The Gazette 1984

GAZETTE

JANUARY/FEBRUARY 1984

hard to obtain without risk. Some forms of investment that generate a tax-free income, such as Guaranteed Income Bonds, are not suitable investments as there is no protection whatsoever against inflation. Unit-linked funds though, which can yield a tax-free income, could be appropriate investments. These are covered later in this article. There are a couple of points worth mentioning under the taxation heading. Unreimbursed medical expenses are tax-deductible, something which is not commonly realised. This can have the effect of rendering income, generated for the purpose of paying medical expenses, tax-free. For example, £1,000 of medical expenses can be deducted from £1,000 of taxable income, subject to the first £50 p.a. being excluded. There is no upper limit to the amount of medical expenses allowed. A claimant under this heading needs some careful advice, as it is only "unreimbursed" medical expenses that are allowable, so specific compensation awarded in this regard may obviate a claim. Allowable medical expenses are defined as the prevention, diagnosis, alleviation or treatment of an ailment, injury, defect or disability. Routine maternity, dental or optical treatment is not allowed. The timing of a claim can prove important, as relief for medical expenses is normally computed by reference to the expenses paid in each Income Tax year but, if a claimant so elects, relief for any year may be determined by reference to the expenses relating to the health care actually provided in that year, irrespective of the date(s) of payment of the expenses. For example, this could prove important in situations where there may be expenses paid in a year when there was not enough taxable income to absorb these expenses. If a claim to have medical expenses tax-deductible is likely to arise, very careful professional tax advice should be sought in advance. In some cases, a housekeeper may be employed, either full-time or part-time, to assist a person who is incapacitated. The cost of this service has to be met from after-tax income, which can prove a strain on available finances. A special tax allowance, currently £700 p.a., is allowed to an incapacitated individual. Clearly this is a miserly allowance and, incidentally, is only available where the assistant is actually employed by the incapacitated individual. Medical evidence may be sought by the Revenue Commissioners before granting this allowance as, in strict theory, to be eligible the individual should be totally incapacitated. A useful point to note here is that if a relative or friend is taking care of an incapacitated person on an on-going basis and that relative or friend has no or only a small taxable income, a deed of covenant between the two parties can prove a useful tax saving device. A tax adviser should be in a position to further explain the actual mechanics of such a deed. Investment Requirements The discussion above sets out the framework within which to compile an investment profile, the next stage being to compile a suitable investment portfolio. Here again, some basic requirements have to be considered. Ease of investment management is an important consideration. Buying a house in flats may sound a good idea, but who will collect the rents, organise repairs, replace vacating tenants and so on? Similarly,

complicated tax returns involving multiple dividend warrants, interest coupons, etc., can be very confusing to somebody not experienced in such matters. Minimising risk is clearly important. It can often be true to say that investments with minimal risk offer little protection against inflation. Bank deposits and investment in gilts are two obvious such investments. Property is often thought of as being risk-free, but of course it is not and, while it is unlikely that a substantial proportion of an investment will be lost, property values are a function of factors such as interest rates, demand for that particular type of property and the general economic outlook. For example, it cannot be assured that rent review clauses give automatic protection against inflation, as this assumes that the economic wherewithal is there to meet such increases, a situation which, for example, hardly pertains at the moment. Similarly, a defaulting tenant may not easily be replaced. Still, as explained below, property investment can be worthwhile. Ability to realise the investment is next on the list of requirements. While an investment policy can be intrinsically aimed at being long term this is not to say that it should remain inviolate. An investment chosen for good reasons now may have a different profile in five years time. It is important therefore to be in a position to switch at least a significant proportion of investments, hopefully without undue loss, should the necessity arise to do so. Which Investments? In a short article it is not feasible to present all the advantages and disadvantages of the full range of possible investments. In the author's view, the most appropriate investments to meet most of the earlier criteria are property, ordinary shares and unit-linked funds. Direct investment in property may not be easily made. Property covers residential, retail, offices and industrial and within each of these categories there are endless variations as to size, location, leases, quality of tenant, state of repair and so on. Only properties already let should be considered and any form of speculation or development disregarded. A reputable auctioneer should be employed to advise and seek a suitable property. If the sum is large enough, direct property investment should be looked at carefully, not only because historically, wise investment under this heading has proved successful but also, to a lesser extent, a person often feels more comfortable at being able to identify at least some of their investments in a solid form rather than totally through paper entitlements shown on share certificates, etc. Well chosen property also offers the advantage that the capital value in itself is likely to generally keep pace with inflation, so the income therefrom, even though it may be taxable, could be said to be real income. Investment in ordinary shares, based on historical experience, matches much of what is said above about property, except that share values can prove much more volatile. A major difficulty is that, with the U.K. stock market closed to Irish investors by Exchange Control regulations, investment is effectively limited to about twelve shares that could be said to be actively traded on the Irish stock market. However, some of these shares, notably Smurfits and Cement Roadstone, recently joined by Rohan and Allied Irish Banks on a more modest scale, offer a geographical sprehd of investment through their

18