Posts Tagged ‘Quintas’

What happens to the family home if you become insolvent?

March 10, 2015

Family Home

This is probably the 1st question I get asked in my initial meeting with a client. The answer isn’t that simple as there are various options depending on the client and the debt involved.

There are a number of methods of dealing with debt on the family home but the main ways would be informal restructure through discussions with your bank under the MARP (Mortgage Arrears Resolution Programme), formal agreement under the new personal insolvency legislation or the final act which is bankruptcy. The banks must apply the conditions of MARP in all cases involving the family home.

None of the above options are to be feared but if you are unsure of your own position I would suggest that you contact someone to find out as you might find that it may not be as bad as you think.

Sometimes finding out what is the worst case scenario and then leaving it to a professional to negotiate on your behalf can instantly take the stress out of the situation.

Prior to the enacting of the new personal insolvency legislation there were only 2 options to manage the debt with a family home either you could reach an informal agreement with the bank or you couldn’t and the property was repossessed or sold and you still remained liable for any net residual debt that remained after the property

A core protection of the new personal insolvency legislation is that a PIP’s (Personal Insolvency Practitioner) role is to where possible keep a family in their home. This is one of the key protections of the legislation and there are a number of options involved which would include a write-down on the debt to a more sustainable level under a PIA (Personal Insolvency Arrangement). Any proposed write-down would be subject to agreement by the creditors at a creditors meeting.

The main disadvantage in bankruptcy as regards the family home is that all assets of the bankrupt are transferred to the OA (Official Assignee) who in turn can sell same to pay off some of the debts due to the creditors.

It is important to understand that all is not lost if you or you partner are bankrupt. Under the legislation there are a number of options where only one of the parties to the home loan is bankrupt. For example if there was positive equity in the family home the OA would look to realise their share (50%) of this equity. If the home loan is in negative equity the OA may not be interested in the loan and may accept a nominal fee to transfer their interest in the property to the spouse/partner of the bankrupt.

If both parties to the mortgage are bankrupt it becomes a little more difficult but there are still options available to the individuals. It is important to note that the OA cannot sell the family home without first obtaining permission from the High Court.

I would suggest that if you are concerned at anytime about your personal debts you should contact a PIP to see what your options are and you may find out that these options are not as bad as you though. This could result in some light at the end of the tunnel after what can only be considered as a very difficult dark period over the last 5/6 years as the economy was hammered during the economic crisis.

As the economy in Ireland starts to improve it is well time that those in personal debt get the opportunity to get themselves back on their feet and on the road to solvency.

Mark Ryan, Quintas PIP

Quintas are currently running FREE Debt Resolution Open Evenings on Wednesdays.  If you would like to make an enquiry or find out more contact us on info@quintas.ie or call 021 4641400.

Mark Ryan is authorised by the Insolvency Service of Ireland to carry on practice as a personal insolvency practitioner.

Is the new personal insolvency legislation working?

May 22, 2014

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After a slow start we are starting to see some progress with the new insolvency arrangements (DRN/DSA & PIA) and also with the changes to the bankruptcy legislation.

The Insolvency Service of Ireland (ISI) recently issued their 1st quarterly report which showed mixed results. Since the ISI began accepting applications for the new personal insolvency arrangements 7 months ago, there have only been 55 schemes of arrangement approved by creditors (DRN 44/DSA 7/PIA 4).

Although the Debt Settlement Arrangement (DSA) scheme is working, only 7 have been approved and the average write down was 77%.The DSA scheme is for those debtors with unsecured debts of more than € 20,000 in total.

The scheme that is under the microscope is the Personal Insolvency Arrangements (PIA) which deals with the write down of secured (mortgages etc.) and unsecured debts. To date there have only been 4 PIA arrangements approved and the average write down was 19%.

To date, the Courts have issued 70 protective certificates to debtors. A protective certificate protects a debtor and their assets from their creditors, while the Personal Insolvency Practitioner (PIP) formulates a proposal for a DSA or a PIA. A protective certificate remains in force for 70 days, but may be extended in certain circumstances.

A PIPs role is to act as a referee/mediator between the parties and a PIP is committed to ensuring that where possible they will assist those with unsustainable debt return to solvency over a period of 5 to 6 years. There are currently circa. 130 individuals licensed to act as PIPs in the Republic of Ireland.

Since the ISI went live on the 9th September 2013 there has been over 500 new applications for a scheme of arrangement (DRN 82/DSA 121/PIA 320), representing almost 600 individual debtors, with 50 new applications being made to the ISI on a weekly basis so this seems to be progressing well.

New Protocol being developed

The ISI have recently set up a working group to develop a protocol between debtors, creditors and practitioners to streamline the process for DSA and PIA arrangements. This working group is initially dealing with the DSA protocol which will probably bring this scheme in line with the comparable IVA scheme in the UK. The introduction of protocols for DSA’s & PIA’s should assist in increasing the number of applications being approved by creditors.

What happens in Bankruptcy?

The position in bankruptcy is that once a debtor is adjudicated as a bankrupt all debts are written off but unfortunately the debtor loses all of their assets including their share of the family home.

In December 2013 the term for bankruptcy was reduced from 12 years to 3 years. As part of the bankruptcy proceedings the Official Assignee can apply for a payments order which could result in the bankrupt individual having to make a contribution to their creditors on a monthly basis for 5 years. In my opinion this period should be brought in line with the bankruptcy term and reduced from 5 to 3 years.

As part of the recent ISI report they noted that there were 66 bankruptcy cases to the 31st March 2014. This was in excess of the number of bankruptcies which took place on an annual basis in either of 2011 (33), 2012 (35) and 2013 (58). The total debt involved in bankruptcy adjudications in the first quarter of this year was almost €136 million.

ISI Quarterly Statistics Reports & Transparency

One of the main positives to the above statistics from the ISI is the level of transparency on the new legislation and the fact that the data is in the public domain. The ISI will be reporting on a quarterly basis so we will all get to see what is happening in this space and the progress that is being made. The feeling on the ground is that the number of applications to the ISI has increased significantly in the last number of months and the process is beginning to speed up as all the various stakeholders get more familiar with the systems and the legislation.

Creditor’s responsibility to their Shareholders

It mustn’t be forgotten that the leaders within the major financial institutions have a responsibility to their shareholders to ensure that they get the best return on the loans that they have and which they will provide in the future. In the majority of cases a personal insolvency arrangement (DSA or PIA) will give a better return to the creditor than forcing a debtor into bankruptcy, as in most bankruptcy cases the creditors will get nothing.

As part of a DSA/PIA proposal a PIP will provide the creditors with a comparison of the return they will make compared to under the bankruptcy process. In all cases the new personal insolvency legislation is a better alternative to bankruptcy for both parties.

What does the future hold for the new insolvency legislation?

The experience in the UK which has similar insolvency legislation is that it will take some time for the system to be fully functional. It will take all stakeholders in the process to act in good faith for the system to work. This involves all parties to the agreements Debtors-Creditors-Courts-ISI working together.

The 2nd quarterly report by the ISI which should be published in early July 2014 will make interesting reading and I would expect a fast response from government if the DSA/PIA scheme has not improved the number of cases being approved.

Unfortunately the start of the process hasn’t been as smooth as we would have liked but there are now 55 individuals who have started on the road to solvency. There maybe a few bumps on the road over the next 5/6 years for these individuals but at last there is a chink of light at the end of the tunnel.

Regards

Mark Ryan CPA

Personal Insolvency Practitioner (PIP)

Are you concerned about not being able to meet your mortgage repayments?

July 11, 2012

If you are, the Central Bank of Ireland’s Code of Conduct on Mortgage Arrears (“the Code”) sets out clearly a range of rules which your mortgage lender must follow when dealing with you. This Code came into effect on the 1st January 2011 and is applicable to anyone who is in arrears on their mortgage payments on their sole or main property. The Code is a reflection of the fact that Mortgage Arrears and the Handling of Mortgage Arrears is an ongoing top priority for the Central Bank of Ireland (“CBI”). Mortgages through a Credit Union are not covered by the Code.

Your lender must have procedures in place to deal with your situation and find an appropriate solution for your circumstances under the Mortgage Arrears Resolution Process (“MARP”). MARP is the process for dealing with customers in or at risk of mortgage arrears and each mortgage lender must have an information booklet that sets out its MARP which must be available on its website.

Essentially MARP is a 5 step process:

Step One        Contact your mortgage lender immediately

Step Two        Complete a Standard Financial Statement

Step Three     Assessment of your financial situation

Step Four       Seeking a resolution

Step Five        Appealing a decision

Step One        Contact your mortgage lender immediately

If you are behind with your mortgage repayments or feel you may shortly experience difficulties meeting your mortgage repayments your first step should be to contact your lender as soon as possible to discuss the situation. Discussing your mortgage repayment problems as early as possible will help in reaching a solution. Any delay in contacting your lender may result in your mortgage arrears situation becoming worse than it would have been otherwise. Your branch must have at least one specially trained person with specific responsibility for dealing with your situation who will conduct your meeting in private. Your lender must treat your case sympathetically. You have the right to nominate a third party to discuss the situation with your lender on your behalf such as MABS so long as you give your permission in writing.

 

How your lender must communicate with you.

If your mortgage is in arrears for 31 days, your lender must write to you of your mortgage account status within 3 business days. The letter must include the following:

  • State the date that the mortgage fell into arrears, the amount of arrears in euros and the total amount of full or partial payments missed;
  • Confirm that it is treating your case as a MARP case;
  • Highlight the importance of you cooperating with your lender during the MARP process and notify you that, if co-operation stops, the protections of the MARP no longer apply and that the lender may start legal proceedings for repossession;
  • Include a statement that fees, charges and penalty interest in relation to the arrears will apply where you do not co-operate with your lender.

It is important to note that apart from communications that your lender must give you there are limits on the number of communications your lender can make with you. The CBI is cognisant of the fact that unexpected and excessive contact from your lender can be stressful and the Code requires that such contact be proportionate and not excessive. Therefore the CBI limits the number of times your lender can contact you to 3 times in any calendar month, unless you have given prior informed consent to your lender contacting you. This includes contacts by phone, e mail, text, and letter or by calling to your home and includes missed calls or where messages are left for you.

 

Stage Two      Complete a Standard Financial Statement (“SFS”)

Your lender will request you to complete a Standard Financial Statement (SFS) on your current income, expenses and liabilities prior to making its decision on whether to offer you an alternative repayment arrangement. The function of this document is to gather all your financial information to assist the lender assess your financial situation. It is important that you cooperate with all requests for documentation as if you do not, you could be classified as not cooperating and a 12 month waiting period (moratorium) for commencing legal action for repossession of the property will no longer apply to you. (Please refer below to paragraph on repossession).

Stage Three     Assessment of your financial situation

Your completed SFS will be assessed by the Arrears Support Unit (ASU) who will determine whether or not to offer you an alternative repayment arrangement. Lenders will usually consider your personal circumstances, your personal debt, information you provided in the SFS, your ability to make repayments, your previous repayment history and other relevant information.

Step Four       Seeking a resolution

After assessing your situation, your lender will determine whether your mortgage should be re-scheduled and what alternative repayment arrangement is appropriate. Where you are offered an alternative repayment arrangement your lender must give you a clear explanation of the proposed arrangement and any implications for you.

 

Alternative repayment arrangements that your lender may consider include:

  1. Interest-only arrangement for a set period of time – the balance of the outstanding capital amount would remain unchanged for the interest-only period.
  2. Extending the mortgage term – your monthly repayments will be lower, however, you will be subject to more interest as the mortgage will be payable over a longer period of time.
  3. Capitalising the arrears and interest – you are experiencing difficulties in paying off the arrears, the lender may agree to collect them over the balance of the mortgage term.
  4. Voluntary scheme your lender has signed up to if, for example, your lender has signed up to a Deferred Interest Scheme, your lender may consider allowing you to defer paying up to 34% of the interest on your mortgage for a period of time. However, you must pay what you can afford and there is no additional interest charged on this unpaid interest during the set period.

It is important to note that interest will accrue on any arrears you owe but your lender cannot charge you additional interest just because you are in arrears.

In practice most lenders agree an alternative arrangement if you cooperate with them. However, your lender is not obliged to offer you such alternative repayment arrangements. If your lender refuses to offer you such an arrangement, the reasons for refusing to do so must be given to you in writing together with your right to appeal to the lenders Appeal Board and your lender must discuss other options with you including, for example:

  • Voluntary Surrender – this would mean that you agree with your lender that they can take full legal ownership of the property. However, you will remain liable for any amounts that you owe to your lender and which they do not recover from the sale of the property.
  • Trading Down – this would mean selling your property and buying a cheaper one which would result in more affordable monthly mortgage repayments. You need to be sure that that you have sufficient funds from the sale to buy another property, after paying off the current mortgage and taking into account stamp duty, solicitor’s fees, auctioneers fees etc.
  • Voluntary Sale – this means that you will only receive monies in excess to the amount owed to your lender as your lender is entitled to recover the mortgage balance and legitimate charges from the sale.

If, for example, your mortgage is €300,000 and your house is sold for €250,000, you will still owe your lender €50,000.

 

Where an alternative repayment arrangement has not been put in place, or if you do not pay some or all of three mortgage payments, your lender must notify you in writing of the following:

  • Potential for legal proceedings for repossession of the property together with an estimate of the costs to you of such proceedings;
  • Importance of taking independent advice;
  • Regardless of how the property is reposed and disposed of, that you will remain liable for the outstanding debt, including accrued interest, charges, legals and other related costs, where applicable.

Remember, if you do not enter the arrangement offered and if you do appeal your lender’s decision, the time taken by your lender’s Appeals Board to consider your appeal is not included in the 12-month waiting period. However, if you decide not to appeal the 12-month waiting period on the lender taking legal action against you no longer applies.

Step Five        Appealing a decision

Your lender will have an internal Appeals Board where you can appeal on any of the following grounds:

  • Your lenders’ decision on your case; and/or
  • How your lender treated you under the MARP process; and/or
  • Whether you feel your lender has not complied with any of the requirements under the Code.

You will have 20 business days following the lender’s decision to submit an appeal to your lender’s Appeals Board.  If you are unhappy with the outcome of the appeal you can make a complaint to the Financial Services Ombudsman, however, you must exhaust your lenders complaints process first.

 

Repossession

Lenders can repossess homes after exhausting every way possible to solve the problem. Repossessions are not altogether common, for example, there are around 800,000 mortgages in Ireland and in 2010 only 300 homes were repossessed by court order. Your lender cannot apply to the courts to commence legal action for repossession of your property until every reasonable effort has been made to agree an alternative arrangement with you. Where you are co-operating with your lender, the lender must wait at least 12 months from the date you are classified by your lender as being under MARP (i.e. day 31 from when arrears first arose), before applying to the courts to start legal action for repossession.

 

Important points to be aware of

  1. Cooperate with your lender in relation to your mortgage arrears as if you do not you are not protected by the 12 month waiting period under MARP before your lender can commence legal action for repossession of your primary residence.
  2. Your lender cannot contact you more than 3 times per month in relation to your mortgage payments unless you have given your lender prior permission.
  3. If you agree an alternative repayment arrangement with your lender and continue to meet that alternative arrangement, your lender cannot start legal proceedings against you and your lender cannot impose any charges on your mortgage account relating to your arrears.
  4. Your lender cannot move you from an existing tracker mortgage to another mortgage type as part of an alternative arrangement offered to you or just because you are in arrears.
  5. Your lender can only consider repossession after they have considered carefully every other way of solving your problem and have made every reasonable effort to agree an alternative repayment arrangement with you.
  6. If your property is repossessed and the proceeds of the sale do not redeem the mortgage in full, you will remain liable for any outstanding debt, including any accrued interest, charges, legal, selling and other related costs if this is the case.
  7. Your credit rating may be affected if you have an overdue balance on your mortgage account or if your home has been repossessed.

Useful contacts:

 

Regards,

Joan Bourke

Joan is Legal and Compliance Officer at Quintas Wealth Management

 

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

 

EU Summit – Will Ireland finally get to unlock its bank debt?

July 5, 2012

At last Friday’s summit the European Union made its strongest statement to date on its level of commitment and tools it would employ to provide support for ailing Sovereign states (i.e. individual countries) and undercapitalised banks.

After months of procrastination the move exceeded market expectations.  It set out provisions for the direct recapitalisation of the banking sector in the clearest signal yet that Europe will provide support for the ailing European banking system directly without leaving the entire burden onto the Sovereign.  This is important as it represents the first steps disentangling the finances of banks from the countries that they are domiciled in.

It also highlights the realisation that the European banking system is indeed just that – a European wide system that crosses borders and acknowledges that when events such as the current crisis occurs it is simply not reconcilable to the Union’s founding principles to allow Sovereign states to pick up the bill for a European wide system failure.  Improved and centralised regulation of the banking system will now follow and this should lead to improved integration of Central Banks and a clearer definition of the balances and checks needed to avoid future crisis.

The inclusion in the official statement that the Irish bank programme was to be “examined” was a genuine surprise and represented an unconditional positive for Ireland.  The statement delivered a clear signal of intent that they were to examine how to “improve” on an already “well-performing” Irish adjustment program.  This is a significant movement from the previous intransigence of Europe on any concept of burden sharing and as the details are worked out it will lead to a reduction of the Sovereign (and taxpayer) burden.  It effectively means that the government could now reopen negotiations on the levels of debt held by the Irish banking system.  This could lead to a significant reduction in the debt burden and interest payments.

The catalyst for this move was not some sudden benevolence on the part of Europe. Rather it was the spectre of Spanish banks failing and the gradual understanding that tying Sovereign and Bank debt together within a monetary union was simply unworkable and medium to long term it was un-financeable.  Whatever the cause it represents a watershed for Ireland. The overwhelming burden of bank debt on the public finances (and the public psyche) has been a millstone around this country’s effort to readjust and eventually extract itself from an economic recession.  Any move that helps lift that burden is a positive.

One of the key benefits apart from the immediate savings for the state will be the potential to return to access market funding.  Markets shunned many European Sovereigns such as Ireland and Spain, not only out of concern on their banking debt but also out of concern that in the event of a European bailout the seniority (i.e. who gets paid first in the case of a default) of money provided by Europe would mean that private investors who lend to these countries were effectively taking the risk that they would not get paid as Europe would have first call on monies owed.  The move by officials last week included provision to relegate the seniority of European loans.  This was a small part of the statement but in time could be a key move to allow Ireland and other distressed Sovereign states to return to markets.

The devil of course will be in the detail and let’s hope our negotiation team can work out the best deal for Ireland.  With on-going issues in Spain and Italy and the clearest statement of intent yet from European leaders they will be in the strongest position since the crisis first broke in 2008

Regards,

David O’Shea

David is Investment Director at Quintas Wealth Management

This article was featured in our recent – Quintas Quarterly Newsletter – Summer 2012

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Why we should all embrace E-Commerce

May 17, 2012

You may have read recently where Irish On-Line Purchases in the month of December up to Christmas reached circa € 260 million. On Monday the 28th of November 2011 82% of purchases in Ireland were made on-line – an incredible statistic. If we look closer and analyse this figure it becomes more remarkable.

Only 61% of Irish indigenous businesses have a website and only 21% of these companies trade online (e-commerce). This means that roughly 1 in 8 Irish businesses sell online. So the majority of the money that is spent on-line by Irish consumers is leaving these shores and with it, many Irish Jobs.

Back in the grey days of the 1980’s a number of Irish companies closed their doors for the last time because they could not compete with their foreign counterparts. The market in Ireland was too small in volume terms. Today, we have the ability to reach these international markets with a competitive edge, all we need to do is identify the product to market. The last few years have also heralded the arrival of eBay, Done-Deal and Living-Social to name but a few.

In October of last year it was announced that two Dublin traders had become Ireland’s first eBay millionaires. This was purely from selling MP3’s and Smartphones online. Their business model was to buy and sell products manufactured elsewhere. The point here is they are selling volume, low profit products into international markets of the UK, Mainland Europe and the USA. The UK market is roughly 15 times the size of Ireland’s. Europe and the US is almost 100 times the size.

As mentioned above only 1 in 8 Irish businesses sell on-line. If we aim to get 3 in 8 selling on-line look at the difference this could make to the economy and the unemployment level. Small local producers could set up co-ops to help with costs. Small manufacturers could also come together and form alliances that would work on the same principle as the co-ops. All this means that it would then be possible to create the on-line store, to have the variety, to attract the customer and to spend money on Irish goods.

How much does it all cost? For those of you who do not have a web presence you can have this done for Free by checking out the following website http://www.gettingbusinessonline.ie. For an e-commerce site (on-line store) you can pay anything from €20 per month and up. There are a multitude of sites to choose from. You could always use eBay and pay as you sell.

If you have a business and want to discuss any of the above with me, please feel free to drop me an email at william.hogan@quintas.ie

Regards,

William Hogan

William is a Partner at Quintas.

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Business Ethics – are they now more important than ever?

May 9, 2012

For most people, the fundamental question of ethics is “What should I do?” or “How should I act?” in a given situation and we depend on our own personal morals to determine what is right or wrong for us.

From a business perspective Professional Bodies have formulated “Codes of Conduct” e.g., the Irish Medical Council which regulates the Medical Profession in Ireland has a “Guide to Professional Conduct and Ethics for Registered Medical Practitioners”   A “Code of Conduct” is a set of rules outlining the responsibilities of, or proper practices for, an individual, party or organisation.

Business Ethics can be defined as:  “written and unwritten principles that govern decisions and actions within a Business” with the Business’ culture setting the standards for determining the difference between good and bad decision making and behaviour.  Many Companies have formulated internal Policies and Procedures to govern and direct the conduct of employees.   These Policies and Procedures are designed to identify the Company’s expectations of employees and to offer guidance on handling some of the more common ethical problems that may arise in the day-to-day business operations.

With the current economic climate we find ourselves in and, as a result of the banking debacle, the general public are calling for more accountability and higher standards of Customer Service and protection. 

The Financial Services sector is governed by “The Consumer Protection Code” which is a set of rules and principles that all Regulated Financial Services firms must follow when providing Financial Products and Services to Consumers.  The provisions of the Consumer Protection Code came into effect on 1st July 2007.   On 19th October 2011, the Central Bank of Ireland published a revised Consumer Protection Code (2012 Code) which came into effect on 1st January 2012 for Regulated entities including Banks, Insurance and Investment Companies and Intermediaries

Now, more than ever, in an attempt to start regenerating Consumer confidence, Companies in the Financial Services Sector need to focus on their Business Ethics by devising and implementing adequate Company Policies and Procedures that ensure Staff are acting in a professional and ethical manner and that business is transacted with honesty and transparency.

Regards,

Lorna Kelly

Lorna is Operations Co-ordinator at Quintas.

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

VAT on Property – Almost 4 years on has much changed?

May 2, 2012

The new VAT on Property system was introduced on 1 July 2008 to simplify the complex area of VAT on Property which had become unwieldy and to some extent nearly unmanageable. It was clear from the outset that it would take time for all parties involved to come to terms with the new system.

Although we are nearly 4 years into the new system, the whole property market has changed dramatically and the level of transactions has been low.

In this article, we will deal with the system and approach to dealing with VAT on Property transactions, the Capital Goods Scheme, the transitional rules and finally some items to be considered.

The System & Approach The VAT on Property rules can be divided in to four distinct categories;

o Sale of Property

o Letting of Property

o Capital Goods Scheme (CGS)

o Transitional Rules

When dealing with VAT on Property, the following approach is useful:

1. Determine the type of transaction – Sale; Letting; Assignment/Surrender;

2. Standard / Transitional rules;

3. Review Capital Goods Scheme considerations;

4. Consider Anti Avoidance provisions.

In order to understand the operation of the new system, it is imperative that you firstly understand the CGS.

Capital Goods Scheme (CGS)  – The CGS is a system for ensuring that the VAT deductibility for a property reflects the use to which the property is put over the VAT-life (or adjustment period) of the property. The adjustment period is 20 years in the case of a new development, or 10 years in the case of a refurbishment.

The CGS allows the taxpayer to initially recover VAT based on an estimate of how the taxpayer expects to use the property with subsequent adjustments based on the actual usage. In year 1, the full VAT is adjusted, while in subsequent intervals the adjustment is 1/20 other than in the case of a big swing adjustment, which only arises if there is greater than 50% change in usage.

We have outlined below the steps involved in the CGS:

CGS Step Plan

Step 1 Recover the VAT upfront – Based on how the taxpayer intends to use the property

Step 2 Year 1 Adjustment – 12 months after the property acquired/developed – Adjustment on the entire VAT amount based on actual Year 1 usage

Step 3 Annual Adjustments – Annual adjustments are at the end of the accounting period and not related to purchase date – The base year is Year 1 and each interval adjustment is 1/20

Step 4 Property Sold/Let – When a property is sold/let within the adjustment period, a CGS adjustment may be required.

Example ABC Limited acquired a new building on 1 May 2010, on which it was charged €200,000 VAT. At the time ABC Limited estimated that the building would be used for 70% Vatable activities and therefore recovered €140,000 VAT in its’ May/June VAT return. At the end of the first year, it transpired that the property was actually used for 60% Vatable activities and therefore an adjustment was required. As it was the first interval adjustment, the adjustment was based on the entire VAT amount. The actual VAT that should have been recovered was €120,000 (60%) and therefore €20,000 has to be returned in its May/June 2011 VAT return. For each subsequent interval, the adjustment will occur at the end of the accounting period and only be based on that interval (e.g. 1/20). ABC Limited year end is 31 December and therefore the second interval is 1 May to 31 December 2011. If it transpired that the property was used for 70% Vatable activities in the interval period the adjustment would be €1,000 [(€140,000 – €120,000)/20)].

The key point is that the benchmark for all future interval adjustments is the VAT recovered based on Year 1 actual usage and not the original VAT recovered.

In Practice – Where a taxpayer has full recoverability throughout the adjustment period, then there is no adjustment required. If the property is sold during the adjustment period, then an adjustment will be required where the sale of the property is exempt and the option to tax has not been exercised.

Where a taxpayer has partial VAT recoverability, it is necessary to review at the end of each interval and an adjustment will be required if there is a change in the Vatable usage of the property.

Sale/Lettings of Property – This area has been comprehensively dealt with in the two articles by Vincent McCullagh in 2009. The sale of a property is exempt unless it is a ‘new’ property when VAT is chargeable. The letting of property is also exempt. 

 Option to Tax – The new rules introduce the ability to ‘opt to tax’ certain exempt sales/lettings of property. This reflects the fact that a large proportion of property transaction will be exempt and is designed to counteract any potential claw-back of VAT (under the CGS) as a result of making an exempt supply. In order to opt to tax a transaction, it must be between taxpayers in the course of their businesses and it must be exercised in writing. It is not possible to opt to tax residential lettings. Also, it is not possible to opt to tax a letting to ‘connected’ tenants or where the landlord and occupant are ‘connected’ unless the tenant/occupant is entitled to recover at least 90% of the VAT charged on the rent.

In Practice – The decision whether to opt to tax the sale/letting of a property is critical and requires careful consideration. Where there is a potential CGS adjustment for the Vendor, the Vendor will wish to exercise the option; however the purchaser/tenant needs to give this careful consideration. Even where the purchaser has full VAT recovery, by agreeing to opt to tax, the 20 year CGS begins again and future potential CGS adjustment issues would then rest with the purchaser. It is not possible to backdate an option to tax and therefore it is imperative that due consideration is given to this decision.

Transitional Rules – The transitional rules will apply to a property which was acquired or developed by a taxable person before 1 July 2008 and which that person still owns on 1 July 2008. It is important to point out that the property will remain within the scope of the transitional rules until it is sold.

In Practice – The transitional rules will in the main apply to assignments and surrenders of Legacy Leases, which are leasehold interests created by a taxable person before 1 July 2008, for a period of 10 years or more and the tenant was entitled to recover VAT. Where the tenant was entitled to recover any VAT on acquiring the lease or developing the property, then the assignment/surrender is subject to VAT, based on a formula (T x N/Y). Where the tenant was not entitled to recover VAT, then the assignment/surrender is exempt with an option to tax.

In relation to lettings, the transitional rules only apply where the landlord had an entitlement to recover VAT. The transitional rules are very similar to the new rules in that the letting is exempt with an option to tax.

The key differences between the standard and transitional rules are if the landlord does not opt to tax the letting, then there is a deductibility adjustment and not a CGS adjustment (while you might think that these are the same the amount will not always be the same) and opting to tax a transitional letting does not give rise to any additional VAT recovery entitlement. The transitional rules only apply to the sale of a property where the property was acquired before 1 July 2008, there was no development since this date and there was no entitlement to recover VAT. The transitional rules provide the Vendor with the option to tax the sale, which could give rise to a VAT reclaim under the CGS.

Items to be considered – The new VAT on property system was never going to be straightforward and under each of the categories, there are specific intricacies and anti-avoidance provisions that need to be considered.

Below is a brief listing of the items that should be considered under the relevant headings.

VAT on Sales

– Transaction Exempt / Taxable (New Property)

– Development

– Exempt

o Undeveloped Land

o Old Property/Building – Completed (>5 years)

o Used Second Hand Property/Building – Occupied (>2 years)

– Option to Tax

– Taxable

o New Property (i.e. not within the exempt categories)

o Undeveloped Land connected with Development

o Partially Completed

o Sale by a Property Developer

VAT on Leases

– Exempt

– Residential / Commercial

– Option to Tax

-Non Residential

– Connected Persons

– Term of Lease no longer relevant for VAT Capital Goods Scheme (CGS)

– CGS only applicable where charged VAT and in business

– Initial Interval and Subsequent Annual Interval adjustments

– Adjustment only arises where VAT recovery % changes

– Big Swing (>50% change in usage)

– Maintain CGS Records

– Development by Tenant

– subsequent assignment/surrender

– Impact on Capital Allowances / Compensation Payments (TB 03-2010)

Law Society Pre Contract VAT Enquiries

This document attempts to cover all eventualities and can appear cumbersome and difficult to understand for those not dealing with them often. However, the document is split into distinct sections and only the relevant section needs to be completed.

Conclusion

Even though, the new system has been with us almost four year on, the system is still very much in its infancy given the level of property transactions that have taken place to date.

It is vital that all parties involved in property transactions understand that the fundamental issue is the decision on whether to exercise the option to tax. The decision on whether to exercise the option to tax is totally dependent on the CGS.

Although most practitioners are quietly satisfied that the old system is no longer with us given its’ complexities (EVT, etc), many are still getting to grips with the new system and steer away from it. As the new system still has many definitions and peculiarities, it is likely to remain a complex topic where the transaction does not fall within the straightforward rules.

To date it would appear that the new system is preferable to the old but time will tell whether new provisions will be introduced which could further complicate matters.

Regards,

Sean McSweeney

Sean is Tax Director at Quintas.

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

A 5 Point Plan for Job Creation and Economic Recovery

April 25, 2012

I recently took a Ryanair flight to London from Faranfore Airport to visit my 18 year old son who a few months earlier decided to go to England to find work and also experience a new city and culture. As I made the journey, I was flabergasted  to see so many young people heading away with their bags packed in search of work. There was a real sense of foreboding about things in Ireland, and many of these people had renewed and were leveraging old contacts in London from emigration in the 70s and 80s.

I was also amazed to see that all Ryanair staff were from Eastern Europe, and wondered why Irish people were seemingly being by-passed for jobs in an Irish company, and one of the most successful airlines in Europe.

My thoughts went from there to 1983 when I graduated from UCC, and fortunately began a career with PricewaterhouseCoopers until 1988, at which time I secured a job in the Irish brewing industry in a subsidiary of Australia’s Fosters Brewing Group. Sadly, most of my graduate peers in 1983 had no option but to head for the airports in search of work.

Indeed the Economist published an article in January 1988 describing Ireland as ‘a poor struggling economy’ and a heavily indebted ‘banana republic’. Unemployment was at 18.5% and the top rate of tax was at 65%. Cork was described as a ‘run down city’, and ‘economically devastated’ with thousands having to emigrate. Two of the biggest factories in the country, Dunlops and Fords, located in  the heart of Cork city, folded in 1984 with the loss of thousands of jobs.

In the 15 years that followed, the country managed to get things back on track, albeit with many of the foundations built on sand. It is appalling that we have gone in the space of a few years from full employment to c15% on the live register. About 70,000  Irish people are now forced to leave our shores annually, and that’s well over the total numbers doing the Leaving Certificate each year!

The number one priority in Ireland has to be to fix the jobs crisis. Job creation has to be put centre stage, and my 5 Point Plan to create jobs would be:

a)    Multinationals  & Large Employers

Our Enterprise Agencies need to have a more direct conversation on job creation with each Multinational and large employer. There is huge potential including:

Most of the larger companies have moved to global procurement bypassing Irish SMEs for all types of goods and services. This is crazy. We need to fix this because in doing so jobs can be restored fast. By all means think global, but the priority has got to be for these companies to act local.

Import substitution creates opportunities for significant job creation. As an example, take the Irish drinks industry – every bottle and can of beer sold in this country is produced overseas. That makes no sense!

Like Ryanair, we need to find out why the Irish seem to be losing out in the jobs market in many of our multinationals and multiple grocer retailers. This is also true of our hospitality and general retail sectors. This is worthy of a big debate especially when we are so often told that the Irish education system is second to none.

b)    SMEs

The new engine of jobs growth In Ireland has to be through the 250,000 SMEs in the country.

Imagine if we could get every SME to recruit just one person –  that would bring the unemployemt rate back to c6%. Surely that deserves real scrutiny and action!

I know first hand how many sectors are seriously reinventing themselves, and looking to export markets for new growth. As an example, a highly vibrant software sector is developing in Ireland. It’s all about mindset, and we could easily develop our very own ‘Silicon Valley’ in Ireland, and rapidly create a European, if not global powerhouse for technology entrepreneurship and jobs.

c)    Tourism

We have got to become much more energised about securing a greater share of the international tourism market.

In 2011 two major events took place (the visits of the Queen and President Obama) which were huge catalysts for the resurgence of our hospitality industry, an industry that has done much to reinvent itself in recent years. The result is that tourism increased by 7% in 2011.

Often initiatives like these are staring us in the face, and with a bit of imagination and creativity on marketing the Irish Brand overseas,  Ireland should be well able to strengthen its entire tourism industry. We should target similar high profile events in 2012 and beyond. Revenue from tourism is fresh money coming into the economy which  will inevitably drive growth and jobs.

There is also too much confusion about the roles of Tourism Ireland and Failte Ireland. We should take the very best of both and create a single focused dynamic agency to spearhead the transformation of the entire tourism sector in Ireland.
 
d)    Reignite Manufacturing

The focus from our Enterprise Bodies over recent years seems to have been rigidly on high value sectors. As a consequence we became uncompetitive, and regrettably I feel we also turned our back on SME manufacturing as we once knew it.  We actually need a broad base of manufacturing activity across all sectors to compete in the global economy.

We must find ways of rekindling Manufacturing in Ireland, substituting imports for home produced products and targeting specific sectors for export.  We need a major drive, focus and coordination from the network of offices of Enterprise Ireland, the IDA, and Irish embassies to actively engage with Irish manufacturers and unlock their potential across the globe.

A new Corporation Tax rate of 6% for ‘Manufacturing’ companies should be introduced, to be offset if necessary by increasing the general rate to 15%.

e)    Agriculture

The Agri sector has successfully managed to reinvent itself and enjoys a new confidence that almost seems unstoppable.

Ireland has a natural competitive advantage in the Agri-Food sector, and we are only scratching at the surface. We are well placed to compete for a much larger share of this market globally, be it in commodities or products for supermarket shelfs. As an example, Ireland is the largest exporter of beef in Europe, and this can surely be extended to a much wider range of products.

A new focus on innovation and new product development would help displace many imports, and by getting the pricing and branding right, and a proper marketing campaign to buy Irish, we would be well placed to supply the multiple grocers in Ireland and across Europe, and create huge numbers of jobs.

CONCLUSION

The future is not about trying to invent a new economic model but more about going back to the model we had throughout the 1990s prior to the worst excesses and lost competitiveness associated with the years of 2001-2007.  Confidence has to be restored, and this calls for strong inspiring leadership in government and in business. Leadership that inspires people also mobilizes people, and creates an energy, an enthusiasm and a confidence that can help overcome all our challenges.

Regards,

Alf Smiddy

Alf is Chairman at Quintas.

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

Quintas Quarterly Economic Review (Spring 2012)

April 19, 2012

Rising equity markets in January 2012 has been a relief for many investors after a volatile 2011, with markets in both developed and developing nations rising. The S&P500, the bellwether of the US economy finished up almost 3% so far, while emerging markets after seeing big sell off’s in 2011, increased by 10%.

Relief over broad Eurozone adoption of new fiscal rules and fresh hopes for a deal on Greece’s debt restructuring along with increased liquidity from the ECB were good news for markets. In the US, with the Federal Reserve announcing rates will be on hold until 2014. Accommodative monetary policy and political progress has market participants in a more optimistic mood at the moment.

With Ireland committed to its bailout programme we need to continue growing our way out of our troubles. Unemployment has for now stabilised around the 14% mark (helped with emigration). The recent visit of the Chinese vice-president and the follow on visit by Enda Kenny to China towards the end of March are significant for Ireland. Besides benefiting from cultural and tourism links, China is aiming to move to a path of more sustainable growth rather than just high growth, by concentrating more on domestic demand rather than exports. This should help counties such as Ireland by creating a bigger export market for our products and is perfect timing for leaders to visit both countries.

Unemployment Graph
While the cost of doing business in Ireland has reduced, we still need to work on our competiveness. With much emphasis on wage reductions other costs which could be focused on are high rents, insurance or childcare costs. Unfortunately many of our problems stem from the excesses during the boom years and government policy today is built around reacting to those previous decisions.

Global Competitiveness Index

Country/Economy Rank Country/Economy Rank
Switzerland 1 Austria 19
Singapore 2 Australia 20
Sweden 3 Malaysia 21
Finland 4 Israel 22
United States 5 Luxembourg 23
Germany 6 Korea, Rep. 24
Netherlands 7 New Zealand 25
Denmark 8 China 26
Japan 9 United Arab Emirates 27
United Kingdom 10 Brunei Darussalam 28
Hong Kong SAR 11 Ireland 29
Canada 12 Iceland 30
Taiwan, China 13 Chile 31
Qatar 14 Oman 32
Belgium 15 Estonia 33
Norway 16 Kuwait 34
Saudi Arabia 17 Puerto Rico 35
France 18 Spain 36

 Source: Global Competitiveness Index, 2011

by James McCarthy,

James is an Investment Analyst in Quintas Wealth Management

The views expressed in this article  is not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.

The core values to promote excellence in your business.

March 15, 2012

We must have learned from our experience by now that all the simplest of business principles that have been used by the best companies around the world can and should be used by us all too some degree in our own businesses regardless of our size and market.

The best companies use a down to earth and pragmatic program to commit to a standard of excellence founded around three elements:

1. Disciplined People – getting the right people into the business and then keeping them focused on excellence.

• Remember as a foundation and benchmark you have to adopt a “First Who then What” campaign and concentrate on getting the right people on board, the more people with initiative and skills that join the team the better the future will be.

2. Disciplined Thought – being brutally honest about the facts facing your business and avoiding the temptation to get side tracked on noncore ideas.

• Openly face the competitive realties of the markets in which you operate without losing faith. Recognise the need for change but avoid getting distracted into new fields of  business that are away from your core competencies.

3. Disciplined Action – Realising what is important to achieve for your company to succeed.

• It is enormously important to have a realistic but compelling vision for your business, it  is crucial to paint a picture of the business in 3/5 years and then build a roadmap to  mobilize everyone in that direction and to communicate relentlessly within the business on this journey and throughout its progress.

Having a customer centric focus, delighting customers and putting the customer centre stage are of enormous importance –Feargal Quinn wrote the book ‘crowning the customer’ all those years ago and how right he was. The best way of winning new customers is by satisfying/delighting existing customers by delivering the service or product at the correct price and on time – “success breeds success”.

It is critical that a trusting relationship exists or is established with customers as reputation is what counts most of all in business. The time has come to get match fit, the time has come to shake off the feelings of recession and get ready to move forward.

Look for a strong DNA in the business – a set of values that reflect on how the business is to be conducted. Successful businesses spend a lot of time on business values or on what is acceptable and unacceptable in the business and typically they would include honesty & integrity, responsibility, teamwork, innovation, consumer centric approach and a winning mentality.

Be brave, hire the best, face the facts and stick to what you know best!

Regards,

Tim McCarthy

Tim is Managing Director at Quintas.

The views expressed in this article  are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse.  We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.