Q. It looks as though my marital relationship has broken down and my wife and I are contemplating divorce. I am pleased to say everything looks as though it will be amicable, however, we would like to know what the best way to deal with my pension would be. I have quite significant amounts of money saved into various pension plans and my wife has very little. We will be bringing lawyers into this once we have a better idea and have made decisions on how we think it would be best to go, but could you let me know what options there are please?
A. You have three basic options. The first is known as offsetting where, typically, you would keep your pension but your wife would be compensated by having more of the other marital assets.
The second one is earmarking which is a deferred maintenance payment where a proportion of a pension would be paid to what will then be your ex spouse. This could also apply to the lump sum that you have been entitled to take from your pension. This is the least popular option, as the payments to your ex-wife cease on your death, or her re-marriage.
The third option is sharing whereby a percentage of your pension’s cash equivalent transfer value would be credited to your wife. She may then become a shadow member of the pension scheme or transfer the benefit to a suitably registered scheme of her choice, depending on the rules of the scheme.
Q. I have some money that will be maturing from a 5 year Fixed Rate Building Society Bond in a few weeks time. They have offered me another 5 year Fixed Rate bond but the interest rate after tax is less than the rate of inflation. I have read that interest rates may increase soon so I don’t want to lock it away at the current rate offered for 5 years. I have looked at 1 & 2 year Fixed Rate Bonds but they don’t tempt me either. I have read that Premium Bonds are an option, but isn’t that just like filling in the lottery?
A. No, Premium Bonds offer you the opportunity to have a little flutter, but with the guarantee that you can have your capital back at any time. From 1 June the maximum amount that you can invest has increased to £40,000. The minimum investment is £100 and each Premium Bond has a face value of £1. Whilst there is no guarantee of any return the average pay out currently is 1.30% per annum. Prizes are drawn monthly and any winnings are tax free. The maximum prize is £1 million each month although from August there will be two £1 million prizes each month. The minimum monthly prize is £25. It should be noted that in terms of the actual numbers of prizes paid out each month over 98% of these are for £25. Your capital is secure and can be withdrawn if required within a few days.
Q. I have just bought a holiday cottage which I intend to rent out for most of the year, but will use myself when it is not booked, and otherwise it will be empty. What is the tax situation?
A. It sounds as though your cottage may qualify as a Furnished Holiday Let, which brings a number of benefits. Provided it is available for rent for at least 210 days, and is actually let for 105 days, it should qualify (there is some leeway in the first year or two). It must not be let on a longer term basis for more than 155 days to a single tenant. You will be subject to tax on the rent you receive, but can offset expenses such as mortgage interest, agents’ fees and the costs of furnishings etc, less a proportion for your personal use. You can also pay pension contributions based on the earnings from the business, to reduce the tax bill. You may want to discuss this with an accountant, who can help you register for tax etc, and the HMRC website has some helpful factsheets.
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
