Q. I have seen the term SIPP being used quite a lot lately when reading about pensions, what is a SIPP?
A. This is an acronym for a “Self Invested Personal Pension”. As indicated, a SIPP is a type of personal pension that gives you a far greater level of freedom about how you invest your retirement funds than you can get with many other pension plans. You are in complete control of how and where your money is invested – you make the decisions that will determine how your pension pot performs.
The investment options available include the traditional funds available for normal Personal Pension Plans but also includes, quoted UK and overseas stocks and shares, unlisted shares (in certain circumstances), Investment Trusts, Exchange Traded Funds, Government Bonds, Corporate Bonds, Land and Commercial Property such as a shop, offices or a factory. You can even borrow money to assist in purchasing a Commercial property but there are limits in the amount you can borrow.
SIPPs offer the same tax benefits and options at retirement as other Personal Pension Plans.
SIPP’s are not for everyone, as they by definition require much more involvement by the individual owner, and often come with higher fees and charges than standard Personal Pension Plans. However they can provide a much more flexible investment portfolio for the right type of investor.
Q. My wife and I are considering re-writing our wills. When we last did this in 2001, our solicitor suggested including a trust arrangement in each will to save inheritance tax. I have been told that this is out of date and unnecessary, should we have changed our wills before now?
A. Prior to October 2007, many wills for married couples included a trust to accept funds up to the nil rate band for inheritance tax purposes (currently £325,000). The surviving spouse could have access to the trust and could be a beneficiary of the trust, but the fund was outside of their own estate, meaning both partners’ nil rate band was used, reducing the tax payable significantly. In 2007, the government of the day introduced the facility for the second spouse to die to “inherit” any nil rate band unused by the first to die. Whilst this means the trust could be viewed as introducing extra complexity to achieve the same tax situation, there are still occasions where such a trust can be of benefit. Firstly, the trust assets should not be taken into account in any financial assessment by the local authority to establish who is responsible for care costs. Another situation is where one or both of the couple has been widowed previously. In this case, they may be able to inherit the nil rate band of the previous spouse. Whilst it is possible to benefit from the unused nil rate band of more than one deceased spouse, the trust means that three or even four nil rate bands may be available to a couple in the right situation. A trust also ensures that in the event of your death, the assets left to the trust remain under the terms of your will, not to your widow’s new husband, for example. This is a complex area, where I would recommend taking advice from a solicitor who is a member of STEP, the Society of Trust and Estate Practitioners, which is a sign that a lawyer knows their subject in this field.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
