I’m in the process of buying my first home and my mortgage broker has suggested I take out life insurance to cover the cost of my mortgage so that if I should die, whoever I leave the property to is not saddled with the loan. However, as I have no dependants and am not buying with a partner who would be left to repay the mortgage alone, do I really need this insurance?
If I die, I assume my parents, who are my next of kin and in their mid-70s, will just sell the property and reclaim whatever money I put down as a deposit and paid into the mortgage?
Sarah Coles, senior personal finance analyst at investment broker Hargreaves Lansdown, says it’s not terribly long since you wouldn’t have had to think about this at all, because the mortgage lender would insist you took out life insurance regardless of your personal circumstances. Fortunately, market practice has moved on, and we have more control over whether or not to insure.
The period after you buy a property is always eye-wateringly expensive, especially right now, when inflation is pushing the price of everything through the roof. So it’s perfectly reasonable to question whether you really want to add life insurance to the endless pile of monthly bills.
On paper, life insurance may not be necessary, given that you don’t have anyone who depends on you financially. After all, if you were to die, your parents could just sell up and repay the mortgage.
However, there are a couple of things to bear in mind. You say that your parents could reclaim the money you put in as a deposit and whatever you paid into the mortgage. However, this depends enormously on what happens to house prices in the interim. If prices drop, there’s a chance they will get back far less than you put into it. If it falls into negative equity (with more owing on the mortgage than the property is worth), they’d get nothing. If either of those things worry you, insurance would solve the problem.
Even if the property has gained in value, there’s also the question of how long it would take to sell. The market isn’t always this hot, and there can be times when a sale takes months, or even years. You have to ask whether the mortgage lender would be willing to wait as long as it takes before demanding the money back. They could end up repossessing and selling the property at a rock bottom price at auction, so your parents get a fraction of the money you have ploughed into the property.
Even if you have no concerns over the risk that your parents get little or no value from your home, you also need to think about the stress involved. One of the things people tell our advisers is that they want to make things easy for those they leave behind. Life insurance is the best way of doing this, because whatever happens to the property market, the mortgage will be paid off, so they have the time and space to consider what they want to do with your property after you’ve gone.
It may not be as expensive as you think, especially if you are young and in good health. At the very least, it’s worth getting some quotes, so you can weigh up the cost and potential benefits.
Can HMRC trace my bitcoin holdings?
I’ve heard HM Revenue & Customs is looking into cryptocurrencies as a form of tax avoidance, but I’ve always been assured that bitcoin can’t be traced. Are my holdings really anonymous or can HMRC track me down?
Lisa Vanderheide, a tax director at Stewarts, a law firm, says crypto assets and the taxation of any gains made on them is a hot topic. HMRC’s current view is that gains made on crypto assets will be subject either to capital gains tax (CGT) or income tax on the basis that most transactions involving exchange tokens are a form of investment. The tax treatment therefore largely follows that of stocks or shares and reiterates that crypto “currency” is not a currency.
The fact that there are likely to be significant crypto asset gains being made by UK tax resident individuals has gradually become apparent to HMRC, as has the fact that many individuals who have made taxable gains have not declared them on their income tax returns, whether in error or deliberately. As a result, HMRC has recently sent out thousands of “nudge letters” to individuals they believe may have taxable gains.
The letters remind recipients of their responsibility to declare all taxable income and encourage them to disclose any previously unreported crypto asset gains to HMRC. Those receiving such letters are understandably concerned how HMRC identified them, since many are under the impression that it would be all but impossible for HMRC to get hold of information on their crypto transactions.
The tax authority has wide-ranging information powers and can request information from online crypto asset platforms requiring them to disclose information on customers with a UK address. Recent information requests sent by HMRC focused on individuals who received payments of more than £5,000 in cryptocurrency during certain years.
HMRC will be keen to determine whether individuals outed by the information requests have additional tax liability for earlier years and is likely to do further digging.
Many individuals with crypto accounts were warned about the HMRC request by the relevant platform and advised to seek tax advice. Whether forewarned or not, receiving a letter from HMRC that intimates they have an undeclared tax liability will have come as a nasty shock to many.
There are a number of avenues available to individuals who may have crypto asset gains to disclose. The HMRC Digital Disclosure Service is one, as is amending previously submitted income tax returns — as long as the individual is within the time limit to do so.
Where the size of the tax due is significant or the disclosure covers a number of years, individuals should consider a direct approach to HMRC via a suitable adviser.
Finally, when agreeing a settlement with HMRC in relation to a previously undeclared tax liability, it often asks for the completion of a “statement of assets” form where a complete account of an individual’s assets and liabilities is made.
These forms will now include sections on crypto assets, confirming — if there were any doubt — the extent to which such holdings are now firmly on HMRC’s radar.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
My mother recently passed away. Her estate, which includes a holiday house on the Sussex coast, was left to my brother and me. My brother, who is an executor of the will, does not appear to be in a hurry to sell the holiday house, even though this was always the understanding. Can I force a sale?
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