News Archives - Pat Carroll PCCO - Chartered Accountants & Tax Advisors

Collapse of Danish insurer exposes Irish homeowners

HUNDREDS of homeowners have been left without insurance cover if their homes develop structural defects following the failure of a Danish insurer.

Alpha Insurance filed for bankruptcy earlier this year. It had 12,000 customers here.

Last week 50,000 drivers had to get alternative insurance cover when another Danish insurer, Qudos, went into liquidation.

Now it has emerged that the failure of Danish regulated Alpha has left 1,600 homeowners unable to get alternative insurance.

The homeowners were covered for structural defects insurance, which was bought for them by the developers of their homes.

Fianna Fáil finance spokesman Michael McGrath said the homeowners were now left in the lurch and were vulnerable if their homes develop defects.

“This specific issue surrounds latent defect or structural warranty insurance which is typically taken out by the developer and protects the homeowner if major structural issues with the property emerge.”

Mr McGrath said the 1,600 homeowners were unable to get alternative cover.

“It is my understanding that homeowners are unable to take out replacement insurance themselves for homes that have been already constructed.”

He said this threatens to leave impacted homeowners completely exposed if serious structural issues with their house emerge.

The lack of such cover can restrict homeowners in selling their house.

He called on the Central Bank to clarify the matter.

Homeowners affected who had structural insurance with Alpha insurance were advised to contact the developer who built their house and to ensure that alternative cover has been arranged.

Mr McGrath added: “This is yet another example of a breakdown in regulation in the European insurance market. Only last week another Danish regulated insurance company, Qudos, went into liquidation and we are still coming to terms with the failures of Enterprise and Setanta.”

He said major reform is needed at a European level to protect customers and claimants when insurance companies fail.

In a Dáil reply to the Fianna Fáil TD, Finance Minister Paschal Donohoe said owners of properties unable to get new cover should contact their developer of their property.

Should there be a claim on a policy, there may be assistance available from the Danish Insurance Guarantee Fund in the first instance.

If such an application were unsuccessful, there may then be recourse to the Irish Insurance Compensation Fund, the Minister said.

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NTMA to raise up to €18bn next year to repay outstanding debt

THE Government plans to borrow between €14bn and €18bn next year, to repay outstanding debt as it falls due.

The plans outlined by the National Treasury Management Agency (NTMA) are in line with the amount raised this year on the bond markets. The Government is forecasting a balanced budget next year, meaning it will not borrow for spending.

That’s the first time since the crash in 2008 that the State will not spend more than it takes in through taxation. However, with a massive national debt to manage to NTMA will continue to issue new bonds as existing debt matures. The NTMA will have a cash balance of €13bn at the start of 2019, with €15bn of bonds falling due over the following 12 months.

The NTMA said it will issue a statement at the beginning of each quarter next year, outlining the bond auction plans for coming three months.

It said it intends to hold at least one syndicated bond deal during the year – a practice whereby debt is issued to lenders through intermediary banks, as well as regular bond auctions.

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Revenue collects extra €213m in tax crackdown

More than 1,300 disclosures made of assets held in the UK. The Revenue Commissioners took a €213m tax haul last year as a result of a crackdown on defaulters that was backed by the recruitment of extra staff.

And €87.6m of the tax was paid by people on assets held across the world, including the UK, Australia, the United States, the British Virgin Islands, Malta, Switzerland and the United Arab Emirates.

Of the disclosures of offshore assets made under the increased Revenue scrutiny, nine were for more than €1m each, while 18 were for between €500,000 and €1m. Most of the disclosures of offshore assets – 2,828 in total during 2017 – were for amounts of less than €5,000.

Offshore property, shares, bank accounts and pensions accounted for most of the assets that were disclosed.

The Revenue Commissioners said in an evaluation report of compliance measures introduced by the 2017 Budget, that more than 1,300 disclosures were made in respect of assets in the UK – the single largest number. Almost 14pc related to assets in the United States.

And while assets based in Switzerland and the Isle of Man comprised just a small number of the total disclosures, they accounted for more than a quarter, or 25.8pc, of the total value of the almost €88m in disclosures.

The Revenue Commissioners said that of disclosures of UK assets, nearly 25pc of the value of the disclosures related to property, and 20pc to pensions.

Jersey and Malta were dominated by disclosures related to trusts, while those from Australia, Spain, France, Portugal and Spain related mainly to property.

In October 2016, then Finance Minister Michael Noonan said the release of the Panama Papers that year had showed how offshore structures and accounts could be used to avoid paying tax.

He allocated an extra €5m in funding to the Revenue Commissioners for 2017 to recruit 50 extra staff and to invest in IT systems that are increasingly used to detect irregularities and evasion.

The Revenue Commissioners was set a target of yielding an additional €130m for the Exchequer.

The compliance report prepared by the Revenue Commissioners in respect of 2017 shows that its €213m haul significantly beat that target.

The money included €63m that was secured from so-called Section 110 companies – more than the €50m target that had been set.

Section 110 of the Taxes Consolidation Act was amended in 2016 to restrict the use of profit-participating loans where they were used to finance the business of Section 110 companies related to Irish property transactions.

Revenue said that the average audit yield per full-time employee in 2017 was €424,700. It said the average yield for risk management interventions last year was €515,300 per full-time employee.

It added that in 2016, 157 new staff were assigned to audit functions at the Revenue Commissioners.

The report said that the group of employees delivered a tax yield of €22.8m that year, or an average of €155,000 per case worker. Of that group, 139 continued in audit functions in 2017, but the average tax yield per case worker rose to €282,000. The report predicted that the average yield for each of those workers this year will be €310,000.

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State loses €4bn as Brexit chaos batters bank shares

A plunge in shares has wiped €4bn off the value of the State’s stake in bailed-out banks this year.

The massive drop in value raises a serious question mark over the Government’s policy of holding on to the bank stakes for so long.

Shares in AIB, Bank of Ireland and Permanent TSB have been battered, with the markets rattled by Brexit and fears of a full scale US-China trade war.

The plunge means the prospect of recovering the costs of rescuing those banks is becoming more difficult.

Owen Callan, who analyses the banking sector for Investec, said the banks’ shares “were a long way” from high points seen a year ago.

“It’s going to be quite a long time, I would think, before we’re likely to revisit the highs,” he said.

The value of the State’s 71pc shareholding in AIB is down €3.61bn this year.

The 14pc stake in Bank of Ireland has lost around €300m and the 75pc stake in Permanent TSB has lost €200m.

The timing of a sale is up to the Government, which has always said it would use the proceeds from a share sale to pay down Ireland’s large national debt, rather than on areas like health or housing.

A Department of Finance spokesman said officials “continue to monitor market developments on an ongoing basis”.

Finance Minister Paschal Donohoe has previously said that for a sale to go ahead, he would “need to be satisfied” that the State would get a fair price for its shares.

“I believe that over the medium term we will recoup all of the money that we invested in these banks during the financial crisis,” Mr Donohoe said earlier this year.

Figures compiled for the Irish Independent in October said the State was down almost €42bn on its attempts to save the banks. Those figures were compiled by adding together the costs of all bank bailouts, and subtracting any money that had been returned to the State.

Though the State will not see a return of the cash pumped into Anglo Irish Bank and Irish Nationwide, it hopes to recoup and even make a profit on the money invested to save AIB, Bank of Ireland and Permanent TSB.


As of yesterday evening, the State’s holding in those three banks was valued at a cumulative total of €8.32bn.

However, on the last day of trading on the Irish Stock Exchange in 2017, the total across all three banks was €12.4bn.

A provision in the Programme for Government said the sale of more than 25pc of a bank by the end of this year was not allowed.

A Department of Finance spokesman said no decision had yet been made on whether a similar provision might be included in any new agreement.

Mr Callan, of Investec, said that the main drag on the banks’ shares had been European and global issues, rather than events in Ireland.

But he said domestic Irish issues are negatively affecting banks too, with the housing crisis hampering their ability to grow revenues by lending more mortgages.

“We are seeing a bit of a slowdown in the growth in the mortgage market… it’s simply just that the houses aren’t being completed and aren’t coming to the market at a fast enough pace,” he said.

He added that the Central Bank limits on the amount mortgage hunters can borrow are also having an impact on banks’ growth.

In addition, expectations that Irish economic growth will be slower next year may hamper the banks too.

Much of investor sentiment is driven by events in the US, the world’s largest economy. It is currently battling with China over trade.

US President Donald Trump has repeatedly railed against China’s trade surplus with the US.

That means China sells more goods to the US than it buys from it.

Mr Trump wants China to buy more US goods to help boost the American economy.

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Robots will take half of jobs unless we act

Irish workers face an almost 50pc chance their job will be automated in little more than a decade.

The stark warning that robots and other forms of automation may replace some workers came as the Government announced projects which will share €75m in funding as part of a bid to secure future jobs.

Business Minister Heather Humphreys pointed to a recent study which estimated that Irish workers face a 46pc probability of their jobs being automated by the 2030s.

She said: “We cannot afford to stand still”.

The Organisation for Economic Co-operation and Development (OECD) study, published earlier this year, compared the probability of increasing automation of jobs across 32 countries.

Jobs that were considered most at risk include food preparation, cleaning, construction and manufacturing.

Teaching professionals were deemed least at risk, along with management positions such as chief executives, and the roles of legislators like TDs. The €75m Disruptive Technology Innovation Fund (DTIF) is said to be a “key element” of the Government’s Future Jobs initiative.

Ms Humphreys praised the 27 projects that have secured the first tranche of a planned €500m in funding over a decade saying they have devised “ground-breaking solutions that will help us to future-proof our economy”.

She said the DTIF is about “ensuring that Ireland can stay ahead of the game to secure the jobs of the future”.

Ms Humphreys said disruptive technologies will significantly change the way people work and live and they need to be embraced.

The minister said Ireland is lucky to have “fantastic companies that are doing amazing things in technology”.

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‘Paltry fine at odds with costs borne by ordinary citizens’

The paltry fine of €23,000 slapped on Irish Nationwide Building Society’s one-time head of commercial lending, Tom McMenamin, bears no relationship to the scale of losses at the now bust lender.

Taxpayers sank €5.4bn into INBS, which was nationalised in 2010 during the depths of the crisis, and will claw back little or nothing of that money.

Even the regulators who imposed the fine announced yesterday admit it was out of keeping with the scale of breaches Mr McMenamin had admitted to.

However, under the law as it stands, regulators cannot impose a financial penalty that would be likely to cause Mr McMenamin to go bankrupt.

“The Central Bank considers that the breaches admitted by Mr McMenamin merited a monetary penalty of €250,000,” it said in a statement. However, taking into account his current personal financial situation the Central Bank slashed the fine to €23,000.

That will be seen as bitterly ironic. McMenamin was a key and senior decision-maker at INBS during the boom.

Bank bailout costs borne by ordinary citizens as a result of the financial crash stand at about €42bn. That’s a ‘fine’ of €8,600 each for every man, woman and child in the country.

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Cut to pensions tax relief will lead to mass exodus by savers, warns provider

Government proposals that could see the income tax relief on pensions cut would be calamitous for middle earners, a leading investment company has warned.

Halving the reliefs would lead to a mass exodus of middle-income earners from retirement schemes, Standard Life warned.

The pensions provider said reducing tax relief will mean it costs higher-rate taxpayers more each month to save the same amount into pensions.

Halving the tax relief would cost higher-rate taxpayers making a €330 monthly pension contribution some €600 a year if they want to maintain the same level of payments into the scheme. People in the private sector would be the big losers, Standard Life said.

Already the average public sector pension is 80pc higher than the average in the private sector.

People retiring from the public sector have an annual pension of €25,000 a year on average.

This compares with €14,000 for those private sector workers who have a retirement scheme.

Standard Life’s managing director in Ireland, Michael McKenna, said this means the average public sector worker receives nine times more pension tax relief than their private sector counterpart.

Fears of a move to cut the tax relief on pensions have been sparked as a committee of civil servants, chaired by Department of Finance officials, is examining the issue.

The Interdepartmental Pensions Reform and Taxation Group is expected to report early next year.

The Department of Finance said the group is looking at pension reform and simplification, as well as reviewing the cost of supplementary pensions to the Exchequer.

It held a public consultation and is reviewing around 50 responses.

The spokesperson said the Standard Life commentary related to the proposals for the auto-enrolment pension, but the proposals on that do not take any position on the system of tax relief for those saving for retirement using traditional pension products.

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Pensioners are biggest losers as ‘fair’ Budget sees them out of pocket

For all his promises to “promote fairness” in his 2019 Budget, Finance Minister Paschal Donohoe’s measures will see some sections of society falling further behind, with pensioners the largest single group to see their position eroded, according to a new study.

The Economic and Social Research Institute assessed the impact of the budget changes compared with a situation in which tax credits, thresholds and maximum benefits were increased in line with forecast wage rises.

The nation’s 637,000 retirees were among the biggest relative losers, according to the study published today.

A retired single person will be 1.07pc worse off under Mr Donohoe’s budget, while a retired couple will lose 0.93pc of their disposable income, relative to where they would have been had the changes been linked to wage rises.

The state pension is the main source of income for most, and it is only among the richest 30pc that it accounts for less than half their annual income.

That leaves pensioners particularly vulnerable to changes in the state tax and welfare system.

On average, the ESRI said the tax and benefit changes would reduce households’ disposable income by 0.7pc compared to a neutral benchmark, with lower income households seeing a loss of 0.8pc because of the decision to freeze personal and employee income tax credits in cash terms.

Those on higher incomes will on average see smaller proportional losses of 0.5pc.

“Freezing personal and employee tax credits when prices and wages are rising amounts to a real terms tax rise, which take proportionally most from lower-to-middle income households,” said Barra Roantree, a research officer at the ESRI.

“Tax cuts in this budget were focused on the 25pc of households that contain a higher-rate income taxpayer.”

The largest overall decline in disposable income was seen among women with children who were in a couple where one worked. That group incurred losses of 1.76pc.

Women in no-earner couples with children lost 1.48pc relative to benchmarking against wage rises.

The study argued that a cut in the Universal Social Charge and a reduction in the higher rate of employer contributions into the national Social Insurance Fund would have little impact on the lowest paid workers.

While 1.7 million people will end up paying less tax as a result of a cut in the Universal Social Charge from 4.75pc to 4.5pc, it will do little to incentivise workers on the minimum wage of €9.80, who will now hit the USC threshold by working more than 39 hours a week instead of 38 at present.

“This means low-paid part-time workers can be left slightly worse off by a pay increase, or working more hours,” the report said.

The ESRI said that a similar cliff-edge also applies to PRSI where, despite an increase in the higher rate paid by employers, those firms that employed workers on the minimum wage for 39 hours a week would see a €451 a year rise in costs.

That measure, the ESRI said, would disincentivise firms from offering extra hours or pay rises.

The report also warned of the State’s over-dependence on company tax revenues, almost 40pc of which are paid by just 10 companies.

The risk is that those companies may scale back their presence here, or tax changes elsewhere in the world may make Ireland’s low tax rate less attractive for them.

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Russia banks big users of Irish debt vehicles

Russian banks are among the heaviest users of Irish special-purpose entities (SPE), a class of unregulated structure used to raise funds.

Securitisations – which bundle masses of mortgages, car loans, consumer or business loans into structures that can be borrowed against by banks and others – have become relatively well known since the financial crisis.

Ireland is a global centre for the industry, thanks to a clear and relatively straightforward legal regime – that controversially can include use by investors of the low-tax Section 110 company structure, and trusts with charitable status that facilitates investments to be made safe from the risk of losses.

Irish sponsors of securitisation (SPEs) are generally domestically-focused banks issuing debt secured on residential mortgages, the research found.

The Central Bank reports also show a second broad class of Irish SPEs make up a market worth €269bn. Within this non-securitisation SPE category, the main Irish users are multi-nationals with a base here and Irish-resident funds, the research found.

Russian banks accounted for 7.7pc of that market, the single biggest class of user, according to the research. Russian corporations make up almost as big a share of the market. The UK as a whole is actually a greater user of the Irish SPEs, accounting for almost 25pc of the market – mainly financial institutions that are not banks. Similarly, about 20pc of the market is made up of US entities – though again banks make up a small element of the US involvement.

Irish-resident SPEs are not regulated by the Central Bank, but it has begun research and increased reporting requirements in order to facilitate better insights on the sector.

Central Bank researchers issued a number of reports about the so-called shadow-banking industry – a term for unregulated financial corporations yesterday.

The findings included that foreign banks that use Irish SPEs are bigger and weaker than their peers – including slower growth, less profitability and lower capitalisation.

These banks also tend to have riskier loan portfolios, thinner stable sources of funding, higher costs of funding and exhibit higher levels of indebtedness.

International, cross-border players are the main users of the Irish SPEs, the research shows. The main impact on the economy here is the fees paid to Irish law firms, accountants and advisors – which added up to €273m last year.

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Confidence drops over retirement provision

Almost one in two people are concerned that they are financially unprepared for retirement, according to a savings and investment index from the Bank of Ireland and the Economic and Social Research Institute.

The Retirement Optimism reading dropped sharply to 99 in November from 105 in September.

It is part of an overall Savings and Investment index compiled by the two bodies, using a minimum of 800 people, which saw a rise to 100 from a reading of 99 as the stock market carnage of October ebbed.

“The drop in confidence around retirement provision is significant and just half of respondents feel financially prepared for retirement,” said Tom McCabe of Bank of Ireland Investment Markets.

Separately, Standard Life warned proposals calling for a halving of income tax relief on pensions for middle-income earners to 20pc or reducing it to 25pc would be calamitous for private sector workers.

The company submitted its findings to the Interdepartmental Pensions Reform and Taxation Group, which is expected to report by the end of the year.

“We anticipate the exact opposite – ie a mass exodus of those who consider reduced pension tax benefits unattractive and reduce their pension saving accordingly,” said Michael McKenna, managing director of Standard Life Ireland.

“The squeezed middle might feel this is a bridge too far following the post-financial crash hardships endured.”

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