1 - I read recently that inheritance tax plans where you split the value of your home with your spouse no longer work. Is this the case?

 

An appeal over Inheritance Tax and nil-rate band will trusts was recently rejected by Special Commissioners. They decided that because the wife died first and she did not make a financial contribution to the property the trust was not effective from an inheritance tax point of view. This is because a 'circle of transfer' took place, with the money originating with the husband and returning to him in the form of a loan. These nil-rate band will trusts still work but care has to be taken over who the money is loaned to in order to prevent this sort of 'circle of transfer' happening. Inheritance tax is becoming a big challenge for many households in the UK, with property prices continuing to rise. The nil-rate band for this tax year is £300,000, but anything in your estate over this value is subject to inheritance tax at a rate of 40%. It is possible to take steps to reduce or remove this tax liability, but this requires careful planning and expert professional advice.

 

2 - I've got a With Profits bond and I am pretty unhappy with the performance, but there is a big penalty if I move it somewhere else. What should I do?

 

The performance of many With Profits bonds has been fairly dismal, with providers blaming this on poor stock market returns in recent years. The biggest disappointment that many investors face with these bonds is the big penalties, known as Market Value Reductions, which are applied if you want to move your money to another investment with the prospect of better returns. Our view of With Profits bonds is that they lack transparency. It is very difficult to understand how the investment returns achieved by the underlying fund are translated into bonus rates. Before moving your money and being subjected to the penalty you need to think about the level of investment return you might get from an alternative fund and for how long you are prepared to remain invested. If time is on your side then you might be prepared to accept the penalty and then move the money for the prospect of higher potential returns in another investment vehicle.

 

Martin Bamford is Joint Managing Director of award-winning Independent Financial Adviser (IFA) firm Informed Choice Ltd (www.informedchoice.ltd.uk). He is also author of best selling personal finance guide, The Money Tree (£9.99, Prentice Hall Business). This article is provided for general consideration only and the information contained herein is not to be acted upon without professional independent financial advice.

 

 

 

Publication of product or financial information by Age-Net does not represent a recommendation or endorsement of any kind. We would stress that every financial package or offer represents some measure of financial risk and we strongly advocate that you seek professional advice before entering into any contract.

Remember that the value of any investment can fall and you should never invest more than you can afford to lose on any speculative 'high risk' business venture or opportunity.

 

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