Rutherford Wilkinson operations director Trevor Clark answers readers’ Your Money queries in the Journal on the pensions advice allowance and the tax implications of selling an inherited property. If you have a question about any aspect of financial planning you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk.
Q: I think the pensions advice allowance is something I can use to help me pay for pension advice. What are the details on its use? I have multiple pension pots with different providers.
A: Given the new pension freedoms, it’s important to review your pension arrangements as you approach retirement to ensure they accommodate the new rules, such as passing on your pension after death and whether withdrawals can be made.
It may be advisable to consolidate your pensions depending on what pots you have. The pensions advice allowance will come into force in April and allows you to make withdrawals of £500 from your pensions up to three times, but only once each tax year, towards the cost of advice.
The allowance is not open to those who only have final salary or “defined benefit” schemes, but instead for those with “defined contribution” employee pensions, or hybrid pensions with a defined contribution part to it.
While the allowance is a helpful contribution to the cost of advice, it may not cover the whole advice cost and it would be wise to avoid cost being the main factor behind your procurement of advice.
The cheapest advice, as with all things, will be reflected in its quality and it’s important to get face-to-face advice where a full assessment can be taken of your multiple pensions, specific circumstances and needs and aspirations for the future.
Q: I have inherited my father’s property four years ago after his death and I am planning to sell it. Will I have to pay capital gains tax on the proceeds?
A: When a property is inherited following a death, there is not an immediate CGT liability provided the property isn’t sold. However, when you sell the property, there is CGT to pay of up to 28% if the value has risen since you have inherited the property, which it is likely to have done given four years have gone by.
The gain is calculated as what you sold the property for minus what it was worth on your father’s death.
The probate application would have involved getting an accurate valuation of the property at that time. Sale expenses and costs for property improvements, as long as these can be evidenced, can be deducted from the gain.
Whether you owe any money to the taxman will depend on your overall capital gains for the tax year, including the sale of any other assets not held within an ISA.
The annual capital gains allowance is £11,100 and provided your overall gains are within this parameter, there will be no CGT to pay.
Bear in mind that gains from residential property attract a higher CGT rate than those on other assets. If you are a basic-rate taxpayer, CGT is levied at 18% on residential properties, while for higher rate or additional rate taxpayers the rate is 28%. In regards to payment, HMRC can either be paid this straight away or annually through a self-assessment tax return.
