Questions of Cash: Admitting ignorance can be the best move

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The Independent Online

Q. In 1991, Colonial Mutual sold me an endowment, saying this would provide me with a lump sum on maturity and pay off my mortgage.

Q. In 1991, Colonial Mutual sold me an endowment, saying this would provide me with a lump sum on maturity and pay off my mortgage. I was never told of a risk of a shortfall. Last year, a friend sorted out my paperwork and told me that my endowment matures three years after the mortgage term ends and that I am £7,000 short on current projections. My friend, who understands the financial services industry, made a claim to Colonial Mutual's owners, Winterthur Life, which was rejected, and we then complained to the Financial Ombudsman. Both state I am out of time because the law on limitations requires me to claim within 18 months of a contract.
KC, Solihull.

A. You seem confused. There is no 18 months limit. You can claim up to six years from the date of contract, or up to three years from when you become aware of the consequences of it. You may have been badly served, inadvertently, by your friend's representations on your behalf.

Your case is essentially that your lack of financial knowledge left you unaware that the endowment matured after the mortgage was due for repayment. But that argument was undermined by the very coherence of your case. The ombudsman probably concluded that it was implausible that you only became aware of the incompatibility of the dates last year.

Your case has not gone through the full ombudsman process and you should seek a formal decision, effectively appealing the initial decision. But you should do this without the help of your friend, making clear your ignorance of the industry and your state of confusion. It is only by stressing this that you can persuade the ombudsman that you genuinely became aware of this problem only last year.

You might then obtain a satisfactory outcome in a case where, on the face of it, you were genuinely missold an endowment which could never have done what you wanted it to do: pay off your mortgage.

Q. Four months ago I claimed a prize of £250 in shopping vouchers from a ticket included in a newspaper I bought. I am still waiting for the prize. What is going on?
RM, Belfast.

A. We spoke to the company you allege issued the ticket. It was not helpful and refused our request to discuss what systems it has in place to ensure claimed prizes are correctly posted. It will not investigate your problem without receiving full details of the claim, including the claims number it sent by text to your mobile phone which, understandably, you have now lost.

In future, if you claim a prize, you must carefully note all details: the name and address of the company you are claiming from; the claims number it issued; the exact prize you were offered and the date on which you claimed. These companies may earn income re-selling for marketing promotional use the mobile phone numbers of people who make claims, so by making a claim you risk receiving text messages from various companies.

Q. I own a house in London worth £750,000, which has been my main residence for CGT [Capital Gains Tax] purposes. I have since moved abroad and do not intend to live there any more. I am considering a gift of the house to my son. Would the gift be subject to inheritance tax [IHT] and, if so, how much? Would the house be subject to CGT if my son decided to sell it? It would be his main residence.
MS, London

A. Stephen Pallister, tax and trusts partner at the solicitor Charles Russell, said the gift of your house to your son will be a CGT disposal, but you should have no liability if you are fully non-resident for UK tax purposes. The gift will escape liability to IHT on your death if you survive seven years from the gift, and do not reserve any benefit in the property: for example, you must not use it rent-free when you visit the UK.

If you survive less than three years, the IHT payable, at most, will be 40 per cent of its value at the time of the gift: £300,000. If you survive more than three years but then die, the IHT will fall by 20 per cent for each further year survived. IHT payable depends on what other lifetime gifts you make.

If the property becomes your son's main residence, he should qualify for the CGT exemption on any later sale. In making the gift, check the tax position in the country where you are now resident.

Mark McLaughlin, the tax consultant of TaxationWeb said that, if you have recently left the UK, you may still be a UK resident for tax purposes, making you liable to CGT.

Q. I am negotiating an option agreement on land I own with a developer. If the agreement is signed and six to 12 years from now the developer obtains planning approval, I should receive a lot of money. What should I do to reduce the amount of CGT payable and, if I move residency abroad, can I avoid a large tax bill?
TD, by email.

A. Simon Rees, senior manager in the private client practice at the accountant PricewaterhouseCoopers, said: "Granting an option is a taxable disposal and the gain arising on the cash you get now will be subject to UK CGT.

"When the option is eventually exercised, the grant and exercise are treated for CGT purposes as a single transaction occurring at the time of that future exercise. You will then be taxed on the amounts received on both grant and exercise, mitigated by some taper relief and relief for inflation if you held the land pre-1998, with credit for the tax paid originally on the grant.

"It all depends on the agreement though, so get advice before you proceed; the taxman may regard you as joint developer, potentially liable to income tax and not within CGT. Non-residence is one way to reduce your tax bill but, unless you are out for at least five full tax years or protected by a tax treaty, you will get a CGT bill upon return on any gains made in the period of non-residence.

"You might also be liable to CGT in the country to which you move, perhaps at higher rates than ours."

* If you have questions, write to Questions of Cash, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk. We can reply only to letters published. Please send copies, not originals.

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