Do I need Financial Advice before liquidating inherited portfolio?

David7823

Wasn't sure if this is the right forum since it concerns inheritance, but I'm 56yrs old and plan to invest my inheritance in pension funds thought it appropriate.

My sister and I are in the process of inheriting from our recently deceased father. One of the Assets is a Portfolio with Rathbones Investment Management valued around £250k (the whole estate is valued underneath the nil rate band), this will be shared 50%-50% with my sister. 

Rathbones are asking us if we want to keep the Portfolio with them, or transfer it elsewhere, or liquidate it. The lawyers dealing with the estate say I should take financial advice to be aware of any tax implications. (I don't have a financial adviser)

My inclination is to liquidate the Portfolio, and with my half of the proceeds fill my unused pension allowance for last 3 years, then do the same for my wife's unused pension allowance. I am employed, and have never withdrawn any of my pension funds, I contribute to my personal pension but there is some unused allowance to take me up to the £40k pa limit.

Am I missing something that a financial adviser might warn me of? Tax implications, or similar? 

Thanks in advance

David

MX5huggy

Your pension contributions in any tax year cannot exceed your gross salary. To do as you wish in 1 year you and your wife would need to be earning over £120k per year each.  

The carry over of AA is only useful to those that earn over £40k per (and a few DB pension holders). 

Is the portfolio a Pension? 

Marcon

David7823 said:

Wasn't sure if this is the right forum since it concerns inheritance, but I'm 56yrs old and plan to invest my inheritance in pension funds thought it appropriate.

My sister and I are in the process of inheriting from our recently deceased father. One of the Assets is a Portfolio with Rathbones Investment Management valued around £250k (the whole estate is valued underneath the nil rate band), this will be shared 50%-50% with my sister. 

Rathbones are asking us if we want to keep the Portfolio with them, or transfer it elsewhere, or liquidate it. The lawyers dealing with the estate say I should take financial advice to be aware of any tax implications. (I don't have a financial adviser)

My inclination is to liquidate the Portfolio, and with my half of the proceeds fill my unused pension allowance for last 3 years, then do the same for my wife's unused pension allowance. I am employed, and have never withdrawn any of my pension funds, I contribute to my personal pension but there is some unused allowance to take me up to the £40k pa limit.

Am I missing something that a financial adviser might warn me of? Tax implications, or similar? 

Thanks in advance

David

Almost certainly (not least the point made above about the amount you'd need to earn to top up your pension as you have suggested) - and it sounds as if getting proper advice would be an excellent idea. There may be parts of the portfolio which would be far better kept as they are.

David7823

MX5huggy said:

Your pension contributions in any tax year cannot exceed your gross salary. To do as you wish in 1 year you and your wife would need to be earning over £120k per year each.  

The carry over of AA is only useful to those that earn over £40k per (and a few DB pension holders). 

Is the portfolio a Pension? 

Thanks for the feedback, my salary is >£40k and my current pension contributions are <£20k net pa. So I was hoping to top up my pension for last 3 years with an additional £20k pa, then do something similar with my wife's unused allowance. 

The Portfolio at Rathbones is not a pension.

What does the abbreviation "AA" mean?

MX5huggy

AA - Annual Allowance which is £40k. 

There are 2 limits on pension contributions in any tax year AA and tax relief limit. They are independent you have to comply with both. 

Tax Relief has no carryover so you are limited to your earnings in any tax year. 

You can’t “top up” previous years. 

Albermarle

then do something similar with my wife's unused allowance. 

OK as long as she sufficient earnings in this tax year, as she can not add more to a pension gross in a tax year, than she earns in a tax year.

Sorry to labour a point already made, but is it widely misunderstood, so best to be clear. 

Otherwise all other things being equal,  switching funds into pension(s), will give you a tax advantage.

David7823

MX5huggy said:

AA - Annual Allowance which is £40k. 

There are 2 limits on pension contributions in any tax year AA and tax relief limit. They are independent you have to comply with both. 

Tax Relief has no carryover so you are limited to your earnings in any tax year. 

You can’t “top up” previous years. 

Think I've just absorbed this, I had read on the Government site that I could carry over unused Annual Allowance for up to  years.

But reading your message, I now understand that, yes I can backfill for the previous 3 years, but will only get the 20% tax uplift for the current year?

I had not realised that, that changes things significantly, the whole driver for maxing out my pension is to get the 20% tax uplift, I may as well put the excess funds into an ISA and then make sure I use up my AA next year?

Thanks

Marcon

David7823 said:

MX5huggy said:

AA - Annual Allowance which is £40k. 

There are 2 limits on pension contributions in any tax year AA and tax relief limit. They are independent you have to comply with both. 

Tax Relief has no carryover so you are limited to your earnings in any tax year. 

You can’t “top up” previous years. 

Think I've just absorbed this, I had read on the Government site that I could carry over unused Annual Allowance for up to  years.

But reading your message, I now understand that, yes I can backfill for the previous 3 years, but will only get the 20% tax uplift for the current year?

I had not realised that, that changes things significantly, the whole driver for maxing out my pension is to get the 20% tax uplift, I may as well put the excess funds into an ISA and then make sure I use up my AA next year?

Thanks

Don't forget that if you are a higher rate tax payer you can claim further tax relief on your pension contributions, with the 'extra' being paid to you rather than added to your pension 'pot' by the provider.

You can only reclaim such higher rate relief to the extent you actually paid higher rate tax in the first place - and the fact you are earning over £40K doesn't indicate whether or not you pay higher rate tax (but of course you'll know!).

Bimbly

David7823 said:

I had read on the Government site that I could carry over unused Annual Allowance for up to  years. 

But reading your message, I now understand that, yes I can backfill for the previous 3 years, but will only get the 20% tax uplift for the current year?

Not quite, if I am understanding you correctly.

You cannot put more into a pension than your salary in any tax year, regardless of the annual allowance.

If you earn 40k this year and have put 20k into your pension, then you can add another 20k to take you up to your full salary.

However, if you earn 50k this year and you only put 20k into your pension both this year and last year (didn't use the full announce - an unused allowance of 40k), you can add an extra 30k into your pension this year (20k already added plus 30k extra), which is your whole salary. You cannot add more than 50k because that is your salary.

Btw, these totals include any contributions made by your employer, so if your employer adds some money in on top, that has to be accounted for in your allowances.

If your employer pension is defined benefit (eg, final salary, career average salary etc - not a defined contribution, 'pot of money'), then the calculation is a bit different.

As you are new to this, and this is a large sum, it might be wise to consider financial advice if you are not clear. At least maybe sound out a few IFAs, have their initial free discussion, find out how much it would cost you and see what you think.

David7823

Bimbly said:

David7823 said:

I had read on the Government site that I could carry over unused Annual Allowance for up to  years. 

But reading your message, I now understand that, yes I can backfill for the previous 3 years, but will only get the 20% tax uplift for the current year?

Not quite, if I am understanding you correctly.

You cannot put more into a pension than your salary in any tax year, regardless of the annual allowance.

If you earn 40k this year and have put 20k into your pension, then you can add another 20k to take you up to your full salary.

However, if you earn 50k this year and you only put 20k into your pension both this year and last year (didn't use the full announce - an unused allowance of 40k), you can add an extra 30k into your pension this year (20k already added plus 30k extra), which is your whole salary. You cannot add more than 50k because that is your salary.

Btw, these totals include any contributions made by your employer, so if your employer adds some money in on top, that has to be accounted for in your allowances.

If your employer pension is defined benefit (eg, final salary, career average salary etc - not a defined contribution, 'pot of money'), then the calculation is a bit different.

As you are new to this, and this is a large sum, it might be wise to consider financial advice if you are not clear. At least maybe sound out a few IFAs, have their initial free discussion, find out how much it would cost you and see what you think.

Thanks, it's probably easiest to not be too coy, my salary in last few years has been ~65K and I've contributed (including employer contributions) ~20Kpa into two different Defined Contribution funds (Scottish Widows and Standard Life) 

My contributions were sized initially to ensure I could claim as much 40% tax relief as my salary would allow. 

So I understand that I have an unused allowance of ~20k for each of the last 3 years. 

But the point made earlier by MX5Huggy, seemed to be that whilst I could pay 20k into my pension as unused allowance from last year, I wouldn't get the 20% tax relief for it as it is a previous year's allowance?

dunstonh

So I understand that I have an unused allowance of ~20k for each of the last 3 years.

But you wont be able to use all of it based on what you have said.