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Q&A: ISAs, PEPs, pensions, inheritance tax

Saga money expert John Husband answers your personal finance questions:

Q: Can you explain what happens to ISAs and PEPs when you die. Can any element of the benefit be transferred to a surviving spouse?

A: Tax exempt products such as these are unique to the taxpayer who holds them. On death the proceeds become part of their estate and remain tax free until then. You can inherit the money in an ISA or PEP but the ISA or PEP itself cannot be passed on.

Q: I have just received the latest annual bonus statement from my insurer and I have been unable to work out how much my policy is worth. Can you help?

A: I suggest you contact your provider's customer relations department and ask them to explain it. Unfortunately there are still a number of providers who seem unable to speak plain English.

Q: I am trying to trace Phoenix Assurance with whom I have a deferred pension. Can you find them for me?

A: Certainly. The company is now part of Resolution. It can be contacted at 1 Wythall Green Way, Wythall, Birmingham B47 6WG.

Q: I have a life insurance policy with the Prudential which says it is considering distributing nearly £9 billion of its "inherited estate". What is this and does it mean I can I look forward to a windfall?

A: The "inherited estate" is money accumulated over the years in the Pru's "with profits" fund over and above what is needed to meet claims. Traditionally money in a "with profits" fund is shared between policyholders and shareholders in a ratio of 9 to 1 in favour of policyholders. However at least some of this money was raised from shareholders by the Pru to grow its business. So if a share-out goes ahead it will be a matter of negotiation as to how much fairly belongs to policyholders. If there is a "windfall" for policyholders it will be shared by those who have "with profits" policies such as endowments and pension plans.

Q: In a recent Money Clinic you suggested a reader take up the offer from their mortgage lender to keep their deeds after the loan was paid off. My mortgage lender told me they no longer offer this as all deeds are registered automatically with the Land Registry. So do I need my deeds or not?

A: According to the Land Registry all properties sold since 1990 have been registered automatically with them eliminating the need for owners to keep their deeds. But more than a third of homes have not yet been registered so the deeds for these still need to be kept safe. Even if your home is on the register many people still like to keep the originals. To find out whether your home is on the Land Register log on to landregistry.co.uk

Q: I have accumulated a lot of money in cash ISAs over the years. Now I see that rival providers are offering much better rates. Is it possible to transfer my money into them?

A: That depends. Some providers will not permit transfers into their higher paying accounts. In addition your existing provider may impose penalties which can be as much as the loss of five months interest. So I suggest you do your homework first. Remember that in order to keep its tax exempt status any transfer must be arranged by your new provider. You must not withdraw the money yourself.

Q. I had a small pension with the Olivetti company for which I once worked that I have been unable to to trace. Can you help?

A. I suggest you use the Pension Tracing Service which can be accessed through the Government website www.thepensionservice.gov.uk

Q: The value of our home has risen to such an extent it will make our estate subject to at least some inheritance tax. Could we pass our home on to our children tax free by putting it into a trust?

A: In the past many people used trusts to avoid paying inheritance tax. The taxman has since cracked down on these very heavily. If you have a potential inheritance tax liability I suggest you discuss it with an independent financial adviser to see how you can make best use of the remaining exemptions.

Q: My mother has moved in with my sister because she has become too frail to live on her own. It has been suggested that we sell her house and use the proceeds to buy two flats to let out. Would that be a good investment?

A: Many people have gone into buy-to-let in recent years, often quite successfully. But becoming a landlord is very different from putting money on deposit or even investing in shares. So I suggest you seek professional advice and then weigh up all the pros and cons.

Q: I have a private pension on which I have to pay income tax. My wife is a non-taxpayer. Could I reduce my tax by setting part of my pension income against her unused tax allowance?

A: I'm afraid not. If you have savings you can transfer them into the name of a non-taxpaying spouse, but you cannot transfer a pension.

Q: I was due to receive a private pension when I retired in April. But despite repeated letters and phone calls all I can get out my provider is that they are looking at it. How can I make them get a move on?

A: I suggest you make a formal complaint in writing and send it by recorded delivery. I recommend that you tell them you will be expecting to receive interest if the payments continue to be delayed for no good reason. As a general rule it is always a good idea to contact your provider well before your retirement date.

Q: I have been asked to be an executor to a friend's will. Does this mean that I cannot be a beneficiary?

A: No. Anyone over 18 can be an executor, including beneficiaries. Indeed it is quite common for the executor to be one of the principal beneficiaries and therefore has a vested interest in ensuring everything is sorted out satisfactorily. You may be thinking of witnesses who cannot inherit a bean from any will they've witnessed.

Q: I currently have excessive income from my pensions and wish to use this to give £100 a month to each of my three children. I have already utilised my £3,000 gift allowance. Could these monthly contributions be classed as gifting and therefore Potentially Exempt Transfers?

A: Gifts can be exempt provided they are from income and do not materially affect your standard of living.

Q: We are thinking about using equity release to raise money to improve our standard of living. However we now realise that we would have missed out very badly on the recent rise in house prices if we had done so immediately after we retired. With this in mind could we draw some money now and come back for some more later?

A: number of plans have this facility for that very reason. Talk to an independent financial adviser who can help select the best plan for you.

Q: My wife and I do the National Lottery every week. If we win a large sum we would like to share it with our children and not with the taxman. How can we ensure that we can pass any money we win to them and not the taxman? Could we write and date a document saying that when we buy a ticket a quarter of any winnings will go to our children?

A: I don't think that would work. What you could do instead is form a lottery syndicate with both yourselves and childen as members. This would lay down who contributes what and how any prizes will be shared out. But the taxman may need proof your children had been contributing for any prize money to be exempt from any potential inheritance tax.

Q: My wife and I want to gift £12,500 to our son to help him buy a house. I am aware we may each make a gift of £3,000 each year without incurring an inheritance tax liability. If we make no further gifts for the next four years will this mean that no inheritance tax would be due on this money if we should die within the next seven years, after which the tax liability would cease?

A: No. But if neither of you gave anything away last year you can carry forward the allowance to this year allowing you each to give your son £6,000. That leaves only £500 potentially liable for inheritance tax.

Q: My bank is offering a service to protect against identity fraud for £6.99 a month. That's a lot of money to someone on a pension, but the bank told me that without this I would have to pay all the costs, losses and expenses if this happened to me. What should I do?

A: Actual identity theft is not that common. The main danger is thieves using lost or stolen cards. You can protect yourself by guarding your cards, being careful with your PIN numbers and not revealing them to anybody. Check all your bank and card statements carefully for unusual transactions and shred any documents before binning them.

Q: If we won the lottery how much could we share with relatives and friends without the problem of inheritance tax?

A: You can give away as much as you like, but unless you survive for seven years after making the gifts they will be counted as part of your estate. The exemption for gifts if you die sooner is only £3,000 a year plus as many small gifts as you like worth up to £250 each. You can also give up to £5,000 to children getting married and £2,500 to grandchildren for their wedding.

Q: I have money to invest. Would it be breaking the tax laws to invest it in the name of another member of the family who is a non-taxpayer? We are both single pensioners.

A: Not at all. Many pensioner couples are in a situation where one is a taxpayer and the other is not. In situations like this it makes sense to put the bulk, if not all, of your savings in the name of the non or lower-rate taxpayer.

Q: My husband and I have £36,000 in cash ISAs between us. Can you tell us whether this is a good time to invest in stocks and shares ISAs as we have £14,000 from a maturing life insurance policy?

A: The stock market is around its peak now, so I would not be in a rush to buy. I suggest you consider feeding the money into a unit trust ISA in monthly instalments over several years to avoid paying too high a price.

Q: I have three years to go before I retire. Is it too late to start making Additional Voluntary Contributions - AVCs - to my employer's pension scheme?

A: Putting extra money into a pension makes sense right up until you retire, as tax relief on contributions instantly makes each £100 invested worth £128 if you are a basic rate taxpayer. However, with so short a time to go, see whether your employer offers a cash deposit fund for AVCs as this would avoid taking any unnecessary risk.

* John Husband's answers represent his own opinions and are for general information only. Always seek independent financial advice. Email John your personal finance questions at web.editor@saga.co.uk