Financial planning update – October 2018

1.6 million lost pension pots

According to recent research from the Association of British Insurers (ABI) there may be nearly GBP20 billion sitting in private pensions that people have lost or forgotten about. This is hardly surprising, given that the average person has 11 different jobs over their working life and moves home eight times (likely even more, if they are expats).

They estimate that there are 1.6 million “lost” pension schemes. However, it is expected that the actual figure will be much higher than this as the research did not cover lost pensions held in public sector or employer defined contribution schemes.

 

How the latest UK stamp duty plans impact expats

In the past month, Theresa May announced plans to introduce an additional layer of stamp duty for overseas buyers of UK property.

This is a move that could obviously affect British expats who are looking to buy a place in the UK; either to rent out or as a home to live in on their return.

The new rate could be up to 3% and would be due in addition to the existing 3% surcharge on second properties.

Current stamp duty rates on UK residential property

Stamp duty rates on UK residential properties
Source: HM Revenue and Customs

For example, if you were buying a property worth GBP500,000, the total stamp duty due, should the new rule be implemented, would be 8% (i.e. GBP40,000). This assumes you didn’t already own property in the UK. If you did, it would be 11% (i.e. GBP55,000).

The theory is that the proceeds of the additional tax would be used to tackle rough sleeping. While this is laudable, it seems unfair that expats will be punished as a result.

It should be noted, that this new tax is currently only at the proposal stage with no date yet set for implementation. However, if you are considering purchasing property in the UK then it is worth keeping an eye on.

 

The effect of marriage on a Will

Did you know that if you marry (or remarry), any Will that you have in place automatically becomes invalid?

You can read more about the effects of marriage (and divorce) on a Will here.

 

Pension savers in ill health stung by IHT charge

A controversial ruling means that anyone who is in ill health when transferring their pension and dies within two years could now see the remainder of their pot taxed at 40%.

Ordinarily, passing on a pension is potentially a very efficient way of mitigating inheritance tax. This is because, unlike property, savings and investments, a pension does not form part of an estate on death. Read more here.

However, in this particular case, involving a Mrs Staveley, who, after an acrimonious divorce, transferred a portion of a pension she had set up with her husband into a new pot and bequeathed it to her children the outcome was different.

Because she died a few weeks after the transfer was made and was terminally ill at the time of transfer, HMRC treated the transfer as a “chargeable lifetime transfer” followed by an “omission to act” as she did not draw any benefits, and applied inheritance tax.

It argued the two actions were linked and designed to reduce the value of her estate for IHT purposes.

Two prior hearings had ruled in favour of Mrs Stavely. However, the Court of Appeal has now found in favour of HMRC.

 

Action point

Monthly action point

If you think that you have a pension that you have lost track off, the government has created a website that will help you find it. All you will need is the name of your employer or pension provider.

Once you have found any lost pensions, you can then look into combining them into a single plan in order to make them easier to manage.

 

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