Q. I have read that the government intends to review “Deeds of Variation” with regard to inheritance tax. Does this mean I need to review my will?
A. A deed of variation is the facility to alter the terms of a will, or possibly the rules of intestacy, up to 2 years after someone dies. This can be for a number of reasons, but the one the government is concerned about is that it can help people arrange an estate more tax-efficiently, by diverting assets to younger generations or into possibly into trust. They are often used where a child of the deceased feels they do not need an inheritance, which would simply add to their own estate, and diverts their legacy down a generation. It needs the agreement of the affected beneficiaries, and they must be able to give their consent, so must be adults. A deed of variation doesn’t enable any tax planning other than what could be done in an up to date, well written will, it just means it can be changed, for whatever reason. If you are concerned that your will no longer reflects your wishes, or could be written more tax-efficiently, then consider consulting a suitably qualified solicitor (I would always recommend looking for a member of STEP, the Society of Trust and Estate Practitioners). If your will already reflects your wishes, there should be no reason to alter it. If Deeds of Variation are no longer allowed, it will be even more important to have the will written correctly, and reflecting your wishes and those of your beneficiaries, in the first place.
Q. I am a higher rate tax payer and hold some investment in a Standard Life investment bond. I am keen to have access to the funds but would like to know the tax position. Could you explain it please?
A. On the assumption that the Standard Life investment bond is their UK version and not their offshore one then it is subject to income tax upon encashment. However, Standard Life will have accounted for basic rate tax therefore you will only be liable for the difference between the 20% basic rate tax payer and the 40% that you would normally be due to pay. Consequently, on the assumption that there is a profit there would be an additional 20% tax to pay.
Alternatively you may be able to legally assign the ownership of the bond to your spouse and if they are a basic rate tax payer they will have no further tax liability.
The rules are a little different if the owner of the bond is over age 65 and therefore it is important to get appropriately qualified advice in this regard.
Q. My wife is 59, but has not worked for a few years although I expect she will have worked enough to qualify for a full state pension which will be available from age 66. She has very little in the way of any pension savings although I am wondering albeit a little late in the day if there is anything that can be done for her with regard to pension savings and if this would be beneficial?
A. Yes as your wife is under the age of 75 and even though she has no earned income she can contribute a maximum of £3,600 gross (£2,880 net) to a personal pension plan in each tax year. So for example she could over the next 7 years invest a gross amount of £25,200 gross (£20,160 net). As from age 66 her State Pension would absorb most of her income tax personal allowance I would actually suggest it would be beneficial for her to start drawing part of her Personal Pension from the age of say 64. 25% of the fund would be paid tax free and then any balance potentially taxed at 20%. However assuming she is still not working she would have her full income tax personal allowance available (currently £10,000) so would be able to reclaim any income tax deducted up to this figure. In fact she could take benefits tomorrow if she wanted to! Where else can you turn £2,880 into £3,600 overnight? Talk to an Independent Financial Adviser and they will be able to guide you through the 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
