is to make sure you both are on the same wavelength from the outset.
And the best way to ensure this is to get a co-ownership agreement in place, which formalises how you both will deal with the property and mortgage in the event of certain things happening. It will explicitly state what steps are to be taken when a certain situation arises and will ensure there is no misunderstanding from anyone, so you both know in advance what is expected from one another.
My advice, therefore, is to get a co-ownership agreement drawn up covering every scenario or eventuality you both can think of and it’s in both of your interests to put this in place.

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Question
Liam, I’m considering giving my daughter and son-in-law €30,000 towards their new house purchase. They have the 10% deposit saved themselves, so I want them to use this money towards reducing the amount they borrow further and save on mortgage repayments. Is this a good idea and if I give them this amount will they or I be liable for tax?

Answer
Neither of you will incur any tax liability. At the moment your daughter can receive up to €400,000 from you tax free over her lifetime with any excess charged at a rate, which is currently 33%.
Even though she has no tax to pay, she has to make a declaration and a return to Revenue advising them that she received this gift from you.
And your thinking about helping her out with mortgage repayments is a very good one because that €30,000 will reduce her monthly repayments by c. €143, and over a 30-year mortgage she will end up paying back €51,250 less in capital and interest repayments.
Finally, a heads up. If you do give her this gift expect her mortgage lender to ask you to sign a declaration that (a) the monies given to her were a gift and you aren’t ever expecting any full or part repayment of it i.e. it’s not a loan and (b) because you have indirectly made a financial contribution towards the purchase you’re waiving your rights to any interest in the property now or in the future.

Question
Liam, I’m going to be in receipt of a redundancy payment and the amount is significant i.e. about €300,000. It’s going to be deposited into my account and I’m not sure what I’m going to do with it. I’m worried because it’s above the state guaranteed amount but I don’t want to make any quick decisions either. So, do I need to open several different accounts or what would you suggest?

Answer
There is a provision in the EU Directive on Deposit Guarantee Scheme (2014/49/EU) which allows for guaranteeing monies that are above the amount you’re ordinarily covered for i.e. €100,000 per individual per institution or €200,000 per couple per institution.
The directive refers to covering temporary high balances for a period of six months, provided the funds came from certain events, one of which are amounts received from redundancy payments.
So, the €300,000 that is coming from your redundancy will be covered under the guarantee scheme for a period of six months from the date it was lodged to your account.
Which means you don’t have to worry, and you don’t have to open several different accounts, and you don’t have to make a quick decision either. You have six months to make up your mind and during that time the full amount in your account is guaranteed.
There are other events which qualify for this dispensation which include monies received from the sale of a persons’ family home, amounts paid in respect of insurance benefits, personal injuries, disability and incapacity benefits, wrongful conviction, unfair dismissal, inheritance, marriage/judicial separation, dissolution of civil partnership, and divorce.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie