Keep an eye on our website to find out when another live Q&A session is likely to take place.

Here are the questions John answered in the webchat.

Q24: A husband dies and leaves all of his estate to his wife. The wife subsequently remarries. Will the �300,000 inheritance tax allowance from the first husbands estate be available upon her death?

Robert Hursk.

Yes!

If second husband dies, the wife can get more nil rate band - though the rules prevent her getting more than a full extra NRB.

Q23: Having begun investing in Share and Unit Trusts at the time when the utilities were privatised, my wife and I have either retained these, and, in odd cases, added to them, or we have sold them. Needless to say, we have had both gains and losses.

In the good old days, we were able to 'Bed and Breakfast' some of these and thus take some gains out of Capital Gains Tax. This option no longer exists.

Whereas we used to be in a position where we could, I believe, use taper relief, this now appears to have also been removed.

We have maintained records in relation to the shares etc. that we have bought and sold but have not found it necessary to declare the gains or losses, as we have not had any, as yet, which exceeded the annual allowance for gains. However, my wife has a relatively substantial holding in Scottish and Southern Energy, and I have a several National Grid shares. In view of the excellent levels of dividend which we receive from these, we do not have any intention of selling at present. We have had shares also in Scottish Power and Viridian (Northern Ireland Electricity). These companies were taken over which gave rise to fairly good gains which were potentially liable to Capital Gains but this was avoided by the use of Loan Notes.

If we were to be in a position of having to sell the larger holdings which we have, to what extent can we use losses suffered in past years. How far back can we go, and how is the loss calculated where ther may have been some relative small gains in the same tax year?

Many thanks.

Harry Hill.

In principle you can use capital losses that you incurred at any time since 1965 when CGT was introduced! You will need some evidence of them . In principle, a loss is simply when you sell for less than the asset cost; there was a time when indexation could help as well. If you had gains and losses in a year, they net off so if you have a net gain, that gets taxed (subject to the annual exemption). if you have net losses, that is what carries forward and is used up against gains - though only to the extent that you need to reduce gains in a year to the level of the annual exemption

Q22: We changed our wills in 2002 to incorporate a discretionary trust clause to protect the estates passed on to our 3 children. At the same time we changed our house ownership to become Tenants in Common. In view of the changes to the rules governing CGT should we now consider changing our wills again to remove the discretionary trust clause? Is there a point in the value of the estates where it would still be advisable to retain the discretionary trust clause? I would be interested to hear your views. Thank you.

Peter Stevens.

The new nil rate band transfer does mean that the classic nil rate band discretionary trust isn't needed to use up the nil rate band. You may still want to use a trust for practical reasons but if not you may wish to consider doing a codicil to your will to scrub the trust clause.

Incidentally, I a ssume you are referring to IHT not CGT - the latter doesn't operate on death!

Q21: We have a property in Spain we are trying to sell. We are told we will have to pay CGT as well as having paid 18% Spanish tax when the sale goes through. Is this correct we pay tax in both countries?

What is the best way to deal with the money (Approx �90,000 we hope when it sells), leave in Spain for a while or bring to UK in one lump sum?

Thank you.

J.M. Jones.

I'm assuming the Spanish tax is their CGT equivalent - if so, that means that although you will have a CGT liability here in the UK (I assume you are domiciled here) there will be an offset for Spanish tax paid against the UK CGT bill. You may have your UK annual exemption to use of course. There is no difference in tax terms how you bring the proceeds back to the UK

Q20: Basically my father died on the 13th November 1999 My mother died on the 12th July 2003.

They had a small cottage and some savings but nil rate was applied from my father, so the total estate was applied on my mothers death.

The question is, can I now claim that back? If so, is their a downloadable form to complete? Otherwise how do we go about it?

Hoping for a lucky reply.

David Lewis.

Unfortunately the new nil rate band transfer provision only applies when the second death is on or after 9 October 2007 - so I'm afraid you don't benefit.

Q19: On the advice of our solicitor, my wife and I took out a discretionary trust a couple of years ago. The solicitor was unable to tell us at the time what the cost of the trust would be but he did say that we would pay considerably less than the IHT payable.

Although our estate was and still is currently below �600,000, when parents eventually pass away our estate could well exceed the �600,000 limit. We also have life insurance which is in trust to be passed to our son when we die. This would pay off some or all of the IHT. In view of the new IHT rules, what should we do about the disctretionary trust?

Steve.

The discretionary trust route has been used a lot so that on the first death you leave the equivalent of the nil rate band to the trust, so using up the NRB and keeping it out of the survivor's estate. It has been, as your lawyer suggests, well worthwhile.

The new rules for transferring the nil rate band mean that the trust isn't needed to mop up the NRB - it will just transfer to the survivor and be available then. If you don't need a trust for practical reasons, you may want to consider a codicil to your will deleting the trust.

When you parents die you may wish to review the position, decide whether any of their wealth should go straight to your son (vary their wills etc -subject of course to what they do!)

Q18: My husband died in 2003 - being worried about IT, circa �228,000 (value in family property) was put into a discretionary trust with myself and 3 children as beneficiaries. Family house has now been sold - I have downsized to a smaller property, which may be worth �350,000. My question is how much can now be added to my ITB? (I don't remember what the ITB was in 2003)

Adele Sheffer.

I'm sorry but I don't have the 2003 IHT nil rate band to hand either but it's on the HMRC website!

It does sound as if most of the NRB was used up back when your husband died though there may be a small proportion left which would mean a proportionate supplement to your (current) �300,000 NRB. If say, the NRB then was �250,000, he used all but �22000, so that leaves 22/250 x 300,000 to add to your NRB.

Q17: I caught you on Working Lunch explaining, by example, IHT under the new rules. You may have misled people as you stated that if the deceased had used 150K of his NRB then the surviving spouse would have a NRB of 450K. I think you should make this clearer that is the proportion of the un used NRB applicable at the date of the persons death that is carried forward and reflected as the same proportion of the applicable NRB when the surviving spouse passes away.

Those who passed away, say in 1975, had a NRB of 15,000 lets say he left 5K to his sister and everything else to his wife. He has an un-used proportion of 2/3 or 0.66 of the applicable NRB. When his wife passed away, say this month she has a total NRB of �500K. 1.66 times the NRB.

Peter.

I take your point but I was trying to talk in terms of the current figures and did say that elsewhere in the interview - I did in fact refer to someone who passed away under estate duty rules, along the lines of the example you quote. I hope I have made it fully clear with the article explaining the rule on the website. Thanks for the comment.

Q16: I have retired but now run my own Ltd. company. My pensions are about �30,000 p.a. so I only take drawings of around �10000 p.a. to avoid the 40% income tax band. I pay corporation tax of course. When I close the business there will be a significant sum still in the Ltd.co. bank account. How will the change to capital gains tax affect me when I close the business and take the cash?

Richard Lyons.

If you sell or liquidate the company then you'll have a CGT liability at the new 18% rate (assuming this is after April 6). Of course you can continue to take dividends/salary to use up the reserves.

It's something that you'd really need to sit down and look a t with an adviser when you do decide to stop, I suspect as I can't really be certain without all the figures.

Q15: I live with my 81 year old mother, widowed 12 years. Can she transfer the house into my name and take that out of her estate for IHT purposes? Would there be any stamp duty to pay? Could she continue to live in house for present time? She has other assets that would take her over �600,000 but gift of house would bring her under.

Frank.

John says: The problem with your mother transferring the house to you and continuing to live there is normally that the 'gifts with reservation' rules will mean that the property stays in her estate for IHT purposes. If she pays you full market rent that means that the GWR rules (and the pre-owned assets rules) won't bite but that may not suit - you would be liable to pay tax on the rentals. And if she were to die in seven years the gift would be in her estate anyways under the 'PET' rules.

However, if you are sharing the house there may be scope for you just being given half which represents (in effect) what you are living in - that can be effective.

Q14: How does this new Inheritance rule affect me if I wanted to set up a nil rate discretionary trust. Although I understand the rules for creating new trusts have changed?

David.

John says: The new IHT rule on transferring the unused nil rate band to a surviving spouse/civil partner does mean that the discretionary trust route isn't needed so much - but it may be useful if you need one for practical reasons. The 2006 changes to trusts are more important - they do, for example, make the traditional accumulation and maintenance trust rarely worthwhile.

Q13: My late husband died 2001 and left the IHT threshold to his children from a previous relationship and �100,000 to myself, the residue of his estate also went to his children. I contested the Will and was awarded a further �260,000. What is my IHT position? Joyce Aspinall.

John says: It's all down to how much of the nil rate band at the time of his death your husband used. It's clear he used some but you need to confirm how much was left to the children rather than to you - the legacies to kids will have used up potentially all of the NRB at the time so there may be nothing unused to transfer to you.

Q12: My father died in 1965, my mother is still alive and her estate will probably attract Inheritance Tax. My father did not pay inheritance tax on his estate. Will my mother be able to claim his unused tax benefit? If so, is there anything we can do now to assist in the administration when required?

Helen.

John says: Yes - if your father didn't use up the nil rate band (which at the time was I think only about �5,000) that means your mother will be able to use a second nil rate band, at the level when she dies.

What you could usefully do is to look back at the situation at your father's death and confirm what the position was. The difficulty may be that at the time he left assets to your mother and used up the nil rate band through that - as the time such legacies were subject to estate duty though later exempt when the surviving spouse dies. I have highlighted the anomaly that causes to HMRC but no sign yet that they are changing the new rule.

Q11: I am German, but have been a resident in the UK for over 10 years, owning my house here and paying income tax. At the end of last year I inherited a house in Germany and I am now in the process of selling it.

1. Am I liable to pay inheritance tax in the UK or in Germany?
2. Do I have to pay CGT?

Barbara Hussong.

John says: You are tax resident and ordinarily resident in the UK so on the surface you are liable to UK CGT. But at present if you are still German domiciled (basically you view Germany as your ultimate home - you haven't severed all your links there) you will only be liable to UK CGT on a German property sale if you bring the gain here to the UK. However, the position is changing from April under the government's current proposals (though these area bit uncertain at present).

As for IHT, that works on the basis of domicile. Someone who is UK domiciled is liable to IHT (on death) on all their worldwide assets; those who aren't UK domiciled on UK assets only. But for IHT you become deemed domiciled after 17 out of 20 years residence - you are on the way to being fully caught in the UK!

I'm afraid I can only help on UK tax - you'll need to confirm the German position with a local adviser.

Q10: What is your opinion of these new inheritance tax avoidance schemes, the Loan Trust and Guaranteed Gift Trust. I would be interested to know your views of such schemes as are presently being advertised by, for example, Skipton Building Society.

John Herbert.

John says: I don't know the specific ones you refer to but my general view on all the schemes that are advertised is to approach with care. You have to make sure you really understand what is being proposed, that you are happy with the adjustments made to your estate and that the plan will work no matter how long you live. But they can be worth trying if they suit your position.

Q9: Three years ago my husband and I set up a discretionary will trust which meant putting our house in a 'tenants in common'. Now that the Inheritance Tax law has been changed, is it still a good idea to have the house held as 'tenants in common'? Also the solicitor was appointed as an executor. Does this also need reviewing?

J M Higgon.

John says: The new IHT nil rate band transfer does mean that you don't need to use a discretionary will trust to use up your nil rate band on the first death. So you could add a codicil to your wills to cancel it. But that does depend if you have any other reason for using a trust.

Who you use as executor is up to you - I think the practical answer is that you appoint someone who is able and willing to do the task - which may well mean a solicitor rather than a family member.

Q8: My father died in Nov 2003 and had a discretionary will trust set up. Money (�80,000 went into a trust and the half value of the house was registered with the trust but no action was taken (no IOU taken out) and my mother continued to live in it.

Mother died in June this year and her estate is being dealt with by solicitors who say that with the total value of the house and her cash being above �300,000 we will be required to pay tax on the sum over �300,000. Is this correct or do the new rules work retrospectively?

Pete.

John says: The new rules do work retrospectively so if on your father's death his nil rate band wasn't fully used, there will be more to use on your mother's death.

I assume from what you are saying then only �80,000 went into the trust, so at least some of your father's nil rate band is available. I don't have the nil rate band for Nov 2003 to have but if we assume it was �240,000 for the purposes of illustration, then he used up a third of his NRB, leaving two thirds to to be available on mother's death. So there would be a total of �500,000 available on mother's death before IHT bites. There is a claim form to complete - no doubt the solicitors are aware but do have a look at the HMRC website (go via the article I've put in the website).

You do need to check the status of the house - if it did all go into the trust, that may mean there is no NRB to transfer - but at the same time only half the property would be in mother's estate. Though that in turn is down to how the trust is set up and whether your mother actually had an 'interest in possession' with the half of the house she didn't own (if it wasn't owned by the trust, who did own it?)

Q7: Our total assets amount to around �270,000 which is made up of Isa/ Peps and savings worth �100,000 and our house, value of around �170,000.

Our wills state that whoever survives inherits and if both my wife and myself go it is willed down to our son and daughter to be split 50/50.

Would either of us as a survivor be liable or would our son or daughter be liable to tax in any way?

Mr & Mrs Ellins.

John says: When someone dies, whatever they leave behind is valued and IHT applies to the extent that it's over �300,000. You seem to be just below that. But in any event, if the first one to die leaves everything to the surviving spouse, that means no IHT.

Then under the new rules, when the survivor dies, they can used the unused 'nil rate band' from the first death - so on current figures there will be �600,000 available before any IHT is to be paid. So it sounds as if there will be no IHT for you/ your children.

Q6: If I want to pass my deceased mother's house to my son two years after her death and no money changes hands is there a liability for Capital Gains Tax? No gain has been made so no CGT is surely due?

Bob Milner.

John says: A gift is a disposal for CGT purposes, so what happens is that you would have to treat the property as sold at market value - so a gain may well arise, subject to CGT, even though no cash appears.

If this is within two years of your mother's death, have you considered a deed of variation on mother's will, to pass the property straight to your son?

Incidentally, I assume your son is 18+, otherwise extra issues may arise.

Q5: Is it correct that a transfer of an asset between husband and wife prior to 5th April 2008 will result in the indexation relief being crystallised in the base cost for the recipient?

If so what is the position in the case of a property owned as follows:

1986 ---husband 50%, wife 50%
1999----husband 100%
2005----husband 50%, wife 50%

I assume the wife would include indexation in the base cost.

Would the husband include indexation in the base cost (1st in, 1st out) or in half of base cost (average) or not include indexation (last in 1st out)?

I think the answers will be useful for tax planning action for some people, in the short period prior to 5th April.

Barry.

John says: Your basic point is right - although we tend to talk about transfers between husband and wife being at cost, strictly they are on a 'no gain no loss' basis, which means cost plus indexation. As you say, such issues are important up to April - after which time indexation disappears.

Q4: How does one go about calculating the capital gains on shares bought over a 10 year period using the dividend reinvestment plan? Simply there are 20 prices to obtain which is very difficult to find and time consuming.

John says: I'm afraid there is no easy route to this. You have to get a cost for each block of shares - so the amount of dividend that you gave up. It is a messy process! The only sidestep to it is to sell in small amounts such that you know you are under the annual exemption for the year (and also proceeds are under four times that amount).

Q3: I have a second home which I shall be selling in the next year or two and will make a CGT on the sale.

My question is will the capital losses, made from share dealings, that I have built up over the last few years be able to be offset against these gains, where in this case, may eliminate the gains altogether?

Dave Simkins.

John says: Yes, you can use capital losses that you've accumulated over the years against the gain that you may make on the property. I assume that you are being taxed on your share sales under CGT rather than income tax?

Your losses may be sufficient to eliminate all your gain - but as a matter of interest you only use sufficient losses to leave you with the same amount of gain as the annual exemption - which can then eliminate the net gain.

Q2: My question relates to the new Capital Gains Tax situation proposed to begin in April 2008. I inherited a property in 1998 valued at �50,000 which I have rented out ever since and paid tax on all the income, less the relevant allowable expenses.

The property is now valued at �150,000. What is the situation with regards to CGT now and possibly after April 2008. Would it be beneficial to try and sell now and lessen any tax liability?

Bernard Wallwork.

John says: The property will be viewed under the current CGT regime as a non-business asset and so the effective tax rate will be 24% after taper relief if you are a higher rate taxpayer. If you are a basic rate taxpayer then some of the gain will be taxed at 12% - though as the potential gain is �100,000, it's bound to put you into the higher tax bracket.

From April, you'll face a simple rate of 18%. As you bought in April 1998 - when the taper relief system came in - you don't have any indexation to lose so the gain itself doesn't alter. Whether it's worth selling now or post-April depends on how much income you have and so how much falls into the basic rate bracket If it's your only disposal, you'll also have the �9200 CGT annual exemption.

Q1: What are the Capital Gains Tax implications following the sale of a business in Oct 2006, which is being paid out over four years in the form of loan notes to the previous owners?

Peter Harris.

John says: If you've sold a business now, then you've in principle crystallised the gains but by taking loan notes instead of cash, the gains bill won't hit until you cash the loans in. That does allow you to cash in steadily and make the most of the CGT annual exemption if that suits you.