Q. I inherited some shares from my aunt when she died in 2004. I am about to give birth to my first child and I would like to sell the shares in order to top up my maternity pay and to buy equipment for my child. Please can you tell me whether I will have to pay tax when I sell the shares?
A. First, congratulations on your imminent arrival.
The proceeds from the sale of the shares are, potentially, subject to capital gains tax. This will depend upon whether you make a profit on the sale of the shares and, if so, the amount of your total earnings in the tax year in which the shares are sold.
You are deemed to have received the shares from your aunt on the date of her death, regardless of how long it took for you to receive the share certificates. Therefore, you need to ascertain the price of the shares on that date. If there is a positive difference between the value of the shares when your aunt died and the price at which you sell them, you have realised a capital gain that may be subject to capital gains tax.
If you realise a gain, you are able to deduct any costs incurred in selling the shares before assessing the extent of that gain for tax purposes. The first £10,900 of profit is tax free (assuming that you have not used up your tax free capital gains tax allowance anywhere else in this financial year). The remainder of any gain will be taxed at either 18% or 28%, depending upon your total taxable income in the relevant tax year.
I recommend that you seek independent financial advice before selling your shares, especially as we are approaching the end of the tax year, as there may be planning opportunities to help reduce any tax liability you may have.
Q. I am a higher rate tax payer. I make contributions to my employer’s group personal pension plan and had understood that I benefit from tax relief on those contributions. However, one on my colleagues has told me that I can obtain additional tax relief. Is this correct?
A. Possibly. The question you raise is not quite as straight forward as it might seem and the answer depends upon how your contributions are collected and paid.
If your contributions are made by deducting them from your net salary, you may be able to claim tax relief representing the difference between the basic rate of income tax (20%) and the higher rate (40%). This is because personal pension plans assume that tax relief is due at the basic rate of tax only (i.e. 20%) and this is the amount reclaimed automatically, on your behalf.
If this is the manner in which you make pension contributions, you ought to complete a Self Assessment Tax Return, detailing how much you have earned and the pension contributions you have made. HMRC rules permit you to backdate claims by up to four years. Therefore, if you have paid tax at 40% for the past four years, you have contributed to a personal pension and you have not claimed your higher rate tax relief on contributions, you might be due a significant sum.
If, however, your employer has set up the pension scheme on a “salary sacrifice” basis, you have already received full tax relief on your share of the contributions as your salary will have been reduced to reflect this. I recommend that you find out how your contributions are collected and then claim any additional tax relief to which you may be entitled.
Q. I am one of several beneficiaries under a trust established by my father. My wife has stated that she wishes to divorce me and I am concerned that the trust may be affected as a consequence. Is this likely?
A. First, I am sorry to hear you news and wish you all the best.
Whether or not the trust will be considered as part of any financial remedy will depend, to a large extent, upon the type of trust. For example, if it is a discretionary trust then you have no right to income or capital, simply you are one of a number of beneficiaries who may receive something if the trustees so decide. However, if you have a reversionary interest, i.e. you receive the capital upon the death of another (e.g. your mother), then there is a good chance that your estranged wife will have a claim on an element of the trust.
Another key consideration is likely to be when the trust was established. If it was created before your marriage (and not in anticipation of your marriage), there is a greater chance that your wife will be unable to lay claim to any benefit under the trust. However, much to the ire of many lawyers, the family courts have a reputation for ignoring the formalities of and rules governing trusts in order to find a means by which to provide a benefit to a divorcing spouse.
This is an extremely complicated subject and I recommend therefore that you seek specialist advice as soon as is practicable. I recommend that you seek assistance from a solicitor, who specialises in matrimonial/divorce and whom is a member of Resolution (the organisation/trade body for specialist family lawyers).
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
