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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
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