Technical Connection answers questions about inherited shares and whether furlough income counts as earnings for pension purposes
Q We have a client whose wife died on1 December 2017. She had a share portfolio, which she bequeathed to her husband in her will. He now wishes to sell the shares but I’m not sure of the inheritance tax (IHT) position or what his capital gain would be based on. Please can you help?
A There would not have been any IHT payable on the shares, assuming both spouses were domiciled or deemed domiciled in the UK at the time of death, when the spouse exemption would have applied.
For capital gains tax (CGT) purposes, there would have been an ‘uplift’ in the base cost of the shares to market value on the date of death. This means that the husband would be treated as having acquired the shares at the market value on the date of death.
If the husband sells the shares now, the capital gain will be based on the difference between his deemed acquisition cost (the market value on the date of death) and the sale proceeds. He would be able to use any unused part of his annual exemption of £12,300 for the 2020/2021 tax year against any capital gain with any excess (assuming he does not have any CGT losses), being taxed at 10% and/or 20% depending on his personal tax position.
Q Do payments made under the government’s furlough and Self-Employment Income Support Schemes count as relevant UK earnings in respect of making personal pension contributions?
A Yes. With the furlough scheme, grants are paid to the employer, which continues to pay its employees in the same way it would usually, using PAYE. National Insurance contributions and tax will be payable on the income received. This means that the income is still deemed earnings and therefore relevant UK earnings for the purposes of making personal pension contributions.
For the self-employed, the same applies. The grant paid under the Self-Employment Income Support Scheme will be deemed self-employed earnings and will need to be declared accordingly, with associated tax paid through self-assessment. Again, this would mean that it would qualify as relevant UK earnings.
