Q&A: When declaring income for a means test to qualify for various types of state aid, does "income" include the interest on savings even if it is not drawn? If it is, how is interest computed if the investment is in a fixed term account or an equity-based one?
Mr DB, Dublin
THE MEANS test does include provision for savings or, more appropriately, the interest derived from them. You refer in your query specifically to the Health Service Executive, so I assume you are talking about eligibility for the medical card.
When looking at your savings, what the HSE does is disregard the first € 36,000 of capital in the context of a single person and twice that for a couple. The figure relates to the sum of any savings and property you own (apart from your family home).
Thereafter, there is a choice. Either you can provide a certificate of interest paid for the most recent full calendar year – provided by the institution(s) in which the savings are held – or the HSE will apply a “notional rate” to your savings.
The HSE says it will use whichever measure is more beneficial to the applicant.
Under the notional rate regime, the first € 10,000 over the exemption threshold is deemed to deliver €1 in weekly income. The next €10,000 attracts a notional weekly income of €2 with a rate of €4 a week applying to everything over this amount – ie in excess of €56,000 for an individual or €92,000 for a couple.
You refer to the slightly more complicated issue of fixed term savings where the interest accruing is not drawn down until the end of the term. The HSE test makes provision for this.
If you choose, interest will only be taken into account on the date the investment matures. You can otherwise opt to have the notional rate applied.
Getting mortgage to pay parents for cost of home
Some years ago, our daughter got planning permission for a house. At the time, she was unable to get a mortgage. We agreed with her that we would build the house for her and that when she was in a position to secure a mortgage she would refund the money. She is now together with her boyfriend in position to get a mortgage.
Will the circumstances outlined above hinder the mortgage process?
Is there any implication by way of a tax liability?
Mr ND, Limerick
Good luck to your daughter if she is now in a position to secure a mortgage. My understanding is that the lender’s concern will centre on the ability of the mortgage applicant to repay the loan and the security of title to the property which it will require as security.
As long as it can be reassured on these two issues, there should not be an issue. Effectively, your daughter (and her partner) are buying your investment out of their home. While the precise circumstances are slightly unusual – though probably less so in relation to first-time property purchases during the latter phase of the boom years – banks would be well used to providing funding to allow one member of a couple buy out a partner from a property initially bought jointly but now moving to sole ownership.
Having said that, if not organised properly, you could find yourselves facing significant tax issues in the transaction. In strict tax terms, despite the informality of the arrangement, you could be deemed to be “selling” a second, or investment, property, creating a capital gains issue.
An alternative scenario could see the cost of the build being seen as a gift to your daughter, coming under the provisions of capital acquisitions tax (gift or inheritance tax).
From your daughter’s point of view, stamp duty issues could arise if she was deemed to be “acquiring” a property which, in real terms, has been her home since it was built. In that regard, much depends on who is deemed to hold title in the deeds to the property.
I am fairly confident that, given the sort of informal arrangement that applied in your position, it should be possible to work around the issues but it is a situation in which I would advise you to get professional legal and/or tax advice. You wouldn’t want to find yourself in a potentially costly muddle with Revenue at some point later.
While your daughter effectively “bought” or “built” the home during the boom years, she will not attract the higher level of mortgage interest relief announced in the Budget to give a measure of relief to this group. However, as long as she completes the mortgage application this year, she will be able to avail of the less generous relief available to first-time buyers between now and 2017 compared to second-time buyers.
Should I put my savings in the post office for security?
In view of the parlous state of Greece and the doubtful future of the euro, should I withdraw a bank deposit (the bulk of my savings) and put it in the post office? Will it be safe there? Should the euro become valueless, will the Government protect post office bonds?
BM, Meath
We keep getting a lot of mail on this subject. I think it should be clear at this stage that the European Union is determined to protect the euro at whatever cost – and that other countries as diverse as the US and China are equally committed.
In my view, your savings are safe in the bank (certainly if you have less than €100,000 in any given institution) and would be equally safe with An Post.
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.
