Fergus Muirhead answers your consumer questions
I'm Fergus Muirhead and I'm here to answer any questions you may have about any money or consumer issues.
Please drop me a line here at email@example.com with your questions.
You can also read more on money and consumer issues on my own blog.
Q: I was wondering if you could give me any advice or information with regards to inheritance tax. My mother has recently passed away leaving her (small) estate to myself, two brothers and sister. The estate composed really just of her house, which may be worth in the region of £170,000, and this was left to us in Trust which she had changed about seven years ago. Obviously we had no claim on this house until she died and we just wanted to make sure that this would fall under inheritance tax rules and not capital gains tax(CGT). I'm wondering if you can advise, firstly, which this would come under. Secondly, do we have a time limit in which to dispose of the assets or do we have to pay any tax on the property before we have any financial gain (i.e. in selling the property). Are there any other considerations we may not know about? Any help you can offer in this regard would be incredibly helpful. Caroline Mills.
A: The good news for you is that if your mother's estate consisted solely of the house you refer to and this is valued at around £170,000 then there will be no liability to Inheritance Tax, since this tax is only payable on estates worth more than £325,000. Capital Gains tax is not paid at the time of death since the house is deemed to be transferred to you and your siblings. CGT may be payable when you decide to dispose of the house at some point in the future but only if there is an increase in value at the point of sale from the value at the point of transfer and if the difference between the two puts you into a position personally where you have a liability to Capital Gains Tax in that tax year.
Q: I am actively considering fitting a solar PV generation system to my house. The payback time is working in at about 8-10 years. Is there any current indication that fitting solar PV adds to the value of a property and, if the house is sold before payback is reached, the capital cost can at least be recovered? John Aitken.
A: This is an interesting question. As well as any 'green' and 'carbon footprint reduction' reasons that are in your mind when considering fitting solar panels you need to consider how much you will save on a day to day basis after they are operational compared to the cost of fitting them in the first place. You don't say how much they are costing you but I understand that around £14,000 is average. Against this cost you can offset reductions in the cost of your own household energy as well as potential income from selling on any excess energy you produce and using average calculations the breakeven point, as you say, should be around the 10 year mark. All well and good if you are still in the house after 10 years, but if you decide to move before that then you could potentially be losing money, unless the value of your house has increased purely because the panels were fitted. The people I have spoken to about this are convinced that the addition of panels will enhance a property value but in these days of a fragile market there are so many other factors that have an influence on the price you pay for a house that it would be wise not to set too much store on a £14000 outlay being immediately added on to any potential resale value.
Q: I understand you recently did a slot on the lunch time news on inheritance tax. I would like to ask the following... I have recently retired and have been taking advice from financial advisers re investing the money I have to generate income. They have advised me to use an investment bond but in the wrapper of a discounted gift trust to protect any value of my estate above £325,000 from inheritance tax (IHT). I can see that puts a reasonable proportion of my estate in a separate compartment which would be difficult to access but generates an income. What would your advice be re the use this type of investment to avoid the tax? Is it a sensible way to invest the money given that I am 61 years old and taking an income of 5% would mean I also avoid paying the income tax on this money which I understand would be deferred for 20 years as the Revenue regard this as a repayment of the capital? I would be grateful for your advice and thank you for your time in looking at this. Mike Reekie
A: I'm going to start this answer by telling you that I can't give you a definitive answer since I don't know enough about your personal circumstances to advise if a Discounted Gift Trust is the best way forward. Everything you say about them is correct in that they allow you to put a 'reasonable proportion of my estate in a separate compartment' that could be protected from IHT depending on your circumstances, but that can provide you with an income that may have no immediate liability to income tax. So far so good! As a 'product' it will do everything you say in your question and in that sense could be considered to be 'tax efficient'. But its use needs to be as part of a strategic planning exercise taking into account all of your finances and giving due consideration to what it is you are trying to achieve with your estate on death, as well as any future income and capital requirements you may have while you are still alive. I am sorry if this sounds vague but based on what you have told me I can say that the Trust can be a useful part of any Inheritance Tax planning strategy but whether it is correct for your exact set of circumstances could only be determined by looking at all of these circumstances and working out if the Discounted gift Trust is the best solution that helps you do what you want to do with your estate tax efficiently.
Q: I am going on holiday to Portugal at the beginning of October. As the euro rate is not very good at the moment, would I be wise to change sterling into euros when I arrive in Portugal? Many thanks. Stewart Roger.
A: As you rightly say, the euro rate is not great at the moment but it could be the case that it gets worse in the time between you leaving home and getting to Portugal in which case you will end up getting less for your sterling than you would have done if you had changed your money before leaving home. For that reason, and also because I would prefer to be organised and know that I had euros available when I arrived in Portugal, I would tend to change money before leaving home. Look for the best exchange rate you and find and remember that you need to factor in any commission charged both when you exchange money before you go and if you need to change money back that you don't spend when you get back home. Have a good holiday.