Q. I have received an inheritance. Can I pay some money from it into my personal pension, in order to get tax relief? As I am 53, I will be able to access the fund in a couple of years, so it might increase the size of my fund substantially.
A. This is one of those questions where we need more information to provide a definitive answer. However, there are a couple of things to take into account. You can claim tax relief on a personal pension contribution up to the level of your earnings in the year in which the payment is made, or £3,600 if this is higher.
However you are also limited by the Annual Allowance, which is £40,000 in the current year. If you were a member of a registered pension scheme in previous years, you could also carry forward unused allowance from the last three years, in which the allowance was £50,000. However to get tax relief on the contribution you would need the earnings in this year to justify it.
Another point to beware of is that you need to be aware what the pension input period is for your particular plan. This does not always run with tax years, so it can become complicated. I would recommend speaking to a Chartered Financial Planner specialising in pensions to ensure you do things correctly if you are considering a large pension contribution. They will also be able to discuss with you the implications of drawing benefits out of the fund, which is something we are seeing increased interest in, given the new freedoms announced by the government.
Q. Our son was born a few weeks ago which is our first child. My parents have asked me to set up a savings scheme for him and have said that they are going to pay £50 per month into my bank account by standing order. I need to find a suitable savings scheme for this money until our son is 18. Do you have any suggestions?
A. You could consider a Junior Individual Savings Account (JISA) into which a maximum contribution of £4,000 per tax year can be invested. It can be opened by a parent or guardian with parental responsibility. The child must be under 18 and living in the UK. You can open a cash Junior ISA, and you won’t pay tax on interest on the cash you save or a stocks and shares Junior ISA, where your cash is invested and you won’t pay tax on any capital growth or dividends you receive. Your child can have one or both types of Junior ISA subject to an overall maximum investment of £4,000 per annum. The JISA will be in in your sons name although you will be classed as the registered contact and be able to make investment decisions. From age 16 your son can make his own investment decisions. No money can be withdrawn until he reaches age 18 unless there are exceptional circumstances such as diagnosis of a terminal illness or death. At age 18 if the money is not required it will automatically roll over into an adult ISA. For children born a few years ago who have a Child Trust Fund (CTF) they are not eligible to invest into a JISA but can have £4,000 per annum invested into their CTF. I suggest that you contact an Independent Financial Adviser who will be able to arrange a suitable JISA for your son.
The one downside to this strategy is your son will get full ownership of the funds at age 18, and if he wants to spend the money on items which you may perhaps perceive to be wasteful, there is nothing stopping him doing so!
Q. My employer has told me that he wants to take out life insurance and critical illness on me. I feel uncomfortable about completing health questionnaires for him and do not understand why I should be insured. Can you explain?
A. You must be what is known as a “key person” which means you are very important to the business. It is likely that your employer is trying to protect the profits of the business or is taking a loan from the bank and the bank could be insisting that you are insured. Key Person insurance is woefully underutilised in the UK. Your employer is trying to protect the business and the jobs of other employees in the event of your death or serious illness. It is a sensible business protection approach from the company point of view. I appreciate it is an inconvenience for you but you will be supporting the business and your colleagues in going through the underwriting process.
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
