Q. My husband and I set up a discretionary trust for our grandchildren to which we gave £100,000, five years ago. My husband has now died. What is the Inheritance Tax situation?
A. Firstly, I am sorry to hear that your husband has passed away. As you set the trust up jointly, you were each treated as having made a gift of 50%, unless this was documented otherwise at the time. You each have an allowance of £3,000 which you can give away each tax year, and if you have not used the previous year’s allowance, you can use this also. The excess over this amount, £44,000 each, was a “chargeable lifetime transfer” for inheritance tax. You each have a “nil rate band” for inheritance tax, which currently stands at £325,000. As the gift was within this level, no tax was due at the time, but as your husband died within seven years of making his share of the gift, the chargeable lifetime transfer will use £44,000 of his nil rate band (I am also making the assumption that he made no other gifts in the previous seven years). Anything he leaves to you is free from inheritance tax as you were married, but the amount which can be left tax-free to other beneficiaries is reduced. Since 2009 it has been possible for any nil rate band not used by one spouse to be passed on to the other, but the amount of your husband’s allowance your estate can use will be reduced on account of this gift.
Q. I am 58 and will probably have to work until my State pension is due at age 66. I guess like a lot of people I have had a number of jobs with different companies but all have had pension schemes. One is a small final salary pension, but the company was taken over and they seem to have lost touch with me. The rest look like personal pensions. I have 8 schemes in total. I was going through the statements I receive from most companies each year recently and wonder if I would be better to consolidate them all together if that was possible? From my point of view it would seem sensible but how would I go about this and is this likely to give me a better overall pension at retirement?
A. The short answer is maybe! We come across situations like yours regularly. There are so many factors that you need to consider such as with your money purchase schemes where the funds are invested and does this reflect your current attitude to investment risk, what annual charges are being taken by the pension providers, are there any penalties for moving and do any of the schemes have guaranteed annuity rates? There are also so many more subtle things that you need to consider. Only after a detailed analysis could it be established whether it may be in your interests to consolidate some or all of your money purchase funds. I recommend that you should discuss your situation with an Independent Financial Adviser as they will be able to guide you through this minefield. With your final salary scheme I suggest that you contact the pension tracing service on 0845 6002537 or at www.gov.uk/find-lost-pension They should be able to advise where your pension benefits are currently held.
Q. I live on a pension and receive interest from my savings. Whilst I have a very low pension income my savings are still taxed. I cannot afford to pay for an accountant to complete a tax return so how do I get my tax back?
A. If you are a non tax payer you can ask the bank or building society that holds your deposits for a form R85 to complete to ask for the interest to be paid gross. For claiming back previous years you can ask HMRC for form R40 which will require completion of the income you have received and the tax deducted. It is quite a simple form that you should be able to complete yourself. If you find it difficult your local tax office is normally happy to assist. The forms can also be downloaded from www.hmrc.gov.uk/forms/r85.pdf and www.hmrc.gov.uk/forms/r40.pdf respectively.
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
