Your Money Queries – 20th May

Q. I am approaching retirement. I have heard that the government is bringing forward it plans to introduce a single-tier state pension and will, at the same time, increase the number of qualifying years required in order to receive a full state pension. I am concerned that I may not have sufficient years of employment in order to qualify for a full pension and I may not have adequate time to accrue the required number of additional years. Can you offer any advice as to exactly what the revised requirements will be, please?

A. You are correct that the coalition government has confirmed that it will bring forward the date for the introduction of the single-tier state pension. The State Pension Reform Bill was published recently, following the Queen’s Speech, and provides the details of how the revised state pension will work.

The new single-tier state pension will be introduced with effect from April 2016. The number of qualifying years required in order to receive the full pension (likely to be in the region of £144 per week) will increase from 30 to 35.

However, it is important to be aware that there are things which may mean that you are credited with additional qualifying years even if you were not in employment, for example if you are/were a registered carer or if you were raising a family and were in receipt in Child Benefit.

I recommend that you request an estimate of your state pension benefits. You can do this by completing form BR19 and returning it to the DWP. A copy of the form can be downloaded here. Once you are in receipt of that statement, you can consider whether you need to make up additional years, if there is any way you can do that and how much it might cost.

Q. I would not consider myself particularly wealthy, but I have a number of offshore bank accounts and investments. An acquaintance with whom I play golf told me that he had heard a rumour that the government has launched a campaign to prevent people holding overseas investments. Is this correct?

A. No. HMRC has launched a campaign that targets offshore tax evasion but this does not mean that they are seeking to prevent people from holding investments overseas.

The latest crackdown against tax evasion is the result of HMRC, working in conjunction with their American and Australian counterparts, having analysed newly available information regarding both individuals’ and companies’ tax arrangements. HMRC have reported that their early analysis demonstrates a widespread use of complicated company and trust structures in order to avoid a tax liability, making use of a number of territories including the British Virgin Islands, Singapore, the Cook Islands and the Cayman Islands.

However, the investigations are focused, for now at least, on a very small number of exceedingly high net-worth individuals, together with approximately 200 accountants and lawyers who are particularly active in this area of advice. HMRC has stated that it will “name and shame” offenders and has encouraged people to seek appropriate tax advice or risk facing prosecution.

If you are concerned that you may be at risk (which seems unlikely, based upon the limited information you have provided), you ought to seek advice from an appropriately qualified solicitor or accountant. However, provided you operate within the law, there should be nothing that prevents you holding overseas investments, including tax-efficient investments, in an appropriate manner.

Q. I am a retired widower and I own my home. I have two children and intend to undertake some inheritance tax planning to ensure that my modest wealth is passed on to my children and grandchildren in as tax-efficient manner as possible. In particular, I am concerned that I am not required to sell my house to pay for long-term care. A friend has told me that the Care Bill has been published and I should therefore undertake all tax planning before the bill becomes law, as it will require me to pay for unnecessary and expensive advice. Is this correct?

A. Not really. It is accurate that the Care Bill was published recently, which is intended to implement many of the recommendations of the Francis Report. One of the headline features is the proposed limit to the amount a person must contribute towards the costs of social care in their final years.

The draft Bill requires that local authorities must direct people towards “independent financial advice”. However this simply means independent of the council and it is anticipated therefore that the Bill will be amended to require individuals to seek advice from “regulated financial advisers”, as was intended by the Francis Commission and the cross-party committee that scrutinized the bill.

Therefore, your friend is correct that, if the Bill becomes law, it is likely that you will be required to take appropriate financial advice if your tax-planning includes measures intended to address a need for long-term care.

However, regardless of whether you undertake your estate planning before or after the Bill is enacted, it is important that you seek appropriate legal and financial advice, preferably from a solicitor and a chartered financial planner who specialise in long-term care (and I would not therefore describe that advice as “unnecessary”). Whilst there will be a cost attributable to that advice – which your advisers should discuss and agree with you before undertaking any work on your behalf – it ought to be money well spent.

If you do not receive suitable advice, from appropriately qualified experts, you may find that the tax-planning is ineffective and your desire to pass on your wealth to your children and grandchildren in a tax-efficient manner therefore fails.

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.

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