Question 5b
You should assume that today’s date is 15 March 2014.
Tobias has recently inherited the residue of his aunt Mildred’s estate. Mildred died on 8 December 2013, and her estate consisted of the following assets:
(1) A main residence valued at £660,000. This had an outstanding interest-only mortgage of £94,300.
(2) A portfolio of ordinary shares valued at £192,600.
(3) A motor car valued at £21,900.
On 8 December 2013, Mildred owed £9,400 in respect of credit card debts, and she had also verbally promised to pay the £4,600 medical costs of a friend. The cost of Mildred’s funeral amounted to £5,800.
Under the terms of her will, Mildred made specific legacies totalling £25,000 to her friends, with the residue of her estate being inherited by Tobias. Mildred had not made any gifts during her lifetime.
Mildred’s husband had died on 19 July 2006, and 40% of his inheritance tax nil rate band of £285,000 for the tax year 2006–07 was not used.
Tobias will use some of his inheritance for the following purposes:
Personal pension contribution
Tobias will make an additional personal pension contribution for the tax year 2013–14, having already made contributions of £10,000 during this tax year. He has been self-employed since 6 April 2011, and has been a member of a personal pension scheme from the tax year 2012–13 onwards. Tobias’ trading profits and gross personal pension contributions since he commenced self-employment have been as follows:
| Tax year | Trading profit £ | Pension contribution £ |
|---|---|---|
| 2011–12 | 32,000 | 0 |
| 2012–13 | 44,000 | 26,000 |
| 2013–14 | 78,000 | 10,000 |
Gift to daughter
Tobias will make a cash gift of £100,000 to his daughter when she gets married on 29 March 2014. He has not made any previous lifetime gifts.
Individual savings accounts (ISAs)
Tobias will invest the maximum possible amounts into individual savings accounts for the tax year 2013–14. He has already invested £2,400 into a cash individual savings account during this tax year, having previously invested £3,200 into a cash individual savings account during the tax year 2012–13.
Required:
(b) Advise Tobias of the maximum amount of additional gross personal pension contribution which he is permitted to make for the tax year 2013–14, and how much of this maximum contribution will qualify for tax relief. (3 marks)