FEBRUARY
2017
NEW RULES RELATING TO ANTI-MONEY LAUNDERING
Thomas Carroll
ECONOMIC OUTLOOK: MONETARY POLICY Dr. Constantin Gurdgiev
RESTRICTIONS ON THE USE OF DRONES IN IRELAND Thomas Carroll
10 REASONS WHY YOUR WEBSITE COULD BE LOSING YOU BUSINESS IMPLICATIONS FOR IRISH EMIGRANTS RENTING PROPERTY WHILE ABROAD 5 FITNESS APPS TO KEEP YOUR NEW YEARS RESOLUTIONS IN CHECK
75 CELEBRATING OVER
YEARS
IN BUSINESS
TABLE OF CONTENTS Restrictions On The Use Of Drones In Ireland - Thomas Carroll
p. 3
Economic Outlook: Monetary Policy - Dr.Constantin Gurdgiev
p. 4
New Rules Relating To Anti-Money Laundering - Thomas Carroll
p. 8
Legal Briefs
p. 9
10 Reasons Why Your Website Could Be Losing You Business
p. 10
Implications For Irish Residents Renting Property While Abroad
p. 12
5 Fitness Apps To Keep Your New Years Resolutions in Check
p. 15
Range Of Services
p. 16
WELCOME Welcome to the February edition of our Newsletter. We hope that the information contained in this edition of our Newsletter is of beneficial use to you. If you know someone for whom this publication could be of some use just let us know and we will add them to the mailing list. Our firm was established in 1941 and is a firm that is both deep rooted in tradition and eagerly looking forward to the future. Our fundamental purpose is to provide a competitive, efficient and personal service to each and every client. We are confident that we have the necessary resources to provide you with astute legal advice and support no matter what your particular legal requirements are. We take the confusion out of your legal requirements with reliable and straightforward advice for every occasion. Please feel free to contact any of our team to discuss any issues that matter to you.
Restrictions on the Use of Drones
IN IRELAND Thomas Carroll – MW Keller & Son
DRONES HAVE BECOME INCREASINGLY POPULAR IN IRELAND IN THE LAST NUMBER OF YEARS. The term ‘drone’ refers to all types of unmanned remotecontrolled aircraft. Drones have now become the subject of new regulations and for their users the following regulations now apply: • Statutory Instrument 107/2015 (Irish Aviation Authority (Nationality and Registration of Aircraft) Order), which governs the use of larger drones came into force on 1 June last. • The “Irish Aviation Authority Small Unmanned Aircraft (Drones) and Rockets Order”, came into force on the 21st December 2016. The purpose of these regulations is to ensure that drones are used in a safe manner. These provisions state that drones over 1kg and less than 25 kg must now be registered with the Irish Aviation Authority. Drones over 25kg must now be registered in similar manner to manned aircraft.
Furthermore the legislation sets out the following restrictions: • Drones can only be registered by persons over 16 years of age. • Drones cannot be used in a reckless or negligent manner so as to endanger life or cause loss or damage to the property of others. • Drones cannot be flown so that they would be out of the line of sight or at a distance greater than 300metres from the drone operator. • Drones cannot be flown at an elevation of over 120 metres above the ground or within 120 metres of any person, assembly of people, vessel or structure not under the control of the drone operator. • Drones cannot be flown within a distance of 5km to an aerodrome during periods of aircraft operations unless the aerodrome operator has given permission, • Drones cannot be flown unless the drone operator has permission from the landowner for take-off and landing, and can do so without undue hazard to persons or property. These regulations are necessary as drones have been used for criminal activities such as drug smuggling and have interfered with air traffic in numerous countries. The Irish Aviation Authority run a safety course which is part of the drone registration process and this endeavours to educate drone users on the best way to safely and legally enjoy drones.
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If you have any further questions or queries, please contact :
Thomas Carroll thomascarroll@mwkeller.ie or on 051 877029. at
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Dr. Constantin Gurdgiev Something interesting has been brewing in the monetary policy world in recent weeks, something that is a matter of concern for the investors and private sector players in the real economy. In December, the US Consumer Price Index (CPI) measure of inflation rose above the 2 percent mark for the first time in more than two and a half years. To-date, over the current monetary cycle, the highest inflation reading was reached in May 2014, at 2.13 percent. That uplift in 2014, however, was promptly erased by the strengthening of the dollar and the falling energy prices. This time again, energy prices were the key driver of inflation changes. The energy subcomponent of the CPI rose 5.4 percent at the end of 2016, posting its highest gain in 59 months. Meanwhile, in the Euro area, annual inflation jumped to 1.1 percent in December, up 0.9 percentage points on December 2015 rate. This means that at the end of 2016, Euro area inflation was at its highest since 3Q 2013. Six of the Euro area members, had December price increases that were above the 2 percent ECB policy target. Energy prices, once again, were topping inflationary
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pressures. The energy component of the harmonised index of consumer prices rose 2.6 percent year-on-year, having posted deflationary readings in July-November 2016. The above data suggest that the current cycle of extreme monetary accommodation, now into its 100th month in the case of the Euro area and 109th month in the case of the US is drawing to a close. In the wake of the US Fed’s December decision to raise its benchmark rate and increase guidance for 2017 rate outlook, and the ECB’s January decision to continue with reductions in its assets purchasing programme volumes over 2017, the only matters still open for the debate are: how fast and how far will the Central Banks go into the tightening cycle? The answer to these questions will determine how rapid and pronounced the subsequent decline in economic growth and assets repricing in investment markets will be.
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International Official Interest Rates G6 average and G3 average
12
10
Percent
G6 rate 8
5-year G6 averages 6
G3 rate 4
2
янв-2017
янв-2016
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0
Source: author own calulations based on data from FRED, Reserve Bank of Australia and the Bank of England G6: Australia, Canada, Euro area (pre-1999 Germany), Japan, the UK, and the U.S. G3: Euro area (pre-1999 Germany), Japan and the U.S.
MOVING ONTO MONETARY TIGHTENING CURVE Based on the data through mid-January, the G3 (Euro area, Japan and the US) policy rate currently sits at 0.18 percent, up on 0.09 percent for March-November 2016 and the highest since October 2013. Despite the December 2016 hike in the US Fed rate and the ECB policy tilt toward guiding higher retail lending rates over the course of 2017, the current interest rates environment remains extraordinarily accommodative. In the Euro area, today’s rates differential compared to the pre-crisis historical average, is at 4.3 percentage points. In the US, the current gap between today’s policy rates and pre-crisis historical average is a whopping 5.78 percentage points. Closing these gaps will require an uplift in average credit costs of around 4-5.5 percentage points in the longer term. Based on growth forecasts from the World Bank, the IMF, the Fed and the ECB, the so-called neutral funds rate (the rate that would put the US economy in line with its long-term inflation target, while retaining full employment) is around 3 percent. For the Euro area, a similar rate would be closer to the 2.75 percent mark. These imply medium term (to 2020-2021) increases in the credit costs of some 3-3.25 percentage points for both the Euro area and the US when it comes to the credit extended by the banks to corporate and household borrowers. In the case of the ECB the most recent policy announcement outlined the prospect of gradual ratcheting up of credit costs through, first reductions in the Frankfurt-administered asset purchasing programme. Direct rates increases are, for now, not on the books, although changing inflationary outlook can alter that too. Still, irrespective of the tools deployed by each Central Bank, one thing remains indisputable – barring a major shock to the economies, the end of monetary easing cycle is already upon us, and the dynamics of rates ‘normalisation’ are likely to impact directly the current levels of real economic debt (debt held by nonfinancial corporations, households and the governments).
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THE SCALE OF RISKS INVOLVED To put this number in perspective, the IMF estimates that global GDP grew by US$1.61 trillion in 2016. In other words, monetary policy changes expected over the course of 2017 can result in taking out the equivalent of almost a quarter of the annual growth recorded in 2016.
Consider three facts about the Government debt. In the 5 years 2012-2016 (post-onset of the recovery) Government debt around the world rose 11.4 percent in level terms, and 14.51 percentage points as a share of GDP per capita. Globally, total volume of Government debt was estimated by the IMF to be at US$63.2 trillion at the end of 2016. More than half of the increase over the last five years or US$3.9 trillion came from the Emerging and Developing Economies, and US$2.3 trillion came from G7 economies. Crucially, some US$48-50 trillion worth of global government debt is at play when it comes to the changes in euro area and US interest rates. Next, look at the household debt. In 2007, the total amount of outstanding household debt in the US was around US$12.5 trillion, roughly in line with the end of 2016 estimates based on the first nine months of 2016 data made back in November last year. Meanwhile, based on the data through 3Q 2016, household debt in the Euro area currently stands at around US$6.9 trillion, virtually in line with 2008 levels. More crucially, Euro area household debt currently runs at around 94 percent of the median household income, slightly above the 2008 reading of 93.3 percent. Estimating global household debt exposures to Euro and the U.S. dollar fortunes is harder, as mortgages and other loans issued by the banks in these currencies for borrowers residing outside the US and the Euro area are not reported in full in the ECB and Fed statistics. However, at least US$21-22 trillion of household debt is currently at a mercy of US and Euro area interest rates. Finally, consider the corporate debt markets. Based on the data from the US Treasury Department, the total U.S. non-financial corporate debt pile currently stands at around US$ 11.4 trillion, including short term debt. Meanwhile, based on the figures from the IMF report from December 2016, the stock of non-financial corporate debt issued by the emerging market economies is at around US$19 trillion. Much of this debt too is denominated in U.S. dollars and Euros. Data from the ECB, covering the first three quarters of 2016, puts the Euro area non-financial corporations’ gross debt liabilities at around 132 percent of GDP, or close to US$15.2 trillion. Adding up the above volumes, some US$38-40 trillion worth of corporate debt is bearing risk exposures to the US Fed’s and the ECB’s policies. All, in changes in policy rates and, more broadly, normalization of the monetary policy environment in the US and the Euro area, gradual as it may be, will impact directly and indirectly some estimated US$107-112 trillion worth of real economic debt around the world. Over the course of 2017, the current consensus forecast is for the US Fed to raise policy rates by 75 basis points. Market consensus forecast for the Euro area bank lending rates is to increase by some 50 basis points even assuming the ECB takes no action on tightening its base rate or tilting down the current path of projected asset purchases. Full year impact of such policy changes can amount to cutting up to US$375 billion out of the global economy due to higher cost of debt servicing.
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On the longer term horizon, normalisation of the US and Euro area monetary policies can cost the global economy between US$3.7 and US$4.5 trillion over the course of the next 4-5 years. Again, using IMF projections for GDP growth out to 2021, this debt re-pricing can cut total global economic expansion by at least one fifth. The above estimates ignore a range of additional factors that are virtually impossible to estimate with any precision, but are offering a prospect of catastrophic unwinding in the global economic recovery.
Firstly, much of the global debt has been financialised either through the securitised or leveraged bank lending or through bond markets. Substantial uplift in the cost of debt will simultaneously reduce the book value of banks’ assets and induce higher rates of debt defaults by companies and households. Secondly, global debt repricing will both directly, and indirectly, impact the solvency of the world’s second largest economy – China. In the last 5 years, Chinese economy dependency on debt has increased more than 41 percent in renmimbi terms, and reached almost 280 percent of the country GDP by the end of 3Q 2016. A substantial shock to this leverage can push the Chinese economy into a stagflationary scenario, if the Government attempts to monetise corporate debt defaults, or trigger a recession, should policy makers allow companies to go under as credit costs rise. Thirdly, any tightening in monetary policies is likely to further depress already weak capital investment in the advanced economies. Per latest Eurostat data, 3Q 2016 corporate investment rate fell to its second lowest reading in 12 quarters, while gross fixed capital formation shrunk 0.6 percent quarter-on-quarter. This marks the worst reading for capital investment growth in 14 quarters and the worst reading for any 3Q period on record. Raising capital investment costs any further risks causing a large scale decline in corporate investment across the euro area. Fourthly, there is a more narrow channel for monetary tightening transmission – the one operating via bond yields alone. A hike of just 1 percentage point in the markets-determined US bond yields implies some 4.2 percentage decline in corporate earnings, and, based on the OECD model, a drop of 0.2 percentage points in the U.S. GDP. There is an added second order effect operating within the channel through negative impact of rising bond yields on corporate leverage risks and capital investment.
TAKING A DEFENSIVE STANCE In simple terms, the confluence of monetary policy cycle reversal and the recent expansion of debt across all three sectors of the real economy (Government, corporate and household) linked to the Euro and the US dollar is now threatening a global crisis on par with the one experienced in the 2008-2011 period. The defensive investment position in this environment entails investors unwinding long holdings of highly indebted companies and shifting out of bonds into real assets. On the funding side, companies and individual investors need to significantly reduce
their exposure to leverage risks by refinancing their debt to longer-term fixed rates contracts and reducing overall levels of debt carried on the books. Rebalancing away from leverage also means accepting lower short-term returns in exchange for higher long-run risk-adjusted returns. Such a pivot in investment strategy requires paying close attention to taxes and fees associated with investment portfolios, necessitating greater focus on tax planning and portfolio costs optimisation.
Dr Constantin Gurdgiev is the Adjunct Assistant Professor of Finance with Trinity College, Dublin and serves as a co-founder and a Director of the Irish Mortgage Holders Organisation Ltd and the Chairman of Ireland Russia Business Association. He holds a non-executive appointment on the Investment Committee of Heniz Global Asset Management, LLC (US). In the past, Dr Constantin Gurdgiev served as the Head of Research with St Columbanus AG (Switzerland), the Head of Macroeconomics with the Institute for Business Value, IBM, Director of Research with NCB Stockbrokers Ltd and Group Editor and Director of Business and Finance Publications. He also held a non-executive appointment on the Investment Committee of GoldCore Ltd (Ireland) and Sierra Nevada College (US). Born in Moscow, Russian, Dr. Gurdgiev was educated in the University of California, Los Angeles, University of Chicago, John Hopkins University and Trinity College, Dublin.
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NEW RULES RELATING
to Anti-Money Laundering
SOME OF THE KEY PROVISIONS OF THE EAMLD4 ARE AS FOLLOWS:
Thomas Carroll – MW Keller & Son
THE FOURTH EU ANTI MONEY LAUNDERING DIRECTIVE (2015/849) (HEREINAFTER CALLED “EAMLD4”) WAS PUBLISHED ON THE 5TH JUNE 2015. THIS DIRECTIVE MAKES PROVISION FOR COMBATTING MONEY LAUNDERING AND TERRORIST FINANCING BY SETTING OUT A MORE RISK BASED APPROACH THAN THE THIRD EU ANTI MONEY LAUNDERING DIRECTIVE 2005/60/ EC. EAMLD4 MUST BE TRANSPOSED INTO NATIONAL LAW BY THE 26TH JUNE 2017.
1. Corporate bodies incorporated within Member States will have to keep records of their beneficial ownerships. Member States will be responsible for obtaining this data and keeping a register so that certain EU Bodies (Financial Intelligence Units and other Obliged Entities) can access and inspect the register. 2. Trustees will also have to keep records of their beneficial ownerships and Member States will have to maintain records in the same manner and on the same basis that they do for Corporate Bodies. 3. Guidelines will now be issued by the European Supervisory Authorities as to how due diligence is to be carried out and this will hopefully bring clarity and simplify the existing framework. 4. The Gambling Sector is also affected by EAMLD4 insofar as it now must utilise customer due diligence measures for single transactions of €2,000.00 or more. 5. EAMLD4 has also set out criteria for Member States to apply for the occasional/limited financial activity exclusion: • The Financial Activity must be limited in absolute terms. • The Financial Activity must only be ancillary and directly related to the person’s main activity but not be the person’s main activity. • The Financial Activity is exempt if it is one of those listed in Article 1 (a)-(d) and (f) of EAMLD4. • The Financial Activity must only be provided to the customers of that person’s main activity. 6. Traders of goods who receive cash payments of €10,000.00 or more now also come under the regulations and will be subject to due diligence requirements. 7. Member States have discretion to not apply certain customer due diligence requirements relating to electronic payments where the payment was no more than €250.00 monthly or no more than €3,000.00 annually.
For more information on the above please contact:
Thomas Norris 051 877029 tom@mwkeller.ie
Michael O’Grady 051 877029 michael@mwkeller.ie 8
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There will be considerable compliance based considerations imposed on Member States, in particular for those States who currently have deficiencies in their Anti-Money Laundering framework. Member States will now have to set up their own Financial Intelligence Units which will inspect and compile the Register for beneficial ownerships for Corporate Bodies and Trustees. Sanctions have been provided for under EAMLD4 allowing for fines of at least 200% of the sum gained/acquired from the breach if this can be established or at least €1,000,000.00. Financial and Credit Institutions can be subjected to more punitive actions for breaches resulting in penalties of at least €5,000,000.00 or 10% of their annual turnover in the case of a legal person.
LEGAL BRIEFS DÁIL TO CONSIDER REFORM OF CONSUMER INSURANCE CONTRACTS LAW A Private Member’s Bill to reform Ireland’s archaic laws on consumer insurance contracts has been laid before TDs. Sinn Féin TD Pearse Doherty said his Consumer Insurance Contracts Bill 2017 represents a major modernisation of
NEW DIGITAL WATCHDOG SET TO CHASE ONLINE TROLLS The Minister for Communications, Denis Naughten, is to set up a new watchdog to tackle online abuse. The Digital Safety Commissioner will have the power to order social media networks to take down harmful online material if they fail to do so within a reasonable timeframe. Social media companies have been criticised for their reluctance to take down harmful social media postings, meaning members of the public have had to apply for costly and time-consuming court orders instead. The new Digital Safety Commissioner is designed to ensure that social media users in Ireland have a readily accessible and effective takedown procedure available to them. It will also apply to the likes of search engines, online forums and comment sections on internet sites. The Government has briefed Facebook and Twitter about the plans, which are aimed at combating cyber-bullying, revenge pornography
GUARDIAN AD LITEM REFORM TO BE PROPOSED IN 2017 Children’s Minister Dr Katherine Zappone will bring proposals for a new statutory national guardian ad litem service to Cabinet early this year. A guardian ad litem is a professional who is appointed to represent the wishes and interests of a child during court proceedings.
insurance Contract Law in Ireland, based on a 2015 report by the Law Reform Commission. The Bill’s provisions include abolishing the concept of insurable interest and putting a legal obligation on insurers to provide consumers with plainly written documents containing the essential terms of the contract. Mr Doherty commented that whilst the Bill is detailed and complex at its core it empowers consumers so that no longer will they be denied what morally should be theirs because of outdated technicalities that can be exploited by insurers.
and other harmful online practices. Minister Naughten is going to provide for the setting up of the new office by bringing a memo to Cabinet later this year. One of the main options is to amend the harmful content legislation which has been published by his counterpart, the Minister for Justice, Frances Fitzgerald. The move comes after a series of high-profile cases of online abuse, ranging from child victims to celebrities. The creation of a Digital Safety Commissioner has been recommended by the Law Reform Commission. Online companies will be given an opportunity to set up a new code of practice which provides for the rapid takedown of harmful material. But if they fail to do so, the Digital Safety Commissioner can direct them to do so. If they still refuse, then the Digital Safety Commissioner can get a Circuit Court order to remove the material. The creation of the office is modelled on a system set up in Australia last year. But it will go further because Australia’s eSafety Commissioner only has the power to take down harmful material involving children.
Dr Zappone will bring proposals to Cabinet in order to allow the tender service for the national service to begin in early 2018. Plans for a statutory national guardian ad litem service have been discussed by Cabinet since the Summer. It is seen by some as a bid to cut down costs, which totalled €8.9 million in 2015, an increase of 7.5 per cent on the previous year. Twenty individuals and firms acting as guardians to children during childcare proceedings received more than €100,000 each, with just over €3.82 million to the largest provider, Barnardos Beacon.
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REASONS Why Your Website Could Be Losing You Business
IT LACKS CREDIBILITY
Your website is probably the most valuable asset your business possesses - provided you don’t make these common mistakes. A business website used to be a luxury, but that’s no longer the case. If your business doesn’t have a website, you’re missing out on an important business tool. A website provides an effective form of communicating with your target audience. Yet, not all websites are equal, and it may lack efficiency for many reasons. Here are the top 10 reasons why websites fail.
IT IS TOO SLOW
What is in a credible website? Firstly, it has a current design and it is regularly maintained. While you don’t have to update your website on a monthly basis, it doesn’t help if you have not had a decent website makeover in the last 2-3 years either.
Nearly half of all consumers are not prepared to wait more than two seconds for a page to load and nearly 80% of all shoppers who don’t enjoy the user experience on a site, are less likely to return to the site again.
If your site looks as though it was built in the 90s, it is time for a major overhaul.
Use GTmetrix and Pingdom to test your site speed and gain valuable insights and tips on how to improve the speed of your website.
IT’S NOT RESPONSIVE Handheld devices have surpassed desktop usage and this mobile revolution is set to continue. If your site is not optimised for mobile use, you are definitely missing out on a huge chunk of the market. Many websites are still not mobile friendly, and this is causing them to be penalised in search engine rankings. The result is that fewer people find the sites, and conversion rates are decreased. Most importantly, it provides a poor user experience for visitors. Responsive web design uses large buttons and simple layouts that are automatically resized for smaller screens.
IT IS CLUTTERED Few things are as annoying as auto playing videos or music to welcome guests, other than flashy text, bright colours and too many banner ads. Apart from being annoying, it also slows down the load time of the page, which means that today’s fastpaced consumer will most likely click away from your site. These days, most people browse sites on their mobile devices, which means that your site should be neat, clean and wellorganised. Present information in a clear and concise manner and ensure that graphic elements are easily digestible.
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IT IS TOO COMPLEX As an expert in your field, you may be tempted to try to demonstrate your authority in the field by showcasing all your knowledge. However, only fellow industry experts will understand all the jargon. Your average customer will not understand your technical jargon. Stick with simple language that your customers will understand.
IT LACKS CONTENT People visit websites because they want answers. Your website is the place where you can provide your target audience with the information and valuable solutions. Be sure to deliver fresh, valuable information and answers to your audience’s burning questions. People may not be searching for your business in particular, but for a related service and product. For instance, a person looking for ways to save money may land upon a financial services website, which is why an insurance broker might like to blog about budgeting for a holiday, so that their site is then found in Google searches for “budgeting” or “saving”. Too much information to go on your site? Use your blog to establish yourself as an authority in your field and to boost your marketing and search engine optimisation efforts.
IT OFFERS POOR NAVIGATION Many business owners view additional pages as an afterthought when they design and market websites. As such, all their traffic is directed towards the home page. In reality, the home page is not all that important. Specific landing pages are more important to your various customers, so direct relevant traffic there instead.
IT LACKS USER EXPERIENCE As a webmaster, you have to ensure that your site works as it should at all times. Test it regularly to see that the payment platform or shopping cart works and that there are no missing or broken links.
IT LACKS CALLS-TO-ACTION You don’t need to be too subtle on your website. Remember, most of your visitors will be unfamiliar with the creative processes that went into creating your site and therefore, they need to be guided to the relevant pages on your site. Provide them with clear calls-to-action or hyperlinks that are plainly visible and selfexplanatory. Action buttons should stand out, with clear instructions, such as ‘‘sign up’’, ‘‘download’’, and ‘‘click here’’. Visitors are polite, in that they want to be invited to take the next step. Make the process easier for them in order to generate more conversions.
ESSENTIAL INFORMATION IS HARD TO FIND People are directed to your site to find general information about the products or services you offer. Once you have charmed them with your knowledge and expertise, they may want to engage with your company. You need to make that process as easy for them as possible, by providing information they may need to proceed. This could include: • Your company’s address and a map link, if you have a brick and mortar business. • Contact information, including your phone and email, should ideally be displayed in the same place on every page. • Social media plugins, for visitors who want to share your info or connect. • ‘About Us’ page, so that they know who you are and what you do. • Pricing, as many people will not be prepared to contact you unless they know that they can afford it. • Business hours, so that they know when to contact or visit you. Many businesses don’t include all this information on their websites and security conscious visitors may avoid such sites. In most cases, it is free and simple to add this information to a website.
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IMPLICATIONS FOR IRISH EMIGRANTS RENTING PROPERTY WHILE ABROAD The focus of this article is to provide an insight into some of the key issues which those who have emigrated abroad need to consider when they are letting Irish property which they have left behind. However, it is useful to set the backdrop to the situation which many Irish emigrants were faced at the time. The abrupt end of the Celtic Tiger era left many individuals and indeed whole families in the unenviable position of having to consider emigration. So many people almost overnight found themselves in a situation where the value of their home had halved in value, the prospect of unemployment loomed heavily and the weight of financial pressures soon became intolerable. Individuals were left with two choices (a) stay at home and try to find a workable solution or (b) emigrate to more fruitful economies. Those who chose the latter option were invariably left with the predicament of having an idle property and a large mortgage and to ease this burden rental was the most reasonable option.
RENTING A PROPERTY The renting of property in Ireland is a relatively straight forward process and there are few restrictions as regards who can let and who can occupy (within reason). Generally, the preferred option for most is to engage a letting agent to handle the sourcing of tenants and to keep a somewhat attentive eye on the property in your absence. The role and responsibilities of letting agents are varied and accordingly so too are the letting fees. Services vary from sourcing initial tenant only to more comprehensive services such as rent collection, sourcing further tenants and actively marketing and maintaining the property. However, you will tend to find that however comprehensive a service that a letting agent is willing to provide s/he will generally not provide services to cover your obligations regarding tax and property charges. The following will outline some of the key taxation implications of a non-resident landlord renting Irish situate property.
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INCOME TAX Firstly, any income from the letting of Irish property is taxable in Ireland regardless of where you are resident now and for how long you have been resident there. The general principle is that income sourced in Ireland is always taxable in Ireland. Whether or not this income is taxable in the jurisdiction where you are currently resident depends on the domestic tax rules which apply to that jurisdiction. By way of example if you have been residing in the UK for the past 2 years and renting your Irish property (e.g. family home) during that time it is likely that this income would also be taxable in the UK, with a credit for any Irish tax paid on that same income. The term “resident� has particular meaning for tax purposes. Where a person is resident generally determines where s/he is taxable on his or her income for a particular tax year. While residence rules can at first glance appear straight forward, determining residence in practice can often be a difficult exercise. Generally, residence is determined by the number of days present in a particular jurisdiction but can be determined in some cases by close family and personal ties to a particular jurisdiction.
LANDLORDS WHO ARE NOT RESIDENT IN IRELAND Ireland has specific rules relating to landlords who are renting Irish property but are not resident in Ireland for a particular year. The tenant is required to be notified by the landlord that s/he (the landlord) is not resident in Ireland. The tenant is then required to withhold 20% of the gross rents payable to the landlord and pass this onto the Revenue Commissioners directly. This acts as an effective advance payment of tax. Where this occurs the landlord has no further obligations with regard to income tax in Ireland. The author is aware that this rule is in many cases not applied in practice however, readers should be aware that the requirements are clearly based in legislation and can be enforced by the Revenue Commissioners accordingly. The landlord may avoid the necessity to have tax withheld at source by appointing a person to collect rents and return tax on his/her behalf. Such person is required to be notied to the Revenue Commissioners in advance. In many cases a landlord will have incurred expenses (the aforementioned letting agents fees, insurance etc.) which are deductible from rental income in arriving at taxable rental prots. Therefore, in such cases it is preferable to prepare and le an Irish tax return to reduce the liability.
MORTGAGE INTEREST RELIEF Although mortgage interest relief is being phased out, it should not be claimed by any individual who is renting their PPR and as such their financial institution should be notified. Any mortgage interest relief which has been incorrectly claimed will need to be refunded to the Revenue Commissioners. That said landlords may take a deduction of 75% of the mortgage interest against their rental income in arriving at their taxable rents in a given tax year. The letting arrangement must be registered with the Private Residential Tenancies Board in any year where an interest deduction is claimed.
PROPERTY CHARGES Since 2008 successive Governments have introduced property specific charges and have proceeded to amend and widen the tax net to increase fiscal income. This commenced with the introduction of the Non-Principal Private Residence Charge in 2009. Below is a summary of the key property charges that applied to Irish rental properties in recent years.
NON PRINCIPAL PRIVATE RESIDENCE (NPPR) CHARGE
It should be noted that registration for income tax will be required where you are not otherwise registered.
CAPITAL GAINS TAX One signicant point to note in relation to the renting of your family home is that the period of rental does not qualify for exemption from capital gains tax. The exemption for principal private residence (“PPR”) will be time apportioned between the time the property was used by the owners as their PPR and the time which the property was rented. This will only be of concern to those considering selling their house and which expect to realise a gain on disposal.
The NPPR charge applied from 2009 to 2013 in respect of residential property that was not the owner’s only or main residence in those years. The charge applies to situations whereby an individual has emigrated and rented out his/her home which was prior to their departing their only residence in Ireland. For the charge to apply the property did not need to be rented. The charge was administered by the local authorities of the State and amounted to €200 per property. A penalty of €20 per month applied for late payment. Non-payment for the full period which the charge applied amounted to charges and penalties totalling €7,230.
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HOUSEHOLD CHARGE
LOCAL PROPERTY TAX (“LPT”) The LPT was introduced in 2013 and replaced the Household Charge. LPT is charged on all residential properties in the State and is collected by the Revenue Commissioners. The tax is based on the market value of your house on the liability date. If you own a residential property in the State you are liable for payment of the tax¹.
OTHER CONSIDERATIONS A landlord must ensure that appropriate house insurance is maintained in respect of the property, in particular if it is laying idle for a period of time. A landlord must ensure that the tenancy is registered with the Private Residential Tenancies Board. In addition the landlord must maintain the property in a good condition meeting minimum required standards and reimburse the tenant for any repairs carried out on the structure.
CONCLUSION The reality for many emigrants who left Irish shores to pursue employment and a better standard of living elsewhere was that they were left with no viable alternatives. The rental of their family home was a necessity to satisfy, in many cases, significant mortgage repayments on their homes. However, as is almost always the case, where you earn income you must pay tax on it! In addition the tax landscape relating to residential property has changed significantly with various charges introduced, amended and repealed in recent years. In 2012 a charge of €100 was applied to all households in the State in an effort to fund local services. If you owned a residential property in Ireland on 1 January 2012, even if you were living abroad, you were obliged to declare your liability for the Household Charge and pay it to the Household Charge bureau by the due date. Virtually all private residential properties in the State were liable for the charge.
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The renting of property may at first glance appear a straight forward process but landlords should be aware of their obligations and responsibilities tax or otherwise. Hopefully this article has gone some way to highlighting the key areas which non-resident landlords need to be aware of. ¹ Exemption from the tax was granted for 4 years for properties acquired in the 2013 calendar year.
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PACT for iOS and Android
to Keep Your 2017 Resolutions in Check Don’t blame yourself for overindulging over the last month or so. Instead, take action with the help of these awesome fitness apps.
Unless you’re a natural-born gym-bunny who loves the rush of adrenaline in the weights section of the gym and the buzz of the treadmill, Pact is just the app for you. If you’re feeling guilty paying for a gym membership you’re not using, Pact is the guilt-inducing cherry on top. Use the app to commit to fitness or healthy lifestyle goals, and pay a penalty if you fail. You will be asked to link your Paypal account to the goal, and when you don’t achieve it, you will be charge to a minimum of $5 per failure. Achieve all your weekly activities, and you will be rewarded. Pact is the best motivation to eat your 5-a-day or work out three times a week.
STRAVA for iOS and Android
SWORKIT for iOS and Android
Popular with runners and cyclists alike, Strava allows you to join mostly distance-based challenges with friends and even earn badges.You can also use the website to create custom routes, which you can share with your friends.
Simply Work It or Sworkit for short, offers a range of cardio, strength, yoga and stretching workouts for all levels of fitness and experience. Try the many free options, or get the premium version for more options.
Try the free app, or use the premium version (€60 / year or €8 / month) for personal coaching, live feedback, access to advanced analysis of your pace and heart-rate and a goal setting function. If you’re serious about your fitness, Strava is a worthwhile investment.
Sworkit’s real power lies in the ability to build custom workouts using the exercise library. You get three free custom workout slots on the free version. Set your workout length and, if you buy the subscription (€40 / year, or €5 / month) you can even set custom intervals. With the subscription, you will also get access to the web app and an ad-free platform.
SEVEN for iOS
Struggling to get motivated or to find time to exercise? Seven is just what you need to get started. It offers a series of workouts that you can complete in seven minutes. There are lower body workouts, core and total body workouts. The free app has plenty of content, but you can buy stretching, fat-burning or cardio workouts as well. Go all out with a short seven-minute workout, then recover with the dialed down activity, before you push yourself once again.
ZOMBIES, RUN! for iOS and Android
Would you run faster if you were being chased by zombies? Most of us would! And that is the logic behind this running app. Zombies, Run! casts you in the role of Runner Five. You can listen to your workout playlist while you run, and you will receive broadcasts from a nearby base, which alerts you marauding hordes of zombies and keeps you on track as you collect supplies.
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RANGE OF SERVICES • ACCIDENTS AND PERSONAL INJURY
• EMPLOYMENT LAW
• MEDICAL NEGLIGENCE
• FAMILY LAW
• MEDIATION AND ALTERNATIVE DISPUTE RESOLUTION
• PROPERTY TRANSACTIONS/ CONVEYANCING
• AGRICULTURE AND FARMING
• WILLS, PROBATE AND TRUSTS
• COMMERCIAL AND CORPORATE
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IN BUSINESS
VISIT US AT: 8 Gladstone Street, Waterford, Co Waterford
www.mwkeller.ie
Tel: 051 877029
info@mwkeller.ie