Questions Of Cash: Help! I've just become a multi-millionaire
Saturday 23 July 2005
Q. My father, who was 78, and his young Australian wife were killed in an accident in Australia last year. I am his only child. He had lived in Australia for 13 years. I have been left over A$25m (£11m), which my father's Australian solicitor tells me is free of Australian tax.
I am 45, live in a rented flat, use a 15-year-old Nissan car, have no savings and survive on incapacity benefit. What should I do to retain the capital, while using the income to live on and purchase a home and good car?
GD, by e-mail.
A. You have promised us this is not a wind-up and your persistence in seeking advice persuades us this is genuine. Sensibly, you contacted the Australian Law Society to confirm that the person who contacted you was not having a joke at your expense, or undertaking some form of advance fee scam (obtaining an upfront payment on the promise of a large subsequent payment which never arrives).
While the bequest will give you easily enough money to provide you with a good standard of living for the rest of your life, the legacy may be subject to an inheritance tax liability of about £4m if your father remained a UK domiciliary, says Simon Edge of mfg solicitors' financial services. He recommends that to bring the funds back to the UK, you use a private bank, such as Coutts, which has experience in handling this type of sum and is used to dealing with overseas assets.
Edge suggests you consider placing some of the legacy on deposit. Coutts offers 4.58 per cent on its reserve account, while its Liquidity fund pays over 5 per cent. If you opt not to use a private bank, Citibank pays 4.59 per cent on its current account, while Investec Bank pays 5.05 per cent on its direct reserve account. You will pay 40 per cent income tax on much of this interest; so, to reduce this, you should consider an ISA, venture capital trusts and enterprise investment schemes - though you should be aware of the risk associated with VCTs and EISs. Capital investment bonds are another possibility. You should engage an IFA to advise on this and possible direct investment in shares and stocks.
Q. How long should I keep bank and credit card statements, receipts, utilities bills and so on? I am awash with pieces of paper.
HO, by e-mail.
A. Your legal responsibility is to keep financial papers related to your recent tax returns. How long you need to keep these depends on whether you are self-employed or employed. An employed person should retain their P60 for at least 22 months after the end of the relevant tax year. A person who is or was self-employed must retain records for at least five years from the January after the tax year for which the tax return has been submitted. To give yourself a margin of safety and taking into account that a person's trading year may differ from the tax year, it would be sensible to keep financial papers for at least eight years.
Information relating to assets which may generate capital gains or losses - such as contracts and related correspondence - should be retained longer, and it may be wise to keep this indefinitely.
People whose tax returns are subject to investigation must keep records for several years after the investigation has been completed. Old bills, bank statements and credit card statements should be kept while they may be relevant. Receipts for expensive goods that might be subject to warranty claims should be kept for at least a year, with related financial records such as credit card statements. Other receipts, where they do not affect your tax liability and where there is no longer a possibility of a dispute, can be thrown away, but keep contracts for continuing services such as mobile phones.
Q. My daughter has just turned 17 and hopes to go to university. We want her to open a bank account for earnings from a weekend job and our allowance. She has a building society account but wants a chequebook and debit card. I have approached two banks, but they only offer current accounts and both say student accounts are only open to people over 18.
JB, by e-mail.
A. The Co-operative Bank's children's account has a debit card but no chequebook and pays a minimum of 4 per cent on deposits. The Co-op's current account - available to 17-year-olds - has a chequebook and debit card, but does not pay interest. Your daughter could open a Halifax Cash Card account, an interest-paying current account which comes with a debit card, but no chequebook, and pays 1.51 per cent.
This could be combined with Halifax's Web Saver account to provide 4.9 per cent on deposits before they are transferred into the Cash Card account. Nationwide offers a children's account that pays 4.95 per cent and comes with a cash card, but no debit card or chequebook. A 17-year-old can apply for a Nationwide current account, which comes with a chequebook and debit card, but this pays only 0.5 per cent interest and will only be opened subject to credit-scoring approval.
Money laundering regulations can cause difficulties in opening a first account and the Co-operative Bank appears to adopt a stricter interpretation of the rules than Nationwide.
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