Inheritance tax masterclass: how much is due & smart ways to reduce it! Energy price spike – what it really means

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Mä oon tuli kuten tehtävästi, että tehtävästi, - joten minua ääniä pitää käsittää, että tehtävästi, että tehtävästi - käsittää, että tehtävästi, että tehtävästi, että tehtävästi, - joten minua ääniä pitää käsittää, että tehtävästi, - joten minua ääniä pitää käsittää, että tehtävästi, - joten minua ääni pitää käsittää, että tehtävästi, - joten minua ääni pitää käsittää, että minua ääni pitää käsittää, - joten minua ääni pitää käsittää, minua ääni pitää käsittää, - joten minua ääni pitää käsittää, - joten minua ääni pitää käsittää, - Nämä on 1 miljoona lage. made up of £350,000 maximum left to in the terms of a property, left to direct descendants and £650,000 of other assets that they can leave inheritance tax-free. So for married couples, you have up to a million pounds that you can leave without inheritance tax of your assets that you have when you die. Now if we were just to contrast that for a second and this is one of the huge financial benefits of marriage. So let's take our couple. We've got our first couple. I tend to use them as Helen Lou, Helen Lou, yeah, Helen Lou, yeah. So how, they're married, how leaves everything to his spouse and then she leaves everything to the children including the main property that's a million pounds. But if they were unmarried, even if they'd been living together and even if they had children together, here's what would happen. How, because he wants to leave the primary in residence to his spouse anyway, he leaves her everything, they're not married. So because they're not married, he uses up his £325,000 standard allowance and he doesn't get the £175,000 property allowance because he's not leaving it to his kids, he's leaving it to this unmarried partner that he has. So instantly he's having to pay 40% tax on the property elements of that, the £175,000. So he's now left its 930 grand that he's left to his spouse after the inheritance tax. She's now leaving that all to the children and because she's only got a £500,000 allowance, she's paying 40% inheritance tax on the remaining £430,000 and in total the inheritance tax that would be paid is £242,000. So the married couple doing exactly the same thing if they had exactly a million pounds of assets and it was split equally, I know it's a bit of a hypothetical, but just to prove the point, the married couple doing exactly the same thing would pay no inheritance tax, the unmarried couple would pay £242,000 of inheritance tax. And having been explaining this for a few years, I reckon I've now married more people than priests, because I get many couples who've been together 30 years and who aren't marriage, who've either gone through a marriage ceremony or a civil partnership ceremony after they've heard this inheritance tax explanation because it is just so substantial. And if you don't do it and you know, if you've been together, this is not about you've been together six months, you should get married to do this. This is about you've been together 30, 40 years, you're life partners, you're not going to be splitting up, you've just never got around to marriage, you might not like it for the patriarchy, you might not like it for the religiosity in which case get yourself a civil partnership which confers the same rights. But one of the biggest ways you can reduce your inheritance tax bill is by being married or in a civil partnership. I don't make the rules by the way everybody, I'm just explaining them. Okay, we've got a couple of, you've got a couple of wing women behind your couple of experts to help you. I think that probably in front of me. And so in front of you. Probably the pilots and I'm the wing walkers, be honest. So that's Harriet Brown, Tax Barista, Chartered Institute of Taxation Fellow, presenter of the International Tax Pites Podcast. Harriet, how you doing? Hi there, all good, thanks. Good, good. And Lucy Spencer, financial planning partner at the wealth manager, Evelyn Partners, how are you, Lucy? I'm good, thank you. Right. How did I do on my explanation, Harriet, and Lucy? Oh, I'd love it if you told me. I'd love it if you said it got something wrong here, but I know he hasn't, because he never does. Well, there's only one thing, which is you mentioned Domestile. And Domestile is no longer the metric used. It's now long term residents, but it has the same effect. So I think it was, you know, it was pretty good, pretty good. Pretty good. I'll take it. There's lots of other little things I didn't mention. I mean, one that's worth just saying at the start, because I don't think we've got any questions on it. If you're going to be paying inheritance tax, and of course, one of the things we're going to be talking about in a moment is all the ways that you can reduce inheritance tax out of, you know, surplus income or your gift allowances that you have. But it is also worth me saying, if you give over 10% of your estate to charity, then that reduces the inheritance tax rate you pay from 40% to 36%. So those with bigger estates who have a charitable bent, it reduces the net cost of giving to charity to about 2.4%, you know, far, far less than you would actually give. So you can give quite a lot to charity, and it won't cost your estate as much as you think. But I just wanted to note that in as a bit of a charitable note. Let's go on to the questions for the madrim. Colin says, I don't have children, but I brought up my niece, although we did not formally adopt her. Can I pass on my property to her when I die without it being concluded in my estate for inheritance tax, or does the rule just apply to children? This is the grey area you rather pointed up earlier. This is the £175,000 extra property allowance that is only for direct descendants. So Harriet, on a legal basis, I presume there is no way to morph that to your niece unless you adopted them or something. That's right, yes. So it's referred to as a lineal descendants in the legislation. And then in addition to lineal descendants, you can give it to children's spouses, adopted children, foster children and stepchildren, but sadly not to a niece. Now whether or not one could adopt now in order to put that right, what he may like to look to do instead is to make lifetime gifts, which may become exempt if he survives them by seven years and gifts out of income. But unfortunately, no, it's only lineal descendants. We've got lots of questions on the gifts. Just Lucy, quickly, let's take it as a broader question because we've had other similar. Somebody wants to leave everything to their niece or nephew as opposed to their child. There's nothing else, no other route that could use other than gifting early or using those gift allowances. Is there in the tax planning form? So what they can do is like how it suggested is make lifetime gifts and after seven years are outside of their estate, they do always have their no right bans, which they can leave obviously not the residential one, but they have the three hundred and twenty five thousand that they can use as well, gifts out of natural income to use. They can also think of other planning options, so things like taking out a whole of life policy to cover the tax when they pass away. So that's insurance policy that will pay out when you die to cover the tax that you would effectively cover the inheritance tax that you would pay. Yes, and if there's premiums paid out of excess income, then that's a really good way providing some money to pay the tax when you pass away. OK, I can see and we've got lots of questions on this, but I actually think it's worth just delving into this in a little bit more detail. So this is the, because everybody asked me about this, this is the issue of surplus income. You are allowed, if you have surplus income, excess income, you can give that with their inheritance tax on it. But what counts of surplus income? How do you define it? How do you make sure people understand it is surplus income? What are the practicals? So let's start with Harriet and we'll come to Lucy on what you should do afterwards. Harriet, what is surplus income? This is a really interesting question and it's one where people do get picked up quite a lot by HMRC. So an exemption called normal expenditure out of income. And what this means is you have to look at whether it's a number of things, one of which is whether or not you have the income to cover it, i.e. that it's not so the income is otherwise surplus to your needs. But there are other factors that you need to consider as well, like being able to evidence a pattern of giving, which would sort of make it normal in inverted commas. So what's surplus income and what's normal will very much depend on the individual. It's a very practical assessment. One way to look at it might be to look at what you're say monthly income is, what you spend of that, what the difference is and then make gifts that still leave you something over for emergencies. But they could be quite substantial. And I've seen substantial normal expenditure out of income being ultimately granted by HMRC. So it is a very powerful or potentially very powerful exemption. But we have to be plainly this is out of income. So if you've got a lot of capital, you've got a lot of money saved up, but you are a low earner, you're not going to be able to do this. Unless you get your capital to generate income, I presume. That's absolutely right. So in those circumstances, what you might want to do would be to invest the capital that you have. And then you can say, well, look, I've been living on this low income for 10 years. I'm now getting this additional income. I don't need it. So I'm going to make gifts to whoever. So you'd need to structure your investment. So they generate income rather than generating a capital gain in order to justify it. And Lucy, let's move to you if that's all right on this one. So take us, I'm sure you've guided people on this on the path. If you had someone who came to you said, I want to give money out of income. What is the best way I should be giving money out of income to prove that it is surplus income and therefore won't be subject to inheritance tax? What would you suggest they did? So first of all, exactly as Harry said, we need to establish a pattern and we have advised clients to move from that capital generation to that income generation. We also, so how would you establish a pattern? What are we talking? We're saying you're going to give four times a year a set figure that's going to be recorded. You're always going to give it. Is that what you mean by a pattern? No, they need to give it least annually. And because, like Harry said, it does need to be out of income. We need to evidence that actually this is surplus for them. So it doesn't need to be if they always pay for their holidays in August, it could be the September's payment is slightly less than the April's payment because that income needs to be surplus for them. And are you evidence, sorry, are you ever doing this as you go or is this retrospective evidence? Does this mean If you're planning to do this, you need to be so proactive that you need to be saying right now, this is a gift out of income so that it doesn't count for inheritance tax. And I'm putting all the documents together as I'm doing it, rather than relying on it later. Yes, we always recommend clients do it as they go, because it makes it so much easier for your estate to be able to complete the paperwork. One thing which I think is really important though, is you can't impact your normal standard of living, so you can't like not turn the heating on. So you can make gifts out of income. Yeah, how is that provable? I think if HMRC looked back over bank statements and saw you weren't spending as much on energy, for example, for your house, I guess they'd question it, I would probably hand over to Harriet for that one, because she may have actual examples. So I think it's a difficult one. And again, what will be acceptable in different circumstances will colour what you're looking at. I think if you suddenly had a significant dip in your living expenses and at the same time at the start of this pattern of giving, those expenses went down and the gift started going out, but your overall income didn't change, that would be a very significant issue. I had a situation once where I had a little old lady living very frugally, but she had a share holding, which had never generated any income, and then suddenly started generating really, truly significant amounts. Yes, it was incredible. It'd been an investment, I think it'd been to at least three generations, but she wanted to give it all the way to nieces and nephews, she didn't have children, and we had some difficulty with HMRC on that, because they were concerned that she was giving so much away and living on so little, and what we did was we went back and showed that she had been living on so little for years prior. We were actually successful on that one, so it's sort of the reverse of that. And indeed, if you'd been making gifts of, I don't know, £10,000 every three months for five years, and then after that you continued making those gifts, but your living expenses dipped, for example, maybe you'd paid off your mortgage, you would be able to explain that. It's always making sure that it's explicable, I mean, there's an obvious intuitive test, isn't there? I mean, this type of giving is primarily for the people who have been, before they're giving, we're living and probably putting money away in savings or investing, because they had surplus income and they didn't need it for their living expenditures. If you're on the brink at the moment, it's going to be quite tough to prove that you've got surplus income. I mean, if we boil it down, not to your legal standard, Harriet, but to a nut shell of who should be considering this and who shouldn't, that's not a bad rule of thumb, is it? Absolutely, I think that's a really good practical way to look at it. If you can afford to make the gifts easily, you may welcome within this. Yeah, now we want to do the lifetime giveaway stuff in a moment, but let's do a question more or two Adrian, if you have. Okay, Newman, I had a question regarding the main residents in Heriton's tax relief. Should I buy a family home with my parents, 50/50 split, would the family home still be eligible for the main residents tax relief if passed down by my parents to myself? So Harriet, you can actually nominate what your main residence is, can't you in this structure as long as it's provable? Is that how it works? You can, yes. So crucially, on Newman's question, it would only obviously only be the parents 50% that would be eligible for an R&RB. So this is the 175,000 extra property. Sorry, yes, sorry, legal jargon, it would only be that, and there would need to be able to evidence that it was the parents residence. It wouldn't matter if it was also his residence provided that it was their residence, I don't think. So just further on that, because I know, let's say someone has sold their residence because they needed it to pay for care home and that it'd been a year or two will go, or at their recently sold is there any sort of back dating of this, what counts as a main residence? Could you still get that allowance? How's it defined exactly? So you can still get the allowance. The best of things in Tax Laura is quite, it's quite, it's not very clearly defined. What you can do is you can sell your home under certain circumstances and then an amount equivalent to that last home is relevant for this 175,000 pounds additional, no rate band. Fine, so to pay the care home would count as one of those circumstances would it? It would, yes, if you could no longer live in it, you don't have to hang on to it to be eligible for the additional no rate band, you can sell it and then that sort of amount will still be entitled to a residential no rate band, even though it's not a residence anymore. Is there any time limit on that? I don't believe that there is, it's more predicated on where you have left effectively. Well, I think I just quickly add something now. Of course Lucy. You can also downsize, but it needs to have happened after July 2015. So if you soge a protest is going to care prior to July 2015, then I'd recommend you talk to a solicitor about that one. Well, I mean, and I'll be honest, talking to a solicitor or talking to a tax advisory is always useful. Now, if this podcast were a book inheritance tax will be its spine, we're going to be talking about it throughout and doing more in the pod extras. For now, though, let's switch to energy. I have something I have to tell you. Yeah, go on. It's a bit of a personal admittance. During the break, Studio Manager Olivia said to me, Martin, can you speak more into the side of your Mac rather than the top? She said, can you lift your mic up? Adrian, I've got a droop problem. Oh, no. Every time I lift my mic up, the mic droops back down. I don't know. I've got some cream for that actually. I don't know what's going on. If anybody knows how to fix it, that would be very helpful. So if I'm talking into the side of the top of my mic too much, it's just a thing that happens to some of us. Okay. First of all, we should talk about energy prices, Martin. Obviously, we mentioned it last week, just after the latest energy price gap details had been released. That seems a long time ago, Adrian. The world's changed. Everyone's suddenly getting jumpy. What's your take on it? Well, I think they're right to the wholesale rate of gas and there are lots of different wholesale rates of gas. But the main one that's looked at for setting the price cap anyway is nearly double what it was at this time last week. And the reason the gas price is so important is gases such a big factor in our electricity prices. That feeds into the price we pay on electricity. So doubling in a week is huge. I need to put it in perspective. I mean, it was about 70 people a firm last week. It's currently, as I'm talking, although I checked half an hour ago, and it moved that quickly, it might not be about £1.35. That would still have been relatively low during the peak of the Ukraine gas crisis, the Ukraine war gas crisis that we had. And that went over £600 at one time. So we're not in that scale. But the big question here is how long this will last. I think it's probably worth me talking you through the impact of this spike in energy prices on the different types of energy bill that you have. So if we start with the one that most people are on, which is the energy price cap, which affects those in England, Scotland and Wales who are on their firm standard variable tariff. They do nothing tariff that I'm not fixed or my fix ended and I did nothing tariff. If you're on that, we heard last week that the April price cap will be dropping by 6.7%. That is locked it. So nothing is going to change apart from that in the price cap until the end of June. The impact of this spike will hit the July to October price cap. So that price cap that is assessed over an average wholesale rates on a three month period. And this is why you can start to understand why I say it's not the height of the spike. It's the length of the spike that really matters. You know, the price goes up to an extreme level three or four days. Yes, it will push the July price cap up a bit. But if it were then to come back down and everything go back to as it was, it wouldn't have that much of an effect. But if this spike lasts four, five, six, seven, eight weeks, then that's a substantial portion of the three month assessment period. So then we're expecting to see the July price hike go up a lot. Now based on current predictions and these will change very rapidly because we are in an incredibly changeable global political situation with the Middle East conflict. They're now talking about seeing the energy price cap go up by 10% in July. Now, I'll just go into this in a bit more detail because it's interesting. Then I'll come to the other tariffs. The interesting point here is I think from a governmental perspective in May is when they will announce the July price cap, the end of May. If at that point, then this is all over an energy prices have come back down. I suspect the government will just say, look, you've had time like protection, your price is going to go up and hey, there are lots of cheap fixes now available, which they would be if the price had come back down. So what we would suggest most people do is they get off the price cap, which most people should have got off the price cap before anyway. And you get onto a cheap fix. So there won't be any intervention. That price will go up 10 or 15% from July to October. And then which is the least-use period of the year. And then in October, it will come back down. So I think for the government, the real hope is this is all over by that May announcement. And I think that's the crucial node period in all this is what happens by that point. If it's continuing beyond that, then I think they may have to look at some form of targeted intervention, especially if the spike gets even higher than where it is right now. Let me move on, sorry, I digressed on myself there, but let me move on onto the other tariffs. If you're on an existing fixed tariff, then your price is by definition fixed, although on the 1st of April, as we discussed last week, because of underlying policy changes to energy bills, existing fixes will get cheaper on the 1st of April. The unit rate for gas and the unit rate for electricity will be reduced. The unit rate for electricity by about 3.5 PN/KWh, gas by about 0.33 PN/KWh, and that will happen on the 1st of April, which is an equivalent to, for most people, a 7-9% reduction. So if you're on an existing fix, everything's good until the moment your fix ends, and then the question is, what are the tariffs are going to be available? That's the big consternation for those people. If you're on a time of use tariff, so the octopus has the main ones of those, the agile and tracker tariffs, you're already paying for the spike. So it's those on time of use tariffs, which I always define as sophisticated user tariffs, they tend to be much more related to the existing wholesale rate. So if you're on one of those, you'll know this already, your price will have already gone up on the back of the spike that we've seen in wholesale gas prices. And then the final category is new fixes. Now, hopefully most of you were listening last week when I was telling you to get off the price cap and fix then. If you've done that then, you would be sitting very, very pretty right now, because you'd have locked in a 14% reduction on your cheapest fix, and it was going to get even cheaper on the 1st of April, and you would forestall do all this, and you wouldn't need to worry. The problem I have now is over the last two days, pretty much all of the cheapest fixes have been pulled from the market or reprice substantially upwards. This time last week, the cheapest fix available was 14% cheaper than the price cap. Right now it's 6.7% cheaper than the price cap. That's the very cheapest, and there's only one or two about there. There are a couple of comparison sites exclusive that are a bit cheaper. So if you are risk averse, if you are very concerned about energy bills going up and this being a prolonged crisis, and you are on a price cap tariff, a standard tariff, there is still time to get a fix that is materially cheaper than the price cap. It won't be anywhere near as good as last week, and of course there's a risk that if things go back to normal, you would have fixed it to expensive a rate compared to the other fixes that will be available. But if you're worried, try and get yourself a fix, go to a whole of market comparison site, make sure you're looking at all the tariffs that are available, find the cheapest fix you can and lock in on that now, as long as it's materially cheaper than the current price cap, that is the risk averse move to do. If you're on the price cap, the comparison should tell you that, and again, if you do get a fix now, it will drop on the 1st of April. One final thought on this, some people say, "Well hold on, what if I get a fix now and they go bus because prices all go too high?" If you get a fix now, when your firm goes bust, I have to say the financial credence checks that are now done on energy firms since the last crisis have improved. Your credit is protected, and you would be moved to a new provider probably onto the price cap. So you would be in no worse a situation because you'd still be on a price cap than you are right now, but you may have seen in the meantime. I think I may have covered it Adrian, that was a bit of a monologue, sorry. Just an important reminder, that information was correct at the time of recording the podcast. More of those cheap fixes may well have been pulled if you're listening to this later. If somebody's worried about heating oil prices, on Sunday we played an order for a thousand litres, 645 pounds. Check with the same supplier this morning, £1,480. Price per litre from 61 peter, 239 p. Can we do that? Okay, but feel for others who only have oil heaters for peter in Lincolnshire. I've heard of it going up 239 p. It does sound extremely excessive. Remember, you've got to go and do a comparison on heating oil. It's worth, if you're in a rural area, I know it's coming in Northern Ireland and I know it's coming in rural parts of Great Britain, then it's worth talking to neighbours and other people in your area. Often collective buying can cut the costs. So you know, you get, you all negotiate a cheaper price by going with the same oil firm, but yeah, absolutely. Home heating oil because it's directly linked to the price of oil and gas, has gone up and it goes up immediately. And if you're lucky enough to be coming to the end of your tank right now and having to refill it, it is going to be extremely costly and sadly, barring, you know, doing a comparison and collective buying, I don't have many solutions on that. We have under-regulated home heating oil in this country for far too long and left people in rural communities in the lurch on it. I've given evidence at energy committees of the House of Commons trying to say we should bring this into proper and better regulation like we've now brought heat networks into proper and better regulation. And as far as I know, nothing has changed. Another question that's come in by text here, we're literally about to move house, come, we fix and take the fix with us. So, if I get this the right way round, most firms will allow you to port your fix. So if you get a fix now, you can port it. I think the two that don't are over and Scottish power. With them, you won't pay any early exit penalties if you've got a fix and you move house, but you won't be able to port it with you. I just need to say, and we know we're doing this live on there. I always, I know over and Scottish power are the outliers from the rest of the main providers. I hope I've got it the right way round. There's a tiny chance I've just convoluted to do. I don't think I have, but I just need to warn you there's a tiny chance I'm doing this off the top of my head. But yeah, you can generally port it's called portability and you need to be looking at that in the terms of the fix before you fix, and then you should be able to port it with you to your new home. And by the magic of podcasts, I was able to check that afterwards and I was right with all of the major energy firms you are able to port a fix with the exception of Ovo and Scottish power who let you leave exit penalty free if you move house. Though of course, it's always worth checking on an individual tap when you sign up and especially with smaller firms, they can have their own rules. Well, we get back on to inheritance tax now. We've got a caller Sarah in Waiberidge, Sarah, what can we do for you? Oh, hello, yes. I wonder if you could give me some advice. So my father has been widowed twice once with my mother and another my stepmom. He seems to think he can have three inheritance tax new rate bands, two because he and he owned the owner house both times his partner, his wife died. So he thinks he can have two five hundred and one three two five. So a total of 1.325 million. He's got to stay over 1.5 million and he's concerned about how we pay any inherited tax at all. So we've called him to give and live. Yeah, obviously the seven year rule. But yeah, I'm just a bit dubious whether he he's he's right in thinking he's got 1.325 as a new rate. Well, we've got Harriet here and so we've got a tax lawyer on it. My my understanding is your right, he's wrong. You can only have yours and one spouses. And in fact, the reason that's important is if you had two people who had both had previous spouses who had passed away a widow, let's say a widow and a widower could be two widow was two years, but you get the point then they actually when I talked early that marriage is a really good way to reduce inheritance tax in their cases if they got married they're potentially losing their previous allowances from their past spouses. So it could be negative for them because I talk about that. I think Harry you're going to say you only can only have the two, aren't you? The maximum that you can have is a total of two nil rate bands. However, if you had a situation where, for example, the most recent spouse say had used half of their nil rate band, but the previous spouse also had some nil rate band. You could have the half that the previous spouse had and then some from the first spouse to a maximum of one extra nil rate band. So you you are completely right as to the outcome. The reasoning is slightly different and the only thing to add there is the amount that is available on a transferable nil rate band is the amount of the the maximum is the amount of the nil rate band at the time of that first death. So if you had somebody who died before it was £325,000 and you could that does happen. The maximum would be the maximum that they had there. So I think you said your mother died in 1979. She did, yeah. So that would be a less of full amount, but equally if your step mum had a full nil rate band that wouldn't matter because you couldn't get any more than that anyway. And Harry, just to clarify on the nil rate bands, I'm so sorry, that you've got a 325,000 nil rate band and a 175,000 nil rate band. I presume it's a maximum of one each of those. It's not a combined 500,000. No, it's a maximum of one each of those. The residential nil rate band is calculated slightly differently, but in almost all situations it will come out the same thing. So you can have your 325, your spouse's, 325, well, former spouses up to 325 and the same for that 175, your own 175 plus up to 175 for former spouses. I interrupted your question. I'm so sorry, do carry on. No, that's fine. So it's a maximum of one million is all that he can have then to pass on. Even though my mum, I never received anything from my mother when she died, obviously, I was still quite young in the first instance. Yeah, so that is unfortunately correct. There are some other things that you could look at doing. Live and give is actually really not bad advice if you don't want to pay inheritance tax at all. Something that often comes up in inheritance taxes, or that I say a lot, is I say, you, the person passing money on, doesn't have an inheritance tax problem. The next generation is, if you want to help them solve that, that's fine, but you're not obliged to. It's not really your problem. So I think it is worth reiterating that on a practical note, but you might want to look at, if there's a possibility of gifts out of income, if they are looking at potentially exempt transfers, I think you said your father was 86, is that right? He was. Yes, he is. So, you know, whether or not making a gift now and waiting seven years looks like being a viable option, maybe, you know, that's going to be different than on your father's health. Let's just do given live for people who are listening, because we haven't talked about it yet, and it's incredibly important. And I'll do the very simple version first. If you give a gift to somebody, anything, without reservation. So this is not a case of saying, I'm going to give you my home, but I'm going to live in it and not pay any rent. That's a gift with reservation. It's going to be a proper gift, you know, if you were going to do that, you could probably say, I'll give you my home, but I will pay you a commercial rent for it. And how it can discuss whether that would be acceptable or not, but you give somebody a proper gift. If you live three years, the inheritance tax rate you pay is reduced on that gift. So it's no longer the 40% it starts to get lower. It tapers down until if you live seven years after you've given the gift, then it is no longer part of your estate, because you gave it away more than seven years ago. And therefore, there would be no inheritance tax on the assets that you've given away. And that's what given live is talking about. Now, obviously, your father's age being blunt because we have to be, I mean, I think, you know, we'd be hoping the three years will be getting for that the seven years is a long time and statistically is getting a bit more dicey. But every year after three year, it improves, doesn't it, Harriet? The percentage starts going down in year three, more in year four. I think it's 20%, possibly 20% a year, that seems right. That would take it down to nil. So the rate reduces significantly by time you get to year say five or six and then then after seven years, you have a completely exempt gift. So yeah, he could do that. The other thing he might want to think about is something that Martin already mentioned, which is if he's primary objection is inheritance tax and you don't need all of his estate, he could look at giving to charities in a value over 10% of his estate. That's a possibility as well. Now, of course, it's that time of the show where we have to put Adrian to the test in mastermind, but there's still more to come on inheritance tax, including the big change, which is that pensions from 2027 are going to be included as part of your estate. Plus, we will run through in detail all the different gifting rules and allowances where you can give money away, and it doesn't count as part of your estate for inheritance tax purposes. For now, though, play that theme tune. Hello, yes, and I should thank our caller too. Sorry. Welcome to Money Mastermind, Adrian. The score stands that you've got 16 right and 34 wrong in this three option multiple choice quiz, which means I'm sad to say you're still. No better than random chance. We're going to get this better, though. I've decided I'm going to be positive attitude with you on this, and I'm going to be an encouraging cheerleader rather than the Grinch on the back of it. Adrian, it's March. We've got one day of sunshine. Tomorrow, a sideways drizzle is expected, but today, no. So you are in a DIY store to buy a barbecue. This isn't a delusion. This is a clever counter-seasonal bargain purchasing strategy. Bravo to you, I say, sir. Bravo. Thank you. Now, you're in there, and you spot the Flame Daddy Big Meat XL Pro. Labelled £299, you instantly fall in love with it. It can apparently cope with more meats than the politician out canvassing. You take it to the till. It scans at £399. Now, hang on, you're thinking. Emotionally, I have committed to my sausages. The price ticket said £299. Now they're telling me it's £399. I don't believe that's right. So that is the question, Adrian. The price ticket said £299, but it's now at the till £399. Do you have a legal right to buy the Flame Daddy Big Meat XL Pro for £299? A, no. B, yes. C, yes, but only if all the other two Flame Daddy Big Meat XL Pro Barbecue's were labelled £299, and it wasn't just a one-off price ticket mistake. I, surely not. I don't, no. Surely not what? I think, no, I think it's no. I think it's a, no. You don't have a right. You don't have a right, no. I can't. Because of the people who'd be swapping tickets over it'd be absolute chaos. Remember the third one is, yes, but only if all the other two Flame Daddy Big Meat XL Pro Barbecue's were labelled £299, and it wasn't just a one-off price ticket mistake. So that again? Yes, but only if all the other Flame Daddy Big Meat XL Pro, I wish hadn't written such a long name for the number of Barbecue. XL Pro Barbecue's were labelled £299, and it wasn't just a one-off price ticket mistake. So you can assume by that we're saying, yes, if it was the store who'd done the mistake, and a systemic mistake. So you've got three options. No, yes. I'm still going to say no. I'm still going to say no because I'm still going to say no, because I think you'd top it for them what they sell it to you. Are you locked in on no? I'm locked in. We have the tension bed. Adrian, no, is the correct answer. Can I use a piece of work trying to drag me away? I wasn't. I just realised we had an extra minute. And I also can I just say well done to Simon for nailing, nailing playing all the different sounds at the right points there. I thought that was very good. I've been told since the podcast that was actually studio manager, Simion, not producer, Simon, but hey, I got five letters right and thanks to both of you. So let's just talk about this. Well, the nature and you got one right, I'm pleased to say. The label price is normally in UK law just an invitation to treat. It's not a binding offer, and it's worth remembering that because it does mean haggling in store is an option. If it's an invitation to treat from then, you can offer a different price too. So the shop is inviting you to make an offer. The contract is only formed when the retailer accepts your offer. Now install that is normally by taking your payment. I should note, persistent mislabeling after you've notified them that the price is wrong could be unlawful and you could report that to trading standards because if they're doing it deliberately to mislead, that is a criminal offence. But the accidental mis price that you get would be wrong. Many big retailers, though, do operate store policies or scanning guarantees and are like the sell at the lower price or refund the difference or offer another remedy. So it is always worth pointing out, hold on, that this has here and it says back there that it's £299. Can I speak to a store manager? You don't have a legal right, but you might be able to see if they could reduce the price. It is worth noting online because it's the point that the contract is formed that counts. Many people think that's when they pay. Online it tends not to be when you pay. It's when they dispatch the item. And therefore that's why, and we've seen loads of these price error mistakes before where people have rushed in saying something that should cost, you know, a plasma telly for £499 and instead of £499, they've rushed in and they've got a right. I've bought it. I bought it. Now if they haven't dispatched it, the contract hasn't been formed. And therefore they do have a legal right to cancel. I'm afraid. So those are the rules. Adrian, I'm delighted to say, after all that, you've now got 17 right and 34 wrong. You get one more right and you are no longer no better than random chance next week. Hello, right. We're into our podcast only extra bit now. And I'm very lucky to still have Lucy Spencer financial planning partner at UK Wealth Manager's Evelyn Partners with us and Harriet Brown tax barrister chartered Institute of Taxation Fellow and presenter of the International Tax Bike Podcast still with us to carry on going through the unsurprisingly enormous number of questions that you sent about inheritance tax. And we're going to plow through as many as we can in the time that we've got. So let's get straight into it. The next question and we're expecting this. And I think Lucy, it's one for you. Joyce says, please can you cover the new rules about pensions in inheritance tax? And how it works for those who have defined pensions, it seems to penalise those who have defined contribution pots that can be easily valued. So Lucy, the latest up to date from next year, your unused pension would count towards your inheritance tax assets, wouldn't it? It will do. And Joyce, for your information, it only affects the defined contribution schemes and they are easily valued. It's valued as at the the date of death. So regardless of what age you pass away. Post April 27, your pop will be in New York State for inheritance tax purposes, subject to those nail-right bans, which we discussed earlier. There is a difference to how they are taxed when they were drawn, depending on if you die before age 75 or if you die post age 75. So if you die post age 75, the funds will be liable to inheritance tax at 40%. But then also liable to income tax as at the beneficiaries marginal rate when they take the income out of the pension. If you die pre age 75, even up to age 74 or 364 days, then your beneficiaries can take the money out of pension income tax free. But they will still be liable to inheritance tax. OK, so I just want to make sure I've got this right. Until the day before your 75th birthday, it counts as part of your estate for inheritance tax or it will count as part of your estate, the amount of money in your pension. If it's a defined contributions pot, that's the money pot. You know, that's when you're saving up and you see you've got an amount of money. It's those type of pensions, rather than final salary pensions. Once you're aged 75 and over, if you've got money left in there, then not only will it be inheritance taxable, but when the person who gets the money tries to take the income out, they're going to have to pay income tax at whatever rate they pay. So if they're a high rate taxpayer, you're going to have another 40% off. It is a double form of taxation. I mean, this is a massive change coming, isn't it, Lucy? And in many ways, because pensions weren't in the inheritance tax regime, many people were sort of operating that they would leave their money in their pension, because it was a good way of passing assets in inheritance tax free. Has this totally shaken up all the type of inheritance tax planning that you do with clients and throwing it all up in the air? It very much has done so four years. I've been working with clients that actually were spending down their eyes for allowances, spending down their general investments accounts. Now we're revisiting that planning, especially for those over 75 because of that double taxation rules. When we were speaking earlier, we mentioned gifts out of regular income, money taken from pensions, can classes income. So we are seeing a lot of clients now actually drawing more income, two gift away to make those gifts out of regular income. I mean, this is seismic, isn't it, for your world? The level of incomes that people who come to someone who's a financial planning partner, they're going to be relative, a high net worth individuals, and it's a complete change. It is a very much a complete change, and there's a lot of pensions out there which you haven't been touched, and there's some large pensions out there as well. So now we are just revisiting our clients' financial planning, revisiting their future planning in terms of how they prepare for passing on their wealth to their family. And Harriet, is the law locked in now, where are there still things to be decided on this? Yes, so the policy isn't going to change now. This is going to happen. It's still possible that it might be tinkered within the coming finance bill, but it's not going to change in any material respect I wouldn't have thought at this stage. Martin, can I add one more thing? Of course. Please. For everyone out there that has a pension, regardless if it's a large pension or you don't have an inheritance tax liability, but for everyone, make sure your nomination of beneficiaries' forms are up to date because that really tells the trustees of the pension scheme who you want to pass it to. So I put a clip on social media about that very issue yesterday. Yeah, people often think that pensions are covered in their will. It's not. It's the, for a private or work pension, it is the trusty or pension provider who decides where your money goes and your nomination form or beneficiaries' form or expression of which is form is what tells them, well, how you tell them where you want it to go. You would have done it when you were signing up, but you'd be surprised how many people getting touched with me and annoyed because, you know, their partners just died. They're not married and it's gone to their partners ex-wife, not them because then that form was updated. So I would echo your thoughts very much. Let's move on to our next question. Sean, is money paid into a junior isa outside of the estate for the purposes of inheritance tax in the same way money paid into a pension is? I wouldn't have thought so here. Let's check with Harriet. I don't think there's any special isa exemption is there? No. I mean, you could put money into a junior isa and survive the gift by seven years, but in the hands of the junior whose isa it is, it would still be within their estate. Yeah. I mean, junior, there's no special rule. So all the other gifting and exchange rules still apply to this, but there's no special giving somebody money to put in an isa rule. We need to come onto the gifting stuff. I have it in my questions. Really interesting one from Celia here. Harriet, I'll start with you on this. Can you refuse inheritance if the estate has debts over its value? You can. I'm assuming the reason this is being asked is because there's a concern that if you take the inheritance, you're liable for the debt and that's simply not true. So realistically, you wouldn't need to disclaim the inheritance. You could simply just ignore it because there wouldn't be anything to inherit once the estate had been wound up. But the difficulty is if you wanted someone had a house and they had lots of debt, you can't just take the house and not take the debt. I mean, it's the estate that would pay the debts effectively, but that would still have to be paid, wouldn't it? It absolutely yes. So you don't get the you don't have to pay debts over the value of the estate, but equally you can't just take the property sadly. Yeah, you've got to take the good and the bad that all comes with it. Gillian. I'm a single person divorced, so no spousal allowance received property and now inclusion of pensions an issue if I die before I spend them. What should I be looking at? I think Lucy, this is in your bag, isn't it? So what I'd recommend is depending on who she wants to pass her pensions to, we can look at things like the gifting out of natural and excess income rule, which is immediately exempt, if she has other capital she can make potentially exempt transfers and also on potentially exempt transfers. Any growth on that money is immediately outside the estate as well. So if you give a lump sum of £300,000 and then that grows in value because it's invested, it's only the £300,000 which you need to last seven years, the growth is automatically outside the estate as well. So the potential exempt transfers to seven year rule or the three to seven year rule that we talked about earlier. Let's just, we're going, Sean's question is next, the allowed £250 gifts. Can you give only £250 gift per person per tax year? Can you give multiple £250 gift to the same person in a tax year? No, you can't, it's one per person. But let's just do, Lucy, let's go through all those other gift allowances available that will start with, there's a £3,000 rule, isn't there? Yes, so there's the large gift allowance, which is £3,000 per individual per tax year. And what that means is, so I can give £3,000 in my large gift allowance either to one person or split between multiple people and also I can reclaim a tax year as well. So if you haven't given that £3,000 last tax year, you can effectively give £6,000 today. So this is just so people understand, this is outside of the seven year rule, outside of the giving money from surplus income rule, you're allowed, you as an individual can give up to £3,000 per tax year without paying inheritance tax on it. How do you denote that you're using this large gift allowance? Do you have to note down that that's what your intention was or is it just back out? So I recommend with all gifts and that's the small gift allowance of the £250, which is spoken about the large gift allowance of the £3,000 or any gifts actually written down either on a piece of paper or on a spreadsheet and held with your will? Because when you come, some passes away and you come to complete their inheritance tax form, there's actually a whole list where you have to detail all of the gifts which you've made leading up to your death. So now I definitely make a note of it and put in one column and just put large gifts allowance for this tax year. OK, so I can give money from surplus income, I can give money away as long as I last seven years and it's a gift without restriction. I can give £3,000 to as many people, my maximum I can give is £3,000 but I could share that between different people. What's the £250? So the £250, effectively I could stand on a street corner and give £250 to as many people as I wish. What I can't do is give one person one pound more. So if say Martin, I'll give you £250, how are you £250? In this tax year, what I can't do is then come back to you, Martin and go, actually have another £50 on top of that. How does the £250 small gifts to an individual? So the £250 is, you can give to as many people as you like but maximum £250 to a recipient. The £3,000 rule is the maximum that the giver can give. How does the £3,000 rule and the £250 rule interact? The person who given the £3,000, you can't then give them the £250. Okay, so they have to be totally separate. The way I look at it is you give your daughter £3,000 and then you give your grandchildren £250. Makes sense. And then Peter, is it really necessary to keep evidence of all gifts over £250 for seven years given that most people don't know when they're going to die? My recommendation and interested to hear Harriet's views on this as well is if you keep a list of all of the gifts you've made, it will make things so much easier for your executives when they come in to fill in your inheritance tax forms. Harriet, what do you think? I can't believe it. completely agree with with anything keeping contemporaneous evidence as you go along is always going to put you or your state executives in much better position to deal with HMRC. So yes, absolutely. It's not that ownerous to keep keep evidence of gifts for seven years I don't think. So yes, I would recommend doing it as well. Okay, so now I'm going to ask you both the tricky question. So Lucy, we're going to take your calculator away. You're answering this as a human being when outside of your normal place and Harriet, we're taking your wig off, I presume you wear a wig sometimes I don't know, maybe wrong. Your barristers wig off on this one. At what age would you say it is sensible for people to start keeping notes on all this type of stuff? You know, what point in life do we start to start thinking, well, just in case, there might be an administrative issue if I were to pass away. Go on, Harriet, let's put you on this one first. Early thought is genuinely because that's sort of why it's so impressive. Well, you know, I think I'm in my midforties and I recently had the surreal experience of having a friend, I've cancer and thinking, yes, that was too early, but it wasn't tragically early because it's around this age that these things start to happen. So I would say with an abundance of caution early to midforties. Lucy? So I would say, I'm going to go slightly later than Harriet and I'll go in your 50s. That's still depressing, Lucy. But when you've maybe when you've received an inheritance, so your wealth is more, so you start to come over those neural rate bands. For me, it's I'm a financial advisor, it's about the amounts. And if you've been diagnosed with an illness, start to keep those records then. For me, at any point you go over those neural rate bands, so inheritance tax becomes a concern, boy. And the good news is once you've lived so anything that's more than seven years ago, we don't really have to bother about that much because that's gone then, isn't it? Do we still keep records then? I'd recommend keeping records for 14 years just because some allowances may have been used up in the previous year, say, and my advice is 14 years and it'll probably save you some legal costs as well. So we've now done giving gifts away from income, we've given potentially exempt transfers, if you live longer than seven years, the large gift, £3,000 allowance, the multiple small gift, £250 allowance, but then there are also, I believe, special occasion allowances for things like weddings aren't there. I don't know if either of you Harriet, maybe you've got a list of those. I have, I'm looking at the relevant section of the legislation, which is obviously very helpful. So you've got gifts in consideration of marriage or civil partnership where a parent of either party to the union can give 5,000. So if all four parents gave the maximum, that would be 20,000. Yeah. Parent or a separate parent, I'm guessing as well. Yes, yes, you could. Yeah. Other people who are relations, so grandparents could give 2,500 and anybody else can give 1,000 on the occasion of marriage. Okay, nice. Any other allowances in similar vein or is it all about marriage, is it? I was just going to also say you can also gift your large gift allowance with that as well. So the £3,000 we spoke about. So it's not exclusive. So if you're a parent, you could give on someone getting married, you could give them £8,000 outside of your estate, even if you were to horribly pass away the next week. Yes. Cool. We've got one more question, I think, and I think we'll stop there. Hopefully we managed to cover most things that people want. Colin, will a sip, self-invested personal pension draw down, be considered as part of my estate. It will be inherited by my only son. He's a high rate taxpayer. Should he keep it invested and can he draw down on it outside of the estate? I think Lucy, that is probably you. So the sip will be part of Colin's estate post April 27. If he dies before he reaches age 75, then he'll pay inheritance tax on it, no, his son will pay income tax on it. If he passes away post age 75, then his son will pay inheritance tax and then income tax, which is quite significant for a higher additional rate taxpayer. What I would recommend is actually he seeks financial advice with his son to see are there other options? Does his son need the money? Could he pass to grandchildren, for example? Very interesting. Both of you, absolutely brilliant. Thank you so much for joining us. That's Lucy Spencer from Evelyn Partners and Harriet Brown, who is the presenter of the International Tax Bites podcast. Thank you so much. Hopefully we have demystified or at least made you understand the complexities of inheritance tax today. That's it for this week. We tend to put out a new episode every Thursday on Monday. The Monday one is our question time podcast where you can ask me absolutely anything and everything open brackets within reason, close brackets. If you've enjoyed it today, please tell your friends you've been listening to The Marting Lewis podcast. Why not give us a review online too and even better subscribe than your pockets will be pleased with you every week. Thanks for listening. Martin Lewis is the founder of moneysavingexpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing Martin Lewis podcast at bbc.co.uk. 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