Ask the experts - your questions answered - October 2006

Donna Bradshaw AFPC, Financial Planning Strategist, IFG Group Plc, enquiries@ifg.co.uk, tel: 0845 6016912, www.ifg.co.uk, answers:

Whether this is a good deal or not depends on your sister's state of health and life expectancy.

The commutation rate (the figure representing the amount of cash paid for every £1 of pension given up) is only 12.31; this is extremely low as it costs around £20 to buy £1 of pension for someone retiring at normal retirement age and in good health, meaning a more realistic cash amount would be over £30,000 not the £19,000 on the table.

That said, your sister has been retired on ill health grounds; if her life expectancy is also affected by her illness and is very low, say less than 15 years, converting pension to cash would be attractive.

But if your sister's life expectancy is good I would advise against taking the additional cash as she would be giving up far more than she gains, particularly if the pension is increased each year in line with inflation (which it would be if it is a public sector final salary scheme) or some other guaranteed amount.

There are also spouse's pension and other financial dependants' pensions to consider.

Regarding purchasing a buy to let property; regardless of how much cash your sister receives I would caution going into the market at the moment.

House prices appear overvalued and yields (the annual return on your investment) are very low. Interest rates also looks set to go up again by the end of the year.

Unless you can find a property that is good value, in a prime rental area and with a rental income that more than covers all your outgoings it might be wise to look at investing elsewhere.

3. Tiscali user Barry writes: "My brother and I inherited a property which has increased by aprrox. £200.000 in value since left to us on the death of our parents."

Ian Hudson, Tel: 0800 043 1355, Email: ian@hudsongreen.co.uk, answers:

This is not as straightforward as you might think. In principle I can see you motivation; however if you were to transfer the property into a company, you are effectively disposing of it from your ownership.

This will, in effect, crystallise gains you have made thus far, resulting most likely in a capital gains tax bill.

If you are looking to sell the property and minimise the effect of taxation, it will take a much more thorough appraisal of your current position to determine the best course of action.

You should each seek independent taxation advice to help you make the right choice for each of you.

5. Terry in Essex asks: "I have two Mini cash ISAs - one in my name and one in the wife's name. They are with the Woolwich which is now being taken over by Barclays I believe."

Justin Modray, Head of Communications Bestinvest Brokers plc, Phone: 020 7189 9939, www.bestinvest.co.uk, answers: Barclays Bank bought Woolwich back in 2000, but has recently started to move Woolwich savers across to Barclays as it re-brands Woolwich as the mortgage arm of its business.

The Woolwich variable cash rate ISA currently pays between 4.96% and 5.51% depending on how much you have invested, hardly anything to write home about. You can switch to a better rate elsewhere, such as the 5.9% paid by the Alliance & Leicester Direct ISA, very easily.

Simply complete the new provider's cash ISA transfer form and they'll do the rest. You won't lose any money. Annoyingly, many of the 'best buy' cash ISA accounts do not accept transfers.

If you wish to take more risk then from next April you will be allowed to transfer your cash ISA into a stocks & shares ISA, but these should really be held for at least 5-10 years.

6. Julia steward in Scotland asks: "I have £100,000.00 to invest - where would be the best place to put this to enable us to get a good rate of interest payable either monthly or yearly but where this amount could be accessed if requred?"

Justin Modray, Head of Communications Bestinvest Brokers plc, Phone: 020 7189 9939, www.bestinvest.co.uk, answers:

If you'll need to access the money at potentially short notice and don't wish to take any risk then stick to cash investments.

You can invest up to £3,000 each into a cash ISA this year and a further £3,600 each from next April, useful as interest is tax-free.

National Savings currently pays an attractive 6.3% on its Direct Cash ISA. Otherwise a high interest savings account would be a good bet.

The Landsbanki Icesave instant access account offers a very competitive 6.2% gross and the rate is guaranteed to exceed the Bank of England Base Rate by at least 0.25% until 1 October 2009 and then at least match it until 1 October 2011.

There are some attractive fixed rate accounts around, but these involve tying up your money for at least a year. If your partner pays income tax at a lower rate than you, consider holding the money in their name.

If you have a mortgage, then consider switching to an offset mortgage. The savings can be used to reduce the mortgage balance and hence the amount the mortgage interest you pay each month.

The upshot is that you earn the equivalent mortgage rate, tax-free, on your savings. If you subsequently need to use the savings you can simply withdraw money as required and the mortgage balance increases.

On a mortgage rate of 6.5% your savings would earn the equivalent of 8.12% gross for 20% taxpayers and 10.83% for higher rate taxpayers.

Simon Jones in London asks: "Hi, I'm moving to the USA this August, and need to transfer significant funds to the USA. I was wondering if there are any potential US tax implications iin doing this? Many thanks."

You should get tax advice from a UK based accountant with US specialism. However, this might help:

a) In the UK, if you are UK resident but not domiciled then any offshore investment or income is not taxed in the UK unless you bring it into the UK. It can therefore be advantageous to invest offshore.

b)In the US, my understanding is that :
1. If you are a Resident Alien, then you will be taxed on all your income whether it is generating in the US or outside. If you have the Green card then you are likely to be deemed a US resident.

2. If you remain a Non-Resident Alien then only the income earned in the US will be taxed.

So, you are unlikely to be taxed on transferring in to the US (although there maybe capital gains issues in the UK if the investments carry UK gains), but you are most likely to face taxes if you decide to leave the US and are transferring out.

Have a look at the IRS website, it's massive but there is some guidance which might help you.