SSIAs, personal loans & interest rates

Z

Zadig

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I am going to be taking out a personal loan to the tune of €11k as I am leaving full time employment and returning to college for a year. I currently have a SSIA being topped up at the maximum rate.

I was considering increasing the amount of the personal loan in order to continue paying the max amount into my SSIA while in college, but am having some difficulty with the figures. I intend to get a loan that does not penalise the borrower for lump sum or early repayments. My SSIA has 20 months left and is with AIB at some sort of negligible interest rate (averaging 1%). There is currently €4200 in the account.

Would I be right in thinking that the APR over the next 20 months on the maximum contributions to the SSIA (totalling €5080) would be roughly ~14%? And if so, would it make sense to borrow this additional €5080 to see these contributions through given that a typical APR on a personal loan would be about 7.9%?

these are very iffy calculations I know, but I'd appreciate it if someone could show me the correct way to go about my sums.
 
Zadig said:
I was considering increasing the amount of the personal loan in order to continue paying the max amount into my SSIA while in college
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If you mean that you are thinking of borrowing money so that you can contribute that into your SSIA then you should note that borrowing to fund an SSIA is in breach of the rules and will jeopardise your account causing it to be terminated and taxed at 23% on the full amount once this comes to light.
 
wow, thanks for the heads up. I didn't know that.

Does this mean the finances of every SSIA holder will be gone over with a fine tooth comb upon maturing? And how does this affect people who have had contributions to their SSIA paid by their parents? Does that constitute borrowing as well?
 
When you open and close the SSIA you have to sign legally binding declarations stating, among other things, that the SSIA was funded out of your own means and not through borrowings. If you make a false declaration and it comes to light then the penalties can be severe. In addition, if a financial institition has reasonable grounds for suspecting that an SSIA saver has broken any of the relevant rules (e.g. borrowing to contribute) then they are also legally obliged to notify Revenue. In short, nobody in their right mind would recommend tax evasion as a prudent course of action. In the case of parents contributing to a child's SSIA then I presume that they could argue that this was a gift exempt from gift tax. However if arrangements were madea priori to repay the parents (e.g. the parents were to benefit in part or full from the maturing SSIA funds) then I presume that Revenue could take a dim view of this similar to the way in which covenants were only legitimate if the covenantor was not later reimbursed by the conevantee when tax was reclaimed.
 
Why risk doing something that may cost you the 25% bonus? Even if you stop paying into your SSIA now (i.e. it becomes 'paid up', but you do not encash/withdraw the funds), you are still entitled to all 25% bonus received to date, plus all interest earned to date, and earned until the account matures.
 
Clubman, you're a wealth of information - thanks very much. Don't want to be upsetting the nice people at the revenue.

sorry to be pedantic, but does that mean that anyone who borrowed personal loans after opening the SSIA are under suspicion?

I mean back when I was in university I was making the minimum contribution to my account, but I had a loan out for €3k to pay for rent and college expenses. The SSIA contributions came from a current account that was kept in the black by my part time job - it never saw any of the loan money. I hope this was legit?

But what's to stop the Revenue arguing that without my loan to support living expenses, I could not have made even these minimum contributions to my SSIA?
 
Thanks for the kind comments. I'm not sure about how Revenue judge or distinguish between the "borrow for other stuff, fund SSIA from existing means" versus "borrow for SSIA contributions, use existing means for other stuff" situations and unfortunately I can't seem to locate the letter of the law on the Revenue site at the moment.
 
I was advised a few months ago by a Financial Advisor in my Bank that I should increase my SSIA contributions to the max for the remainder of its term. He told me I should borrow the money if I had to as he said it was 'money for jam' - his words not mine. I increased my payments and didn't borrow to do it but it gave me the impression that the Banks might not be too strict on the rules?
 
eiregal said:
He told me I should borrow the money if I had to as he said it was 'money for jam' - his words not mine.
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If he said that then he was encouraging and/or facilitating tax evasion. This hits you, me and every other compliant taxpayer in the pocket. If I came across somebody doing this I would have no qualms about reporting them to the Revenue. This, and not some of the other stuff mentioned elsewhere, is a real "rip-off" in Ireland.
 
I was on to the Revenue's SSIA experts just now - I guess they were the experts, as I was shunted around a bit internally once I made the call. There don't seem to be any hard & fast guidelines that set out what exactly the criteria are regarding borrowing while contributing, and the lady who was talking to me simply outlined the revenue's position on a few hypothetical examples. She basically said you could borrow for a car or for college fees, but not for daily living expenses or rent. However I got the feeling that this was all off the top of her head, and that she was merely applying her common sense - not following any guidelines on the matter.

It seems to be quite a nebulous area, and I imagine that there are a lot of people (myself included) who could unwittingly have breached the regulations. If the rules are stringently enforced, one could argue that it was a hidden danger. A strict stance could prove very unpopular, and with such a high level of publicity surrounding the accounts (and such a large number of account holders), the government could be reluctant to risk an eircom-style public backlash that might follow such a scenario.

As it stands, I find myself in the following situation: My parents have (generously) offered to pay my college fees, and I had intended to take out a loan for living expenses and SSIA maintenance. Knowing what I now know, is it evasion or avoidance if I used my loan to pay my fees and used my parents' contribution (to be considered a gift exempt from gift-tax) to maintain my maximum SSIA contributions?
 
cant you just increase you loan by 20 x 254 (5080) use this to fund your day to day spending and use your grant money to fund your ssia this way it is quiet clear that you ssia money has come from your income and not from a loan.

gg
 
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