Money Doctors 2020

the experts in personal finance JOHN LOWE

First Published 2019 by The O’Brien Press 12 Terenure Road East, Rathgar, Dublin 6, D06 HD27, Ireland.

Tel: +353 1 4923333; Fa x +353 1 4922777 E-mail: books@obrien.ie. Website: www.obrien.ie The O’Brien Press is a member of Publishing Ireland.

ISBN: 978-1-78849-163-1 Text © John Lowe 2019 Copyright for typesetting, editing, layout and design © The O’Brien Press Ltd Photographs © Shutterstock All rights reserved.

No part of this publication may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or in any information storage and retrieval system, without permission in writing from the publisher.

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Published in:

Printed and bound by Scandbook AB, Sweden.

The paper in this book is produced using pulp from managed forests.

The publisher would like to acknowledge the following for the use of their logos: Life Insurance Association, Brokers Ireland, Financial Services & Pensions Ombudsman, AIB, Bank of Ireland, Permanent TSB, National Irish Bank, Ulster Bank, the Credit Union, VHI Healthcare, Laya Healthcare, Irish Life and GoldCore Ltd. The author and publisher have made every effort to trace all copyright holders, but if any have been inadvertently overlooked we would be pleased to make the necessary arrangement at the first opportunity.

Whilst every effort has been made to ensure accuracy, no legal or other liability on the part of the author or publishers can be accepted for any information or advice given.

CONTENTS Acknowledgements 12 Preface 13 Is This Book for You? Getting the most out of this book Money doctors website Consumer protection

15 16 16 17

PART 1: How to Become Financially Fit in 2020

20

1 All it Takes is a Little Planning

21

Why you need a financial plan 21 Supposing you don’t plan? 22 Instant savings and more 23 What does a financial plan look like?

23 How long should a financial plan last for?

23 If you think you need help 24

2 Writing a Financial Plan How do you decide what your financial objectives should be?

Prioritising your financial objectives Ten universal needs Setting realistic aims How far have you got?

Your monthly income and outgoings Your assets Your liabilities The importance of making assumptions Where do you need to take action?

3 Money is a Family Affair Problem? What problem?

Are you and your partner financially compatible?

Opening a dialogue Anything to declare?

26 26 27 29 29 30 31 32 33 33 35

37 37 38 38 39

Building a joint approach to money Sharing out the chores The importance of involving and educating your children

4 Getting Help How far should you go?

Where to get help

40 40 41

44 44 45

PART 2: Your Financial Rights

49

5 Your Right to Social Welfare

50

The difference between contributory and non-contributory payments The different types of social welfare So, what is means testing?

What are you entitled to? Social welfare payments in detail

6 Your Employment Rights

51 52 52 53

63

You may be more protected than you imagine 63 Minimum wage 63 Annual leave entitlement 63 Holiday pay 64 Your working week 64 On-call workers 64 Dismissal rights 64 Time off work 65 What to do if you are unhappy with your employer 65 Redundancy 65

7 Your Rights as a Financial Consumer How to complain If you have been turned down for a loan or credit card for no apparent reason

Part 3: Banking, Borrowing and Getting Out of Debt

67 67 68

71

8 Banking 72 Understanding the banking system What banks do best Basic banking services explained What price banking?

72 73 74 76

Cutting the cost of your current account Other types of bank account State savings: accounts from the National Treasury Management Agency (NTMA) The credit union option Banking on holiday

9 Getting Out of Debt You may not even realise you have a problem Sizing up the problem Debt comes in many disguises Beware the minimum payment trap Debt threatens your future freedom Seven excellent reasons to become debt-free The first step to getting out of debt Taking stock of your situation The art of debt elimination

76 78 79 79 79

81 81 82 82 84 84 85 86 87 89

10 Borrowing 93 So, what is ‘sensible borrowing’?

Never borrow for longer than you have to Build up a good financial/credit rating history Why rates differ so widely The first rule of cheaper borrowing Choosing the best loan for your needs The Money Doctors best loan guide

94 94 94 95 95 96 96

Part 4: A Complete Guide to Insurance

100

11 Protecting Yourself and Your Family

101

You know you should ...

Spend time, not money Income protection cover Critical or serious illness insurance Life cover Private medical insurance Which types of cover should you choose?

How much life cover do you need?

Life cover tax tip Keeping the cost down

101 102 103 104 105 106 107 108 109 109

12 Protecting Your Possessions The importance of proper cover The different types of ‘general’ insurance Don’t just rely on brokers Home insurance Motor insurance Insider tips on buying other general insurance

Part 5: A Complete Guide to Property Purchase

110 110 111 111 111 113 113

115

13 Mortgages 116 Taking advantage of the mortgage revolution Interest: All the difference in the world Two mortgage options: Repayment versus interest-only Fixed or variable rate?

Why you should try to make mortgage overpayments How the right professional adviser will save you money

14 Property Questions Should I buy or rent?

How much can I borrow?

What is APR? Is it worth switching my mortgage to get a lower rate?

Help! I’m self-employed What will it cost for me to buy my home?

The Finance Act 2012 Does it make sense to buy a second property as an investment?

What other state housing grants might be available to me?

Is it worth repaying my mortgage early?

What home insurance will I need?

If I have trouble making my mortgage repayments, what should I do?

116 117 118 120 121 122

124 124 125 125 126 126 126 127 128 128 129 129 129

Part 6: Savings and Investment Success

131

15 Saving for a Rainy Day

132

Good, old-fashioned savings Saving made simple How much is enough?

132 132 133

Your savings strategy Emergency fund: Three basic requirements Savings and tax

16 Investment Strategies You Can Count On

133 133 135

136

Basic investment planning 136 Pooled investments 140 Specialised stock market strategies 143 Alternative investments 143 Property 148 Tax-efficient investment options 149

Part 7: Planning for a Richer Retirement

151

17 Retirement Basics

152

Why you should make pension planning your number one priority It is never too early or too late to begin Start by taking stock Where do you go for the answers to these questions?

How much will you need when you retire?

The good news What to do if you work in the private sector What to do if you work for yourself

18 Pensions Made Easy A quick guide to pension schemes Categories of pension schemes Big tax relief – the Revenue Commissioners are on your side What happens to your pension contributions?

What is it going to cost?

What benefits should you be looking for?

What happens when you retire?

152 153 153 154 154 155 156 157

158 158 158 162 163 164 165 166

Part 8: Why Pay More Tax Than You Have To?

168

19 Tax Basics

169

Keeping it legal 170 Get to know your tax liabilities, and the Revenue Commissioners in the process 170 Do you have to fill in a tax return?

171

20 Income Tax Basics What sort of income do you have?

A quick explanation of income tax rates Personal credits and tax allowances PRSI – Another form of income tax

21 All About Income Tax Credits How tax credits work in practice Check your tax credits every year A complete guide to personal tax credits and allowances for 2019

173 173 174 176 177

178 178 179 179

22 PAYE 185 the ins and outs of PAYE Emergency tax Getting your tax back! PAYE refunds Making sure your expenses are tax-free

23 Income Tax for the Self-employed

185 186 186 188

189

How to reduce your income tax bill if you work for yourself 189 Self-assessment system 190 Preliminary tax 190 The mystery factor!

191 Make your payments on time … or else 191 Do you need to register for VAT? 193 And another thing 194 Working out your profits 195 Expenses 195 A word about capital expenditure 196 Other tax-saving possibilities 196

24 Tax and Property The tax advantages of property investment A word of warning Tax incentives ‘Generous’ expenses

25 Tax, Benefit in Kind and the Company Car Benefit in kind (BiK) Motor and travelling expenses Other tax-free and tax-efficient perks Has your employer offered you an opportunity to buy shares?

Revenue Online Service (ROS)

197 197 197 198 198

200 200 202 203 206 207

How to slash the cost of your benefit in kind Should you have a company car at all?

100% tax-free motoring!

26 Capital Gains Tax How the tax works Basic capital gains tax planning One more useful way to reduce your bill

27 Capital Acquisition Tax

208 208 209

211 211 211 213

214

Take full advantage of the tax-free thresholds 214 Five completely tax-free categories 215 Two useful ways to avoid capital acquisition tax 216 Farms 216 Businesses 216

28 Love, Marriage and Lower Taxes Marriage brings greater flexibility Other tax concessions made to married couples Even better news if you’re married and self-employed

29 Tax for the Ex-pat It’s all about residency and domicile What happens when you move abroad?

A money-back offer: tax rebates What is your tax status?

Your personal tax credits and reliefs Get professional help!

218 218 219 219

221 221 222 222 222 223 224

30 Special Tax Advice for Farmers

225

Income tax Capital Acquisitions Tax Capital Gains Tax VAT Stock relief Compulsory disposal of livestock Capital allowances Stamp duty Farm consolidation relief Leasing of farm land

225 226 226 227 227 227 227 228 228 228

Part 9: When the Last Thing You Want To Think About is Money 229 31 Redundancy 230 Background briefing on ‘redundancy’ How much are you entitled to?

What happens if the employer doesn’t pay up?

What’s the tax situation?

Claiming tax relief on a redundancy payment

230 231 231 231 232

32 Separation 233 The implications of living apart What happens when you live apart?

Legal separation What is a judicial separation?

233 233 234 235

33 Divorce 237 The importance of budgeting How your situation will have changed Making proper pension provision

34 Coping With Bereavement A short list of definitions When there is a will When there is no will or no valid will The right of the spouse to inherit Status of children under a will Non-marital children Non-marital relationships The role of the personal representative Obtaining the Grant of Representation The importance of notifying the tax office The benefits of joint ownership How is it that assets can pass outside of the will or intestacy?

35 MARP, Personal Insolvency and Bankruptcy

237 238 238

240 240 241 242 242 243 243 244 244 244 245 246 247

249

The first steps in the process 250 Personal Insolvency Bill 2012 255 Bankruptcy 261 Regulation of PIPs 264 Here’s what to do 264

36 Non-nationals – A Guide to Living in Ireland Permission, stamps and conditions Business immigration programmes So you have arrived in Ireland 10 things you may want to consider when you first arrive in Ireland Support groups

37 Jim Power’s 2020 Economic Global Update The World in 2019 The World in 2020 Interest rates The Irish housing market The context for the Irish economy Economic background to Budget 2020 The economic assumptions The fiscal assumptions The key features of Budget 2020 Overall assessment

Appendix 1: Learn to Speak the Language

266 267 269 270 271 278

285 285 286 288 288 289 290 291 292 293 294

295

Percentages made easy 295 The vital difference between capital and income 298 The miracle of compound interest 298 Gearing 300

Appendix 2: Tax Rates and Credits

302

Appendix 3: Tax Computation Template

304

Appendix 4: The Money Doctors’ Annual Budget Account

305

Appendix 5: Money Doctors services

307

Appendix 6: Useful Addresses

313

Appendix 7: Important Tax Dates

317

Appendix 8: 100 Ways to Save Cash

320

Appendix 9: Mortgages for First-time Buyers

334

Appendix 10: The Money Doctors’ Tips For the Top

339

Appendix 11: Budget 2020

356

Index

362

ACKNOWLEDGEMENTS There are many people who deserve a special mention for their personal help and support and who have guided me throughout my career. Included are family, friends, mentors and colleagues. Special mention and special thanks go to the following for their great assistance in the production of this edition of the finance guide: My family, who continue to support and love me. My sincere thanks also to Jonathan Self (writer, novelist and mentor), George Butler and Stephanie Cahill (longstanding friends and colleagues in Money Doctors), John P Carlin (friend and accountant), Michael and Ivan O’Brien and all in the O’Brien Press, not forgetting Fergal Tobin my original publisher and the person who introduced me to Fergal, novelist Monica McInerney.

Special thanks to the myriad of radio stations, presenters and listeners across the country that regularly take my commentary, including RTÉ Radio, Newstalk, East Coast FM (Declan Meehan), Clare FM, LMFM (Gerry Kelly), Highland Radio, Waterford Local Radio FM, Midlands 103FM, Limerick’s Live 95FM (my friend Joe Nash), TodayFM, Sunshine Radio, Ocean FM, Cork 96FM, RedFM, C103 FM, MidWest Radio, South East Radio and, last but not least, the editors and all the team at the Irish Daily Star (Thursdays) and Sinann & Charlotte in RTE.ie/LifeStyle for publishing my weekly article.

PREFACE Welcome to 2020 and the fifteenth edition of Money Doctors – Ireland’s bestselling and most comprehensive finance guide, now published for the first time by the O’Brien Press (thank you Michael and Ivan).

The year 2019 was one of stunning growth and great successes for Ireland. We have achieved practically full employment – 2.3 million people working, growth in excess of 8% (where the EU average is 1.6%) and a very buoyant economy. Poverty and deprivation rates have fallen for the fourth year in a row, while wages were up 3% – well ahead of inflation, which has stayed at a low level. We continue to enjoy comparatively low interest rates, though there are some mortgage holders who would prefer the EU average for their standard variable interest rate. There is still a sizeable difference.

We relished the successes of our sports stars in 2019, particularly Shane Lowry’s epic first Open victory in Portrush last July, and are excited at the prospect of another Ryder Cup in Ireland in 2026 at Europe’s number one hotel and resort, Adare Manor in County Limerick – well done the team there. The Dublin football team hit the magic 5 in a row All Ireland championships, while Tipperary won the 132nd and their 28th All Ireland hurling final against Kilkenny in August.

The only blots on the landscape are the continuing crises in housing and healthcare, with soaring rents and the danger of a new property bubble continuing to develop. House prices in the major urban areas, though levelled off in 2019, are increasingly outside the reach of the average earner. Homelessness has reached record levels, and there is little evidence to date that the government’s Rebuilding Ireland initiative has had any tangible effects, other than running out of funds after year one of a three-year plan, though Budget 2020 did earmark further monies for this programme.

Climate change was very much on the agenda both for world leaders and the Irish electorate. The latter’s views were evidenced at the European and local elections last May. Boris Johnson took over the role of Prime Minister in the UK last July, though not without his detractors, while Ursula Von der Leyen became the first female President of the European Commission.

More than ever, this is a time for taking a step back and having a long, hard look at your finances. With a ‘bear’ (falling) market still on the horizon, your money needs to be carefully managed. Money Doctors 2020

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MONEY DOCTORS 2020

has been streamlined, amended and updated to include Budget 2020, and a major new chapter to help the ever-growing immigrant population in Ireland entitled ‘Non-Nationals – a guide to living in Ireland’ plus an updated ‘100 Ways to Save Cash’. Also included in the appendices are ‘Tips for the Top’ – 5 innovative or market-leading products or services that deserve special mention and have my endorsement. The Jargon Buster appendix has moved from this book to my website (www.moneydoctors. ie) and you can access it on the home page from all devices. I am, as always, grateful to Jim Power, one of Ireland’s best known independent economists, who gives his take on the global and Irish economy for 2020.

I am deeply grateful to my readers for buying and reading this book, and for constant questions, suggestions and helpful comments. If there are topics you feel I should cover in future years or areas where you think greater expansion would be beneficial, please feel free to contact me at my Stillorgan, County Dublin, office: (+353 1) 278 5555 or jlowe@ moneydoctors.ie.

Dealing with money should not be a chore but a pleasure. Whether you read this book from cover to cover or dip in and out, I hope it will inspire you in all your future financial dealings. While it’s not about waiting for the storm to pass, as we have been dancing in the rain of late, we must prepare in case the storm comes back. Remember, finances need constant review. Have a great year and many thanks again for your support.

John Lowe, Dublin, December 2019

IS THIS BOOK FOR YOU? This book is for everyone living in Ireland who wants to better manage and structure their personal finances.

• You will find this book relevant regardless of your financial position, age or gender.

• This guide concentrates on ‘how to’ information: how to manage your mortgage, how to get rid of your debts, how to build up savings, how to save tax and how to protect your family.

• If there is a particular subject you want to learn about, then check the detailed contents page or the index.

• The book is written in plain English and contains plenty of: • case histories; • real-life examples; • checklists; and • action-orientated advice.

• The book is divided into nine sections plus Appendices, covering every aspect of personal finance. It is an annual handbook, so the information it contains will be up to date and includes the latest budgetary and legislative changes.

• Each chapter begins with a summary and ends with a list of action points.

Look out for the symbols used throughout the book: Money Doctors Wealth Warning This symbol is used to warn you about something that may have an adverse affect on your financial wealth!

Money Doctors Wealth Check This symbol is used to highlight something that could really improve your financial fitness.

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MONEY DOCTORS 2020

Getting the most out of this book John Lowe of Money Doctors says this book will be relevant to you if: • you have money questions and don’t know whom to turn to for honest, accurate, unbiased answers; • you want the latest financial information; • you want to reduce your tax bill; • you worry about money; • you have, or plan to get, a mortgage • you have credit cards, store cards, hire-purchase agreements, an overdraft, personal loans, a mortgage or any other borrowings; • you have money on deposit or save money on a regular basis; • you want to build up your capital worth and guarantee yourself a comfortable (and possibly an early) retirement; • you have capital and don’t know how to invest it; • you have dependants and you are worried about their well-being; • you have (or think you should have) any sort of life or critical illness cover/income protection; • you worry about the quality of financial advice you are receiving; or • you are separating, or thinking of it.

Money doctors website Money Doctors 2020 is not just a book: it is a complete service. Visit the free Money Doctors website at www.moneydoctors.ie, where you will find: • extra articles and checklists covering a huge range of personal finance topics; • the latest personal finance tips, advice and information, via our blogs; • online mortgage applications and other financial services; • special calculators, allowing you to see at the press of a button what your mortgage or other loan will cost you, and how much your savings will earn you; • timely information, such as current tax rates and allowances, via subscription to the Money Doctors monthly ezine; • the chance to arrange a consultation with John Lowe, the Money Doctor; • podcasts on a variety of financial subjects; and • an opportunity to join us on Twitter (@themoneydoc) LinkedIn, Pinterest and Facebook.

I s T his B ook for Y ou ?

17

Consumer protection You should only ever deal with an authorised adviser for insurance, investment and pension advice and credit services, including mortgage and debt advice.

An individual or firm that is authorised will not only have had to pass stringent tests to qualify, but their performance will be strictly monitored on an ongoing basis by the Central Bank of Ireland.

You should be aware that there are a number of professional bodies covering the financial services industry. My own belief is that you should only deal with members of these bodies. These are: • Brokers Ireland • Life Insurance Association • Institute of Banking in Ireland Your financial adviser should ideally be a Qualified Financial Adviser (QFA) as well as having substantial financial experience. Individual membership of other professional bodies, such as the Institute of Bankers in Ireland, is also desirable.

Finally, if you are looking for advice on buying company shares, then you should deal with intermediaries who are members of (or affiliated members of) the Irish Stock Exchange or an authorised agent.

Don’t allow yourself to be talked into accepting advice from someone who isn’t both independent and qualified. If in doubt visit my website, www.moneydoctors.ie.

It all comes down to belief patterns I am far too practical a person to be taken in by ‘psycho-babble’. However, I do believe that if you want to be financially better off thanwhere you are at the moment, is this logo? then you simply must come to grips with your own belief patterns as they relate to money. Here are some things people have said to me about money: ‘I would always shop around for a better deal on most things – but not on financial products.’

‘I hate talking about money. I find it embarrassing.’

‘Money seems to slip through my fingers.’