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The true tax-exempt status of Peps and Isas

As an independent financial adviser I am very worried about the fact that the public are purchasing Peps and Isas without realising that theirtax-exempt status ceasesupon death.

This, of course, could have very serious implications.

I have recently had to deal with two death claims with unexpected tax implications imposed by the accumulated effect of continual Pep andIsa purchases.

After carrying out my own investigations with clients and certain Pep/Isa providers, it became obvious that nobody is telling the public of the serious tax problems owning Peps and Isas can bring.

The obvious conclusionsare as follows:

Nobody should purchase an Pep/Isa without proper finan-cial advice.

Tax warnings must be given on all advertising and appli-cations.

Peps/Isas should never be used for pension planning. The tax position alone negates the purchase of a Pep/Isa.

Using a Pep or Isa to repay a mortgage is also a problem because for partners (rather than husband and wife) the life cover must run to at least one day longer than when the Isa reaches the value of the mortgage.

This is an impossible situation to achieve. Should death occur after life cover ceases and the value of the estate is more than £234,000 then 40 per cent tax is payable on the Pep/Isa.

This, of course, is after probate which takes months or even years. So in short, Pep/Isa mortgages are very dangerous to all partnerships.

My broad-brushstroke statement on Peps/Isas isas follows:

Nobody over the age of 40 should purchase one. Even those purchasers under the age of 40 should be aware of the tax implications should they die.

You cannot pass a Pep/Isa on to anybody – no legalvehicle exists.

Advice when purchasing a Pep/Isa is of prime importance.

Inheritance tax effects a large percentage of the population and in these circumstances, a Pep/Isa is not tax-free upon death. As each day goes by this problem gets worse. Peps/Isas can reach six-figure investment levels.

The only real long-term gain on Peps/Isas goes to the Government (40 per cent ofthe value of each Pep/Isa where the deceased&#39s estate is subject to inheritance tax) – something which until nowhas not been brought to the public&#39s attention.

Bernard Denver

Denver Associates,

Copthorne,West Sussex


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