Passing assets on to the next generation either on death or by gift can trigger the following taxes: Capital Acquisitions Tax (CAT), Capital Gains Tax (CGT) and Stamp Duty (SD). We will explore the tax implications of CAT in this issue and do a follow-up article covering CGT and SD matters in the next issue.

CAT is charged to the person receiving the benefit. It is calculated on the value of the benefit less any liabilities or costs paid by the beneficiary at a rate of 25%; therefore, transferring an asset while values are low will automatically trigger a reduced tax liability. Given the current difficult trading conditions the younger generation may benefit from having the asset sooner rather than later to generate an income or to help finance a new venture.

Depending on what assets are being transferred, the transaction may qualify for an exemption or relief from CAT. Under current Revenue legislation each individual has three lifetime class thresholds for CAT, dependent on their relationship with the donor. Where the benefit does not exceed the threshold, no CAT is charged. For example, children of a donor have a lifetime threshold of €414,799; to that end they can receive gifts or inheritances from their parents not exceeding €414,799 during their lifetime tax free. Also a parent can transfer a site with a market value of less than €500,000 to enable the child to build a principal private residence without triggering CAT.

Agricultural Relief, applicable to agricultural land and buildings, can reduce a CAT charge by 90%. A similar relief from CAT is available on the transfer of a business. The transfer of a dwelling house may be totally exempt from CAT provided that both the donor and the donee satisfy certain conditions.

While availing of the decreased values to reduce CAT will profit the beneficiaries, it is worthwhile noting that once the asset is transferred to them it is gone from your portfolio. Therefore, it is vital to assess your own cash flow for the future in order to protect your income in years to come. You could retain a life interest in the asset to ensure your future income and financial security is not jeopardised.

Passing on wealth is a complex issue and should not be driven solely by tax. The main concern is that the final result will service the overall needs of the family in the future.

Software as a Service (SaaS) is giving businesses the flexibility to pick and choose applications – from basic email to whole disk encryption – without requiring an extensive IT department, and the option to roll out more services as and when needed. What’s more, with services hosted offsite there is no need for additional hardware investment, and maintenance fees are low to nonexistent.

The long-running debate around cloud computing has recently been reinvigorated, with many organisations starting to seriously consider the pros and cons of accessing applications through a web browser as opposed to having to host software on their own PCs. It comes as little surprise that cost has emerged as the most promising draw for SMEs when considering this model, but with increasingly complex business software becoming available there could be other benefits to be had in the cloud.

However, some SMEs feel there are downsides to SaaS. Security is a key concern of organisations that may feel uncomfortable having sensitive corporate data held at an undisclosed location, with concerns over access policies remaining a stumbling block. Other perceived issues include loss of control over downtime or outages and latency-related performance problems in the cloud. This all leads to a significant cost-benefit trade-off that organisations must consider before going down the SaaS route.

As a result of these concerns organisations have taken a somewhat cautious approach to cloud computing during the past year – selecting just a few nonessential applications to test the service against their individual needs. However, with the recent improvements to SaaS delivery models, online collaboration technology has rapidly evolved and become available to smaller organisations that previously couldn’t afford the financial burden of licensing and maintaining this increasingly valuable technology.

Recent postal strikes in the UK served to further highlight the issue, demonstrating the importance of organisations being able to interact with customers and clients through online channels. In addition, the rising cost of online payment processing, ongoing fears over the security of sensitive data transferred via email or snail mail, and difficulties keeping up with the revision process (on contracts or other rolling documents) have all contributed to the popularity of collaborative technology.

For too long now, SMEs have been frightened or unable to change the terms of how they deal with their clients, but if they wish to remain competitive in this market then they need to embrace new technology as a way to level the playing field – and they need to do it now. The provision of collaboration technology for the SME market would once have been financially unviable – but by utilising the power of enterprise cloud computing, businesses can now bypass the need for ever more complex IT systems, while revolutionising the way in which they operate and interact with customers on the web in a simple, cost-effective way.

Increasing your site profi le is the way to start. Getting on page one of Google can be as simple as signing up your existing website for a business optimisation service, or as complex as having a dedicated web marketing expert give your website a complete overhaul. For many businesses in this economic climate it comes down to what can you afford and when can you afford it. There are a few approaches to consider:

Directories such as CityLocal.ie and MyTown.ie give your business a platform on page one of Google without having to optimise your existing website. This basic optimisation works by creating a profi le for your business within the directory that is picked up by Google in your area of the country. By doing a keyword analysis and selecting actual keywords that work for your business, the directory ensures your most effective words show up in every search. The process is performed for hundreds of businesses throughout Ireland, giving the businesses economies of scale and providing every business with a page-one presence in a cost effective manner.

Pay-off
Purchasing Google Adwords is the only way to guarantee a page-one presence for specifi c search terms (keywords). Google Adwords, otherwise known as sponsored links, appear at the top of and/or down the right-hand side of the Google page to ensure your website and services appear exactly where you want them. It is still a good idea to have a comprehensive website for potential customers and clients to click through to; getting them to your site is only half the battle – selling your service is the fi nal hurdle.

Take-off
If your business is growing and expanding then you may consider a complete site overhaul. Good Search Engine Optimisation (SEO) will successfully build and re-structure your website so that it appears on all major search engines. Hiring a web marketing expert to look at the site from an optimisation perspective and re-do the site structure and content accordingly can be highly effective. It can be time consuming and therefore costly, but the benefi ts of exposure can outweigh the cost. The following are points to consider when optimising your site:

1. Domain Name –
   If the website name includes a product or service it will increase the search engine ranking of the website, e.g. www.joebloggsplumbing.ie.
2. Site Structure –
   Home page and top-line menu pages are given more authority by Google so ensure these contain strong references to your key products and services.
3. Page structure/content -
   • Keywords – It is important to have effective keywords throughout your site.
   • image vs. text – Google searches from the top lefthand side down so place text at the top of the page.
   • Alt tags – This allows every image to have a keyword (phrase is visible when the cursor hovers over the image).
   • headings/bullets – Google gives priority to headings and bullet points that contain keywords.
   • Site maps – A site map makes it easy for a search engine to index your site.
     • meta tags – Meta elements provide information about a given Web page, most often to help search engines categorise them correctly.
     • Title – Words to the left take precedence to those on the right.
     • description – The brief two-line description that Google displays when searched (needs to contain your keywords).
   • Internal links using keywords – Create hyperlinks around important keywords within the site.
   • backlinks – Each website is given an overall ranking by Google of between 1 (poor) and 10. When another website contains a link to your website this is called a backlink.

Successful businesses need a mixture of all of the above. Increasing your online profi le for a short time is benefi cial but the best course of action for every business is to build an online profi le that will last. Optimisation isn’t a once-off job: it’s a continual process. As you improve, so will your competitors; therefore, it pays to set your sights high from day one.

Information on optimisation and directory services available on www.citylocal.ie

You and Your Money – August 2009

In the last of our four-part series, Johnny McNamara looks at the danger of counter party risk and shows you how to minimise the external threat to your own personal economy.

In previous articles I have developed the concept of managing and controlling your own personal economy. The key to achieving this is to identify the areas of your finances that are in your control and to recognise the areas that are outside of your control. Where you identify an area that you have no control over, this becomes a risk to your personal economy and so, it is vital to minimise these risks every way you can.

One of the biggest risks to our wealth today is known as “counter party risk.” This can be defined as the risk to each party of a contract that the other party will not live up to its contractual obligations. In most financial contracts, counter party risk is also known as “default risk.”

Counter party risk is apparent in almost all aspects of our financial lives from our savings and investments right through to our pension arrangements. The effects of counter party default have been particularly evident in the current economic climate, which has seen the collapse of many large financial institutions both here and across the world. This has led to the images we have all seen of people queuing outside banks for fear of losing their money.

So how do you remove counter party risk from your personal economy? Unless you are going to store all your wealth in gold bullion and carry it around with you, it is impossible to remove all elements of counter party risk. However, the key to gaining more control is to remove as much counter party risk as possible.

In my last article I developed the concept of taking ownership of your pension funds. Taking ownership of all of your assets – whether they be in pension or any other form – is the first step in helping to eliminate counter party risk. Once you have been able to establish ownership, the next question must be: what asset classes should you look to invest in to further remove the threat of counter party risk?

A good starting point is to look at the concept of ownership versus loanership assets within your personal economy. To understand this concept fully, we must identify the difference between ownership assets and loanership assets or in other words, real assets versus financial assets.

A real asset is a tangible or physical asset that will only ever appear on one side of the balance sheet, i.e. the asset on one side does not create a liability on another balance sheet. Therefore a real asset does not carry any form of counter party risk as it is direct ownership. Gold is a prime example of a real asset that is tangible and has a value in its own right due to its scarcity and people’s desire to own it.

A financial asset is an asset that is essentially a contract between two or more parties that merely represents an asset. The financial asset itself has no intrinsic value because it is not a tangible or physical asset, but merely a representation of one. A financial asset therefore sits on both sides of a balance sheet. For one party entering in the contract there will be an asset (bonds, share certificates etc.) and on the other hand, the other party will have a liability (repayment of bond, value of share etc.)

This is where counter party risk is generated, as the asset owned is only as good as the other party’s ability or willingness to honour their side of the contract.

When you bring in other financial assets that include debt derivatives, you often find that this increases the amount of counter parties involved and so, increases further the risk of default somewhere along the chain. A great example of this can be seen from what happened with the sub-prime mortgage market, where the debt was repackaged further and further away from the real asset until eventually the chain collapsed. If you are at the end of the chain, you are the one who suffers most financially from the counter party risk and subsequent default.

Many people have been fooled into thinking that financial assets should be considered as savings. However, as we have seen over the last few years, through counter party default these assets can become worthless very quickly. When looking at where to invest, it is important to remember that real investment brings with it real assets and real capital formation, which is the cornerstone on which future wealth is built.

With this in mind, what can you do now to take back ownership of your personal economy? It is my opinion that a significant part of your wealth should be invested in real assets through structures in your ownership and control. The amount to which you hold your wealth in real assets will come down to your faith or lack thereof in the financial system as it currently stands. Recently we have seen a massive amount of mistrust generated in our financial systems – both locally and globally – which has already seen a shift in investment towards real asset classes.

Counter party risk is evident in every part of our financial lives and represents a big risk. One of the biggest counter party risks out there is what’s happening in the global economy. We know that we cannot control factors at play in the global or local economy, but we need to understand how they affect us so we can plan for the future. However, we also know that there are factors that can be controlled through ownership. It is only through ownership that you can gain control and it is only through control that you can gain the ability to manage your personal economy.

To arrange an appointment with McNamara & Associates, call 01 230 9000.

Control of your personal economy is vital in protecting against external threats such as redundancy and can also allow you to take advantage of the opportunities that may arise, writes Johnny McNamara.

The current downturn in the global economy has created an environment with an ever-increasing level of threats to all of us. These threats are often outside of your control and therefore, there is little or nothing that you can do to stop them affecting you. However, the degree to which these threats affect you can be limited by taking ownership over the factors that you can control.

Identifying the threats to your personal economy is the first step in taking more control. For example, one of the biggest threats to many people today is the threat of redundancy and given the fact that we cannot control a redundancy, what can be done to manage your finances through this threat?

First things first

The first thing that you can do is to act now and seek to protect yourself against the threat of redundancy. At present, there are policies available that can provide you with a replacement income in the event of involuntary unemployment. There are also products, such as mortgage repayment protection, that can cover your mortgage repayments in the event of redundancy. These products do not pay out indefinitely, but can help you to manage your way through a potential cash-flow crisis in the initial period after redundancy.

Obviously, there is a cost involved in taking out one of these policies, so it is important to identify how this cost may affect your current cash-flow position. That said, this kind of protection can help you get through the initial stages of your redundancy and allow you the financial freedom to plan for the future. In turn, by limiting the immediate effects on your cash-flow, it can give you an opportunity to reassess your career path and may also allow you the opportunity to re-skill for an entirely new career.

Already redundant?

If it’s too late to protect yourself against the threat and you are faced with the reality of redundancy, you need to understand all of the implications this has on your personal economy so that you can adequately plan the road ahead.

The tax treatment of redundancy payment is the first area that you need to manage and control. There are a number of reliefs available to you on a redundancy payment that can help reduce your tax liability. The relief option you choose is not always a straight-forward case of selecting the largest relief, as in some cases you may be waiving your rights to a tax-free lump sum from your pension on retirement. So although you may receive more now, you may be forfeiting a lot more in the future. Therefore, selecting the appropriate relief is vital and it is important that you take independent advice to ensure that the right decision is made.

There is also a further relief called ‘Top Slice’ relief that is available to you in the year of redundancy. Many people tend to overlook this relief due to that fact that you can only claim it at the end of the tax year. In many cases, by not claiming Top Slice relief people can miss out on substantial tax rebates. This is valuable money needed to help you financially following a redundancy and could be lost if you do not know how to claim it back.

Taking control of your pension fund

The next area that must be looked at in the event of redundancy is your pension. If you have been in pensionable employment for a number of years, it is likely that you have built up a substantial pension fund within the company pension scheme. This is a valuable part of your personal economy and it is therefore vital that you make the right decision in relation to this. The event of redundancy can often result in an opportunity for you to take ownership and control of your pension fund. In certain circumstances, it is now possible to take ownership of the fund that you have built up within the company pension. Ownership in this case does not simply mean giving you the ability to choose where your money is invested pre-retirement, but also involves the ownership of the money post-retirement.

In a typical company pension scheme, owning the pension fund post-retirement is not possible as in most cases, you will be forced to buy an annuity or income for life. This involves giving away the fund that you have built to an insurance company who will pay you a certain amount for as long as you live. The key unknown in this equation is how long you are going to live.

If, by taking ownership of the pension fund, you can keep control of the total value of the fund, you now open up new possibilities post-retirement. It also means that you no longer have to give away your fund to a third party, but can now control and manage your asset in retirement.

By taking ownership of your pension fund, you now have the ability to bring another part of your personal economy under tighter control and possibly open up options that would not have previously been available to you. Many times it can be the event of redundancy that opens up this option for you.

You can now see that even the event of a redundancy can present opportunities for you once you manage your finances carefully. The key to managing your finances in any economic environment is to take control and ownership of as many areas as you can. The more areas of your finances that you control and own, the less of a threat the outside factors become.

If you are faced with or worried about redundancy or any other area of your finances, call McNamara & Associates on 01 2309000 to arrange an appointment or visit www.personaleconomy.ie.

Next issue… We look at the concept of real ownership within your personal economy.

Johnny McNamara looks at how improving efficiencies in one area of your personal economy can have a dramatic knock-on effect in the other areas of your financial life.

The Celtic Tiger brought with it unprecedented access to credit facilities, which were gladly lapped up by the Irish public. However, the legacy of poor financial planning from this era is now plain to see.

During this boom, many people found themselves owning multiple rental properties without ever examining how these portfolios should be structured to maximise efficiencies in all areas including cash-flow, tax planning, wealth creation and wealth protection. Now that the economic conditions have changed so dramatically in tandem with a tightening of cash-flow, the lack of planning is having a direct impact on how people are managing their own personal economy and possibly limiting chances to generate future wealth.

Take the example of an individual who has found themselves owning multiple rental properties, but who has never taken the time to put appropriate financial planning controls in place. Poor planning may have resulted in a situation where the individual has to use some of their own money to help cover the cost of owning these properties.

Where an individual owns investment properties, these properties should be selffinancing assets. This means that the money receivable (rent) should be greater than the costs associated with owning the property. If the property is not self financing and you have to contribute some of your own money to cover the costs, it becomes highly inefficient as the money that you will be using will most likely be coming from your salary on which tax has already been deducted.

In such a situation you have not only tied up your wealth in an illiquid asset, but have also created a drain on your cash-flow. In most cases, it is possible to create a situation whereby you can improve your cash-flow position through restructuring the finance arrangements and also ensuring that you minimise any tax liability.

If, through appropriate tax and financial planning, the individual in question can create a situation where the rental properties are now self-financing and possibly providing a surplus income, the whole picture changes.

In this situation, you have now freed up your cash-flow, which allows you to use this money to fund other areas of your personal economy and implement plans to generate future wealth. So what should you do to help develop your personal economy now that you have freed up some of your cash-flow? The answer to this will be different for each individual. However, there are a few fundamentals that all people should look at.

Credit card debt and other short-term debt is a burden that most of us are faced with. This debt is very expensive due to the high rates of interest payable and therefore, clearing this debt should be high on your priority list.

Using the money that you have been able to free up, you can now focus your attention on paying off any short-term debt. By clearing this debt as soon as possible, you can help to free up even more cash-flow, which can in turn be used in other areas of your personal economy.

Once you have managed to clear the short-term debt and have been able to free even more cash-flow, you can now look at clearing longer term debt such as the mortgage on your home. Your home is the most important asset that you own, as it provides shelter for you and your family. Therefore, you should look to remove any threat to this security and as such, clearing the mortgage on your family home should also be high on the priority list. By using the improvement in cash-flow to pay off your mortgage early, you will not only increase your security but could also save but could also save thousands in interest repayments.

There is also an element of long-term planning that needs to be implemented as part of any balanced financial plan, and the area of retirement planning should also be addressed. Many people are currently underfunded in their pension arrangements and while this is not a short-term problem, it is important that you look to the future so that you can enjoy retirement.

Freeing up your cash-flow in one area may enable you to increase pension contributions and help to ensure a secure retirement. By contributing to the pension, you can also take advantage of the generous tax reliefs available and therefore increase your efficiency in the area of tax planning.

As mentioned, each individual will require a different plan to suit their needs. However, you will now see the knock-on effects that improving the efficiency in one area of your finances can have on all other areas of your personal economy. You will also see how the improved efficiency can snowball through your personal economy to save money, improve cash-flow and develop your wealth.

This is just an example of how you can develop and grow areas of your personal economy by maximising efficiency in just one area of your finances.

There are many other areas where efficiency can be improved through sound tax and financial planning, resulting in the same opportunities for growth and wealth creation. You can therefore see how vital it is to take a holistic approach to your financial planning in order to maximise efficiencies in all areas of your finances.

For more information or to arrange an appointment, call McNamara & Associates on 01 230 9000.

Next month, we will look at controlling and managing your personal economy in the event of redundancy.

Your personal economy is in your hands, so know how to manage, plan and control it. By Johnny McNamara

From the risk of redundancy to the tightening of credit lines, there is no doubt that times are tough with many of us now facing our own ‘personal recession’. In the backdrop of this global economic downturn where we have all been affected in one way or another, how can you regain some element of control?

Many of the factors that are causing these problems are outside of our control and as such, we have little or no influence on them. However, there are factors in our financial lives that are firmly in our control and it is these factors that we must plan carefully to ensure that we not only survive the economic downturn, but that we are in a position to thrive when the turbulence thaws.

How do we do this? Well we can look to Ireland as an example. Ireland is a small, open economy and therefore, we as a country have no control over decisions taken by the larger economies of the world. Yet they have a very real and dramatic effect on the economy as a whole. We need only look to the recent US sub-prime crisis and the knock-on effects we have experienced as evidence of this. So what should the Government do to protect the country in this environment?

Well, every year the Minister for Finance produces an annual Budget for the Irish economy. This sets out the fi nancial plans, goals and objectives for the year ahead using the tools available, which include everything from altering tax rates to amending capital expenditure. The purpose of this is to ensure that the economy remains in a stable, balanced position while also implementing strategies that can create wealth for the country in the future.

So even though there are many factors at play in the global economy that Government can’t control, there are also many factors that they can control and it their responsibility to co-ordinate these factors in such a way that helps us make it through global downturns and prosper in periods of global stability.

How can this be applied to you and your finances? We know that the decisions made by Government have a massive impact on our lives and even though you can’t control it, you need to understand them and take the necessary steps to manage your way through any economic environment.

It is up to every individual to learn how to plan and control their own personal economy to ensure that they are running as efficiently as possible and to be in a position to plan for future wealth creation in the same way as the Government of a small open economy plans and controls.

How many individuals can say that they prepare their own personal economy budget and implement necessary strategies using the tools available to them? Based on our experience, very few people think of themselves in this way but rather continue to plan their finances in a haphazard manner as a need or problem arises. By doing this, people will never fully maximise their efficiency nor will they be in a position to take advantage of any possible wealth creation opportunities.

It is now vital that people take this holistic approach to personal financial planning and the key to doing this is to understand what the factors are that influence your personal economy and more specifically what factors you can and cannot control.

What are the elements that make up your personal economy? Many elements of the fi nancial world are outside of your control, however the elements that can be controlled must be managed and developed to maximum efficiency through careful planning and advice-driven decision making.

There are a number of key elements that make up any personal economy. Each of these elements are so intrinsically linked, it is vital that you understand the effect of decisions made in one area on the next. We believe that you cannot separate each of these elements when planning your finances, but rather you must plan them as one entity – your personal economy – which includes:

• Cash flow management
• Tax planning
• Financing and mortgaging
• Investment planning
• Wealth creation and planning
• Retirement planning

The management of a personal economy will be different for every individual and will depend on a wide range of factors specific to you. This is where the need for a competent, qualified financial adviser comes into play. Through our holistic approach to tax and financial planning, we can help you to deliver a strategy that can put you back in control of your finances.

We have seen the implications of poor economic strategy and the ripple effect that this has caused throughout the global and local economies, not to mention the knock-on affects that this has caused on your financial lives. This is a lesson that we can all learn from. It is vital that you take back control of your own personal finances and implement strategies that protect you in bad times and maximise opportunities in good times.

You need to start thinking of yourself as a small, open economy and use the tools at your disposal to protect yourself and maximise your efficiency. It’s your personal economy, so plan it, control it and understand it!

For more information or to arrange an appointment, call McNamara & personaleconomy.ie | Commercial profile MAY 2009 | YOU&YOUR MONEY 35 Associates on 01 230 9000.

NEXT MONTH… PersonalEconomy.ie will develop this concept and provide case studies to help you control, plan and manage your personal economy.