August Question and Answer Corner
Newsletter issue - August 08.
Q. My Uncle has recently died and my elderly father inherited the entire estate of about £400,000 under the intestacy laws, as there was no Will. Can anything be done to divert the gift from my father to avoid this money forming part of his estate and attracting another large inheritance tax bill when he dies?
A. Yes, if your father is still of sound mind he can disclaim the gift from your Uncle by using a deed of variation. This can apply whether there was a Will or not. The deed must be drawn up and signed within two years of your Uncle's death. It will not affect the inheritance tax (IHT) paid on your Uncle's estate, (unless the money is diverted to charity) but it will avoid IHT arising on the same funds for a second time as part of your father's estate.
Q. I was in a serious accident in early 2007 and haven't worked since, but I've been sent a tax return to complete for 2007/08. Do I have to include the incapacity benefit I received on my tax return form?
A. Some types of incapacity benefit are taxable and some are not. The long term benefit (paid after 28 weeks), and the higher rate of the short term benefit are both taxable. The Benefits Agency will normally take the tax due off the gross benefit before they pay the net amount to you, based on your PAYE code, just as if the benefit was a normal wage. If you don't know exactly what amounts were paid to you and what tax was deducted during the year to 5 April 2008, ask the Benefits Agency to confirm the figures. They will normally do this over the phone, but they should put it in writing if you request that.
Q. I have a large collection of music CDs that I built up over twenty years. I am now gradually selling these CDs online and through magazines, as many are rarities. Do I have to report the money I make to the tax office?
A. If your CD collection was purchased for you own enjoyment and not with the aim of selling the individual items, you are not trading as a CD dealer, you are just disposing of some surplus personal property. The money you receive is not subject to income tax as you are not trading, and as long as each CD sells for less than £6,000 there is no capital gains tax to pay.