Q. My mother died several months ago and we are now dealing with her estate. She had a valuable property and consequently inheritance tax is due. The property was her main asset and whilst we are trying to sell it we have not been able to so far and therefore there is little cash to pay the inheritance tax liability. Do we need to go to a bank to borrow money to pay the tax man?
A. Whilst obtaining a bank loan is one option, HMRC also provide you with alternatives. In many circumstances where a house is involved in the estate, you are able to choose to pay the inheritance tax by instalments. As you plan to sell the house, you only need to find 10 per cent of the Inheritance Tax due on the date that the whole tax would have been payable. You will then have a year before the next instalment is due to sell the house and pay the full balance. If you change your mind and keep the house and live in it, you may prefer to pay by instalments because you only need to find 10 per cent of the Inheritance Tax each year (plus the interest), rather than having to pay all of it up front in one lump sum.
Q. My wife and I are in our early 50s and I have recently inherited a number of company shares from my late Fathers estate. The probate valuation was just over £250,000. My Father told me that the shares provided him with a good level of income that supplemented his pensions. For this reason and also sentimental reasons I plan to keep the shares but I would like to hold them in the most tax efficient way. I work paying 40% income tax but my wife does not work so is a non tax payer. What would you suggest?
A. First of all as you are a 40% tax payer and your wife is not a tax payer it could make financial sense to transfer most of the shares into her name in order to avoid you having to pay higher rate tax on any dividend income that is generated from the shares if they were to remain in your name. Dividends are paid with a 10% tax credit. For a 40% tax payer they would have to pay the difference between 10% and 40% in tax. Whilst a non tax payer cannot reclaim the 10% tax credit they would not have any additional tax to pay unless of course the total amount of gross dividend income received pushed them into the 40% tax band. You should contact the registrars for each share to facilitate the transfers to your wife. Even if the shares have increased in value since you acquired them capital gains tax (CGT) will not be an issue as transfers between spouses are exempt from CGT. If you have not used your Stocks & Shares New ISA (NISA) allowances of £15,000 each for this tax year I would suggest this is worth doing. It is possible to open up a self select NISA each. You would then need to sell shares to the value of £15,000 each and then buy the same shares back within the NISA. You could repeat this exercise each year. Any dividends received from the shares within the NISA’s would not be liable to any additional income tax and could be used to buy additional shares or perhaps be paid out to supplement your pensions when you retire. An Independent Financial Adviser or a Stockbroker should be able to guide you through the process year by year.
Q. We are taking out a mortgage, and my mortgage adviser has suggested I need life insurance and also Critical Illness cover. What is this, and do I need it?
A. Critical Illness Insurance pays out a lump sum, in this case to enable you to repay your mortgage, in the event that you suffer one of a number of illnesses, the main ones being a heart attack, stroke, cancer ,although most policies will include a long list of other conditions which also trigger a payment. The costs of cover will appear much more expensive than life cover alone, reflecting the fact that medical advances mean that many more people now survive these conditions than die from them, but I would encourage you to look at the benefit rather than the cost. If you can afford the additional cost, I would encourage you to consider including this cover, as the additional concern of worrying about paying the mortgage at what would already be a traumatic time is well worth avoiding.
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
