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Q&A: 'Secure' pensions, inheritance tax
Saga money expert John Husband answers more of your personal finance questions:
Q. I have a so-called 'secure' pension invested in bonds and Government Securities. Two years ago my fund was valued at £82,000. Now I've just received a statement showing it has fallen to £79,000. How is this possible?
A. I don't believe there is any such thing as a totally 'secure' pension plan. Your money is invested in bonds and government securities which should make it relatively safer from sharp stock market movements than if it were in shares. But bonds and government security prices do fluctutate and if interest rates go up - as they have done in the past year- their prices will fall. That would reduce the value of your fund. If you want near total security in a pension fund you could choose a cash fund which invests your money on deposit. But the returns on such a fund will be very small and less likely to protect your pension against inflation.
Q. My father and mother-in-law have been advised by their solicitors to have their estate placed in a trust with their daughters to avoid inheritance tax. Can that be correct as I thought there was no way this tax can be avoided?
A. On the contrary there are many ways in which inheritance tax can be minimised and even avoided altogether. Anyone facing a potential inheritance tax liability should take professional advice from a solicitor or an independent financial adviser.
Q. I gave £3,000 to my daughter in the last tax year. In March I lent her £3,000 because she needed to buy a replacement car to get her to work. If I waive the loan now could that count as a £3,000 gift for this tax year?
A. I don't see why not as you are gifting it now, not last year. Just in case the taxman got silly about it why not draw up a written, dated agreement so that anyone can see when you gave her the money as distinct from lending it to her.
Q. You often say that the maximum you can give away each year and avoid inheritance tax. But how would anyone know if you gave it away in cash?
A. As with any other tax dodge you cannot be certain whether you'd get away with it or not. But if significant cash sums had been leaving your account before your death there's a very good chance somebody might notice and alert the taxman. Is that a risk you'd want to take?
* 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
