Pensions lost and found

Photo Mika Baumeister on Unsplash

The end of October’s coming up – what are we getting excited about?  It’s National Pension Tracing day on 29th October!  Perhaps you aren’t festooning the house with lanterns to celebrate this, but losing a pension is scarier than anything that happens at Hallowe’en, and there could be a nice treat in store for some people.

According to recent estimates, there is £26.6 billion in “lost” pension pots, affecting nearly 3 million people, with an average value of £9,500.  Pots get lost mainly when people move house and forget to tell their pension provider.  Those boring annual reports stop coming – but who minds that?  It’s just one more piece of paper that you don’t have to file, unread, planning to deal with it when you have a bit more time.

Bizarrely, given the mesh of data that we all contribute to minute by minute, pension companies aren’t allowed to use National Insurance numbers to get details from the government of people’s last known contact addresses.  Most people with pension savings will be either working and paying tax, or drawing benefits, or taking a state pension – in other words, thoroughly within HMRC’s database.  Meaning that an enormous number of these lost pots could potentially be reunited with their owners just by using centrally held data.

That issue isn’t going to get solved any time soon, so what can you do to check up on any pensions, however small, that you might have lost track of over the years?

There’s a Government Pension Tracing Service https://www.gov.uk/find-pension-contact-details  It’s better than nothing, but it’s not brilliant.  You might expect to simply input your National Insurance number and find all the schemes you’ve ever been enrolled in, but – see above – that joined up thinking doesn’t exist.

However, you can input the names of previous employers, and also of pension companies that you remember making contributions to.  This won’t lead you directly to your pension, but will give you addresses of the current administrators of the schemes, and they, in their turn, should be able to at least set you on the path to better knowledge of your existing pensions.

If you do find you’ve got a few old pensions – or if you’ve known all along but never done anything with them – then give us a call.  We can check the charges and the investments for you, and, if appropriate, help you consolidate them into one scheme so that at least you know where everything is.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser before taking any action relating to the matters discussed in this article. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028).  Your capital is at risk.  The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Do you want to be a higher rate taxpayer?

Credit Markus Winkler at Unsplash

The number of people paying tax at every rate is going up this year.  This shouldn’t surprise anybody; when thresholds are frozen or reduced, and wage inflation is running at 7.2%, everybody is getting pushed into higher tax brackets.

According to HMRC’s figures[1], it expects the numbers paying Additional Rate tax at 45% to increase from 555,000 to 862,000 and those paying at 40% to increase from 5.28 million to 5.59 million.  With the number of Basic Rate tax-payers increasing also, an extra 1.3 million people are due to become tax-payers. 

For as long as this government thinks that the only people who need tax breaks are those with the largest pension savings then the number paying higher rates of tax is only going in one direction.

We can’t escape this, but what can we do about it?  Two readily available solutions are:

o   Make use of the annual ISA allowance

o   Make pension contributions

There are other more complex options, which are not suitable for the majority of clients, but can be worth exploring for those who have made full use of their ISA and pension contributions. 

Any way of saving tax has complications, and it’s important to maintain access to freely available cash, and not take more investment risk than you can afford.

If you are wondering how best to balance your desire to reduce your tax bill with your ability to save and your need to have access to your savings, just get in touch.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser before taking any action relating to the matters discussed in this article. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028).  Your capital is at risk.  The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on your individual circumstances.

The Financial Conduct Authority does not regulate tax advice.

[1] https://www.gov.uk/government/statistics/number-of-individual-income-taxpayers-by-marginal-rate-gender-and-age

Budget 2023 and the Lifetime Allowance

The recent budget announced the abolition of the Lifetime Allowance, which taxes those who have pension savings over £1 million (£1,073,100 to be exact).  Until 5th April 2023, unless protection was applied for, the difference between the total in the pension, and the Lifetime Allowance limit, was taxed at up to 55%. 

On the face of it, this is a welcome change, which enables my clients with large pension savings to reduce their taxes, by a significant amount.  This should make my clients happy, and therefore it should make me happy.  Yes?  Sadly, it’s not so simple.

The problem is that we don’t have certainty about the change.  Immediately the abolition was announced, the Labour party announced that they would repeal it as soon as they were in government.  Being realistic, that might well be in January 2025. 

But even before then, it’s possible that the policy could be reversed by this government.  The cost of the policy over the next 5 years is £2.75 billion[1].  To give some sort of context to this number, it’s 1.7% of the annual NHS budget, or 43% of the annual cost of tax credits[2].  However you look at it, it’s a material part of the UK financial balancing act.  Is it the best use of the government’s limited fiscal flexibility?

All other tax allowances apart from this one continued to be frozen in the budget: the personal allowance for income tax, the nil-rate band for Inheritance Tax, the National Insurance thresholds.  The allowances for capital gains tax and dividend tax went down.  The only group of tax-payers who got relief were those with pensions valued at over £1 million.  This doesn’t seem to be politically sustainable.

The Lifetime Allowance was removed not because the government thought that those with large pension savings, as a group, needed more tax relief than the rest of the population, but because it was a quick, “easy” way of solving the problems caused by the level of contributions to doctors’ (and all other large final salary) pension schemes.  As soon as a neater solution to that problem is found, the rationale for removing the Lifetime Allowance from the rest of the population disappears.

As advisers, we are used to dealing with change, and to telling our clients that we can only make plans based on what we know right now.  However, in this situation, the real practical problem is that the “right” solution today could turn out to be expensively wrong tomorrow.

If we knew that the Lifetime Allowance would never reappear in any form, it could make sense for clients to maximise their pension contributions, to reduce their income tax this year.  But if the Lifetime Allowance comes back, that could be the wrong answer, and end up costing them more in tax than they save.  What is the point of saving income tax at 40% if the resulting pension gets taxed at 55%?

If we knew that the Lifetime Allowance would come back at the same level, then it could make sense for clients who already have pension savings above the previous Lifetime Allowance threshold, to make a large withdrawal now.  But if the Lifetime Allowance comes back in some at a higher level, or never comes back at all, that could be the wrong answer.  Savers could find that they have used all their Lifetime Allowance, and can’t take advantage of a future, higher level.

If we knew that the Lifetime Allowance would come back at a higher level, then making an additional contribution could be the right answer, or taking some money out of the pension.  Or, oddly, both.

Normally, as an adviser, we help clients think about balancing saving for the future against having fun in the present, we help them think about how much risk they want to take with their investments, we discuss how to leave money tax-efficiently to their children.  Right now, it feels as if we need a crystal ball to be able to tell them what to do.  And that’s not helpful for anybody.

If you would like to discuss any issues raised by this article, do get in touch.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser before taking any action relating to the matters discussed in this article. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on your individual circumstances.

[1] https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits

[2] Public Expenditure Statistical Analyses 2022, available at https://www.gov.uk/government/publications/how-public-spending-was-calculated-in-your-tax-summary/how-public-spending-was-calculated-in-your-tax-summary

We need to talk about this

As the Covid-19 death rate falls, and we start to creep back towards some sort of normality, there are still many important issues which don’t seem to be part of the wider public debate. 

o   The indirect health impact of the lockdown measures: all those people with tumours and chest pains and abscesses who just aren’t being seen or treated.   Like everything else associated with this virus, the data is scarce, patchy and caveated, but there does seem to be a part of the “excess death” rate (the amount by which deaths exceed the seasonal average) that is not attributable to Covid-19. 

Anecdotally from doctor friends, with different specialities, I’m hearing of dental emergencies of the sort that are normally seen in remote communities in the developing world, people too frightened to go to the GP with symptoms of heart attack, ignored leg infections that could lead to amputation.  I don’t know what the answer is, how to best balance the need to stop the virus spreading with the wider health needs that are exactly the same as before, but it would be useful to see some sort of fact-based debate, and perhaps a nuanced message that gives people some idea of how to balance all the risks to their long term health, not just the virus.

o   How much personal freedom are we prepared to give up to conquer the virus?  In South Korea they use not only temperature scanners in the streets, but facial recognition technology to immediately quarantine all those with suspected infection.   On the basis of figures from the European Centre for Disease Control, South Korea’s death rate is 0.0005% of the population, compared with 0.055% for the UK (Note 1).  Assuming there’s some degree of connection between the degree of surveillance and the death rate, which option is best for our society?   Most likely not the South Korean one, but it would be good to discuss it. 

o   Just how will governments worldwide unravel the massive fiscal and monetary stimulus they are using to tackle the pandemic?  Can they inflate their way out?  Will they raise taxes?  Are the proponents of Modern Monetary Theory correct, and it simply doesn’t matter? 

o   To what extent are governments going to bail out insolvent companies with public money?  And if they do, what form will that take?  Which companies and sectors will they back?  Will it be through the form of loans, that have to be paid off, or an equity stake, or just free money? 

o   What are the changes we need to make to our way of life and our way of business to prevent All This from happening again?  When another atypical pneumonia starts up, how prepared are we to immediately isolate, to close our borders and to renege on contracts? 

We have some massive unknowns to cope with, both financially and as societies, much more complex than taking the decision to lock down most of the world to slow the spread of the virus.  In many cases, we need to be brave enough to say we just don’t know. 

We have no idea how the unravelling of the stimulus will work out.  We have no idea how many small businesses will close for ever, how many jobs will be lost, whether we will ever go back to the cinema, or if anybody over 75 will be brave enough to get onto a plane or cruise ship.  Will there be a vaccine?  Will the virus, like flu, change a little bit every year so we need a succession of new vaccines?  Or will it turn out to be the case that masses of people are just not affected by it, have already been exposed, and have not even noticed?  Will we become a two-tier society, with the young and healthy leading normal lives, while the elderly and unwell live in permanent semi-seclusion?

On 22nd May, HMRC published a report on tax and NIC receipts (Note2), noting that tax receipts were down for the month of April by £25.9 billion, about 4% of the annual tax receipts.  Apart from the large number, what was also striking was that they simply didn’t know (and how could they?) “how much of the observed fall in tax receipts relates to changes to the timing of payments and how much relates to changes in the underlying economic activity.”

Let me be clear: I’m not pessimistic.  There are many possible good outcomes.  There are opportunities, we will adapt, we will find new ways of thriving, whatever the virus throws at us.  We will all become smarter at working out our personal levels of risk, and adjusting accordingly.   It’s even possible that we will keep our lockdown resolutions about leading simpler, less stressful lives.

We are undoubtedly living in times of increased uncertainty.  One of the key tasks of financial management is not simply trying to get the best returns, but comparing the risk of loss to the potential chance of gain, and taking account of the client’s own ability to withstand losses, and willingness to suffer those losses.

It is quite possible that we have seen the bottom of the Covid-related slump in investment markets.  However, the great unknowns still carry significant risks which could cause markets to fall again. For some investors, who can afford to lose money and are happy to take risks in the pursuit of higher gains, now could be the time to jump in with fresh cash.  But for people who don’t want to lose money, particularly those investing new cash right now, the risks may well outweigh any possible gains.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser or a solicitor before taking any action relating to the matters discussed in this article. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.  Past performance is not a reliable indicator of future performance.

Sources:

1: https://www.ecdc.europa.eu/en/publications-data/download-todays-data-geographic-distribution-covid-19-cases-worldwide

2: Office for National Statistics HMRC Tax and NIC receipts May 2020

A billion here ...

Politicians and journalists are tossing vast numbers around like confetti at the minute.  In a way, this helps us all deal with the uncertainties of the pandemic, as the numbers become increasingly unreal, part of the generalised surreality of the whole situation.  If the numbers are too big to comprehend, they start to seem too big to worry about. 

At some stage, though, we are going to have to deal with these numbers for real.  This is what a couple of them mean in concrete terms.

There are 60 seconds in a minute, 3,600 in an hour, 86,400 in a day, 31.5 million seconds in a year.

A billion seconds take 31.7 years to pass.  An average lifespan of 80 years would comprise 2.5 billion seconds.

In the month of April the UK public sector needed £63.5 billion to top up existing government income. (Note 1)    If we look at that number and use time to get a sense of scale, 63.5 billion seconds is 2,012 years. Going back 2,012 years, that takes us to 8 AD.  Going past the Plague and the Black Death and Chaucer, pausing at the Battle of Hastings to note we’ve only done one half of the journey, going back through the Dark Ages, as the Roman empire approaches its peak, to the time when Ovid was alive, and Britain was still Albion, laying a pound on the ground every second.

Put your finger on your pulse.  Tick tick it goes, solidly, at one beat every second.  There were 259,000 seconds in April.  The UK government needed to borrow or print more than £24,000 every single second.  Imagine that, with every heartbeat, 24,000 pound notes fluttering down from the sky.

To take a global view, in an April 2020 article by Gita Gopinath, the Chief Economist of the IMF, the cumulative loss of global output due to the pandemic is estimated at US$ 9 trillion, assuming that “the pandemic fades in the second half of 2020 and that policy actions taken around the world are effective in preventing widespread bankruptcies, extended job losses and system-wide financial strains”. (Note 2 )

It’s 239,000 miles from the earth to the moon.  That’s 15 billion inches.  9 trillion is 600 times that.  600 trips to the moon, tearing up a dollar bill every inch of the way to reflect the loss to the global economy.

As a US senator almost certainly didn’t say: “A billion here, a billion there.  Pretty soon you’re talking about real money.” (Note 3)

Sources:

1: Office for National Statistics UK public sector finances April 2020

2: https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/

3: Widely but probably wrongly attributed to US Senator Everett Dirkson

We're not in Kansas anymore

What is going to happen to investment values, after the recent turmoil?  If only we knew; predicting short term market movements is incredibly difficult at the best of times, impossible nowadays.  Impossible?  Surely there are always analysts and algorithms, poised to outperform? 

I’m not so sure, and the reason is this chart.  It’s a snapshot of the FTSE 100 over the past 6 months, but it could as easily be the Dow Jones or the Deutsche Borse or even Nasdaq, which has performed far better thanks to its technology bias, but is still displaying the same spiky pattern in recent weeks,

Source: FT.com 14th May 2020 10:52

It recalls my only memorable geography lesson, when we used the contours on a map to draw cross-sections of landscapes.  We were preparing for a field trip to Ditchling Beacon, at the edge of the South Downs, and carefully plotted the rolling grassland, gradually rising, followed by the sharp falling away of the scarp.  We noted how the cross-section could tell us that the landscape was changing; that we should expect different uses of the land and different plants as we moved from one area to another.

That’s what this snapshot reminds me of.  The striking thing is no longer the sharp fall midway along, it’s that the landscape has changed completely.  Up until mid-February, we were in hilly uplands, rising and falling, with the odd valley to negotiate, and a few striking scenic viewpoints.  But now it’s as if we are in the Dolomites: jagged peaks, vertiginous drops, and no foothold or place to rest; with the constant possibility that what looked to be a solid outcrop will morph overnight into an unstable slope of shifting scree.

This, to me, is a picture of a market that is very short on information, and is responding, sometimes in a knee-jerk way, to individual snippets of news.  It’s not a market which has enough knowledge to be able to accurately analyse the fundamentals.  It’s a market which reacts to headlines – or to how it thinks other people will react to headlines.  It’s a market where there just isn’t enough information for values to be calculated properly.  In other words, it’s a market largely driven by speculation rather than long term investment thinking. 

That’s a market where it’s as risky to be a seller as a buyer.  One bit of good news – a rumour of a vaccine perhaps – could send markets soaring.  One bit of bad news – a rumour that the virus is mutating – and they could crash back down again.  It’s a market where a sharp and lucky day-trader can make a lot of money, but her counterpart can lose it all again the following day. 

What this picture says to me is that the best financial brains don’t know what’s going to happen next.  It’s not a market where long term investors should be making hasty changes of strategy.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser or a solicitor before taking any action relating to the matters discussed in this article. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.  Past performance is not a reliable indicator of future performance.

Is this a tax cut?

“£1bn Tory Inheritance tax cut” said the Guardian on Wednesday 1st March.  Which, seen before the first cup of coffee had kicked in, briefly made me wonder if there’s a whole tax change that sailed past me. 

No, what they are referring to is the introduction of the “Residential Nil-Rate Band”.  This effectively allows a couple to take up to £350,000* of the value of the family home out of the scope of Inheritance tax, in addition to the basic nil-rate band of £325,000 each. 

*The Residential nil-rate band is being introduced in stages, with an allowance per person of £100,000 for deaths after 6th April 2017 then rising to £125,000 in 2018/19, £150,000 in 2019/20 and then £175,000 from April 2020. 

There are all sorts of caveats and rules surrounding this, which I’ll deal with in a later post, but is it really fair to call this a tax cut? 

The basic Inheritance tax nil-rate band for individuals increased nearly every year from its introduction in 1986 to 5th April 2009, but hasn’t changed since.  The reason behind the increases in the nil-rate band was, broadly, to take account of inflation.  There used to be a common understanding that the level of assets at which Inheritance tax had to be paid should, more or less, stay the same in real terms.  But as we all know, house price inflation has been high since 2009, with the average house in England rising by 47%, and houses in the South East by 64% - to say nothing of London, where prices have nearly doubled. 

One impact of this – apart from some very dull dinner party conversations – has been that those with relatively modest assets have found themselves falling into the Inheritance tax net, simply because the price of their house has risen.  Inheritance tax, which used to affect only the very rich, has been gradually democratised in recent years.  From 2009 to 2016, the amount raised by Inheritance tax has very nearly doubled, and increasing numbers of families are being brought into its reach.

So, is it a tax cut to allow family homes a better chance of falling outside the scope of Inheritance tax?  Or is it just putting things back to where they were a few years ago?  What do you think?

Inheritance tax is a complex area, but there are many ways of reducing your family’s exposure.  Give me a ring if you’d like to explore what options may work best for you. 

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser or a solicitor before taking any action relating to the matters discussed in this article. The information is based on our current understanding of HM Revenue & Customs practice.  Any tax relief is subject to your individual circumstances and can change.  Inheritance Tax advice is not regulated by the FCA.

Salary sacrifice - reprieved

Salary sacrifice - reprieved

Philip Hammond is, so far, appearing to be an unshowy chancellor.  No rabbits pulled from hats, no flashy but unworkable proposals.   Perhaps his civil servants at the Treasury have enough on their hands with Brexit to stop them thinking up new ways of tinkering with our already over-complicated tax system.

In a low-key autumn statement, one of the biggest changes was his alterations to the regime for salary sacrifice, tightening up a tax-reducing arrangement that had got out of hand, while keeping the parts that are in line with public policy.

Salary sacrifice – saving National Insurance payments and tax

Salary sacrifice arrangements have been around for some time.  In essence, an employee gives up part of their salary in exchange for a benefit of some kind.  This means that the amount of salary on which Income Tax or National Insurance is paid comes down, which in turn means that whatever is “purchased” with the sacrificed salary is paid out of pre-tax, pre-National Insurance income.  The result can be saving of Income Tax at up to 45%, and National Insurance at up to 13.8%.

Over the years, the use of salary sacrifice has expanded, from initially covering items related to the workplace, like additional pension contributions or health screening, to the present situation where it is possible (in some organisations) to buy your fridge or mobile phone this way.

In the Autumn Statement, the Chancellor announced that salary sacrifice arrangements would be reined in, so the tax advantages will only now be available for pensions (and pensions advice), childcare vouchers, ultra-low emission cars, and the cycle to work scheme. 

 

A better way to make pension contributions?

Employees’ pension contributions get tax relief irrespective of the way in which they are made.  However, by making a contribution via salary sacrifice, both the company and the employee save NI contributions on the payment, which can be up to 13.8% for the employer and 12% for the employee.   In some cases the employer may decide to pass on all or part of their savings to the employee, further reducing the cost of the pension.

As an example, let’s look at an employee earning £43,000 a year, and paying £300 a month into their pension.   Making the contributions via salary sacrifice would save them £432 a year in National Insurance contributions, and their employer £497.  If the employer passes on the National Insurance savings, then after taking account of tax relief, a pension contribution of £4,500 would only cost the employee £2,671. 

For those paying tax at the higher or additional rate, making pension contributions through salary sacrifice can also speed up the receipt of tax relief.   Salary sacrifice pension contributions effectively receive tax relief immediately, while for payments made from income, the relief at higher and additional rates has to wait until the tax return is submitted, up to 22 months after the payment was made.

Other benefits

Salary sacrifice works by actually reducing an employee’s income.  There can be several additional benefits from this: it can mean that income falls below the level at which the personal allowance is reduced, thus taking some income out of an effective 60% tax rate. 

Salary sacrifice can also bring income below the point where repayments of student loans become due, or below the relevant threshold for some means-tested benefits such as child benefit.

Downsides

There are downsides to salary sacrifice, the main one being that the lower level of contractual salary may cause problems when providing proof of income when applying for a mortgage.  Some mortgage lenders may be prepared to take account of sacrificed salary.  Income protection insurance may only pay out on the lower, post-sacrifice level of income.

A salary sacrifice arrangement is an actual change to an employee’s contract.  There is no obligation on the employer to reverse the arrangement and reinstate the salary.  Issues may also arise when pay-rises are given; should a percentage pay-rise be applied to the salary pre- or post-sacrifice? 

So there are several issues to take into account, but if you are an employee making pension contributions, it could be worth discussing salary sacrifice with your employer.

If you would like to discuss any issues raised by this article, do please get in touch.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser or a solicitor before taking any action relating to the matters discussed in this article. The information is based on our current understanding of HM Revenue & Customs practice.  Any tax relief is subject to your individual circumstances and can change.

In Praise of Squirrels

In Praise of Squirrels – the Transferable Nil-Rate Bands

I am the family squirrel.  It drives my husband mad – particularly when a rummage through the “it’s bound to come in useful” box turns up just the widget, washer or whatchamacallit he was looking for.  But last week I heard of a situation which proves that squirrels do have other uses – and that sometimes holding on to paperwork can save you quite a lot of money – £200,000 in this case.

It all relates to inheritance tax, and the snappily titled Transferable Unused Nil-Rate Band and .Residence Nil-Rate Band.

Your tidy mind

Imagine that your father died 17 years ago.  He left everything to your mother.  Over the intervening years, she’s moved house twice, once to downsize, and once into a little cottage close to you; then moving into a nursing home three years ago, after which her house was sold. 

Well, non-squirrels, have you hung to your father’s will?  Perhaps you did for five or so years out of affection for him.  Perhaps it moved with your mother in a box marked “Papers – important” until she went into the nursing home.  Then you had a good clear-out, and, having made sure your mother’s will was safe and up-to-date, and the same for her lasting power of attorney, you regretfully threw out all sorts of other old papers, including your father’s will. 

Now your mother, too, has died.  You are filling in form IHT 400 to report the inheritance tax liability on your mother’s estate, and you get to questions 29a, b and c,, about the transfer of the “Unused Nil-Rate Bands”.  You know something about this, from reading the weekend papers, and remember that, as your father left everything to your mother, her estate can make use of not only her inheritance tax Nil-Rate Band (currently £325,000), but also your father’s.  The estate can also make use of her Residence Nil-Rate Band (£175,000) as well as your father’s, even though he died before this was introduced. This means that the first £1,000,000 of your mother’s estate is free of IHT.  You are happy.

Paperwork needed

You pull up forms IHT402 and IHT436 from the internet, to claim for the transfer of the unused Nil-Rate Bands.  You read the list of the detailed information HMRC expects you to be able to supply about the disposition of your father’s estate, and you start to feel a bit less happy.  They want a copy of his will, but they also want other information – for example, gifts he made in the seven years preceding his death.

For heaven’s sake, you think.  He died ages ago.  Nobody told me I had to hang to all this. 

HMRC helpfully suggest you talk to the executors of your father’s will.   One of them was your mother, and she is no longer with us.  The other was a local solicitor; he was an old family friend and you went to his funeral six months ago.  His firm closed when he retired; the premises are now an art gallery. 

You have a slightly cold feeling in your stomach, which intensifies over the next couple of weeks as you find out that there is no central record of your father’s will or how his estate was bequeathed. 

Will you lose £200,000?

To your surprise you find that, as you have no paperwork, you are in a situation where, potentially, HMRC have the right to refuse the use of your father’s Nil-Rate Bands against your mother’s estate.  This could cost you up to £200,000, depending on how much your mother left. 

HMRC inspectors have the freedom to accept claims for transfer of a Nil Rate Band where documentation does not exist, and the first death was before October 2007 – but do you want to rely on the goodwill of your local inspector?

Perhaps it’s worth holding on to your father’s papers for just a bit longer.

If you would like to discuss any issues raised by this article, do please get in touch.

This article does not constitute advice, and no action or lack of action should be taken as a result of what is written.  You are strongly advised to consult your financial adviser or a solicitor before taking any action relating to the matters discussed in this article. The Financial Conduct Authority does not regulate Inheritance Tax Advice. Levels, bases of and reliefs from taxation may be subject to change and their value depends on your individual circumstances.