Hi James, great video. Question. What about Trusts? Would be great if you could do a video on Trusts and how these vehicles can help with reducing IHT. Thanks
Hi @JamesShack. Thanks for the video/content! What happens if your pension has significantly higher fees than your stocks and shares ISA (invested in a low cost index fund) and grows more slowly as well? Wouldn't it be more beneficial to prioritise the S&S ISA in this instance if I've still got 20/25/30 years for it to grow? Presumably it'd be more beneficial to choose higher growth and lower fees over the tax top up that you receive initially, but will need to pay tax on later? I'm 28 by the way and aiming to retire at 55.
Having spent most of my working career alongside financial advisers, James’ ability to communicate complex matters clearly & simply really stands out. Great work again.
I passed my advanced diploma this week in regulated financial advice and I have to say your videos are more engaging and educational than 99% of the articles I see from major providers in the UK. Thank you James for helping me on my journey!
Tbh, this is the best video so far out of all the Finance experts online on the ISA vs Pension debate. You have clearly outlined a spectrum on how to determine instead of the usual ‘it depends’ without any models or context. More like this please
work hard at school get to uni get a degree get a job and pay into a pension Become a wage slave for the rest of your life Thats what the Govt want you to do and then die at 75 and pay 40% of your lifes work There has to be a better way
@@richsmart321 the problem is you have no idea how long you are going to live - so you you either end up with to much or run out before you die. It’s immoral.
@@charlesstewart2304 was the same not true with final salary or annuities, just that you knew there was nothing to pass to your children with those. at least with DC pensions there is the possibility that they might get something, which is still better even if it is taxed as laid out by james.
People are facing a tough retirement. and it's even harder for workers to save due to low-paying jobs, inflation, and high rents. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire in.
The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.
It's recommended to save at least 20% of your income in a 401k. Sonya Lee Mitchell taught me to estimate how much you should save based on your age and income. I've been with her for years now and her decades of experience in the markets translate to chunks of value in so may ways! She has upscaled my portffolio and even got me reading self help books haha
The biggest lesson I learned in 2023 about the stock market is that nobody knows what will happen next, so practice some humility and low a strategy with a long-term edge.
Nobody knows anything; You need to create your process, manage risk, and stick to the plan, through thick or thin, While also continuously learning from mistakes and improving.
@@FarukStingl I agree with you. As an early investor in NVDA, AVGO, ANSS, and LRCX, my financial advisor's advice was incredibly helpful. Over the past seven years, she has helped me find stocks that have performed 10x multiple times. With her help, I've grown my portfolio to over a million dollars.
@@TerrencesSheldons My CFA ’’ MARGARET MOLLI ALVEY, is a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
James - I know you said it took you a while to put this video together, but it shows. There are a number of complex topics/what-if scenarios in this video and you walk us through them with your usual clarity. An excellent video with something here for everyone.
Not just the government, on top of that the company through which you invest decides what they offer you at the end! ISA all day long people, don’t worry about the 20% the government add, that just gets taken away in tax at the end anyway?!
But that's inevitable considering the huge tax benefits of pensions. I don't think it's unreasonable for the government to impose rules on how pensions are used and taxed when contributions are tax-free.
James, I used to organise an event programme for IFAs here in the UK and have met thousands of experts. That was the best, most logical and sequential explanation I have ever heard. Geoff
I’ve lived in the UK for almost all of my working life. However, I’m planning to return to Switzerland when I retire. Switzerland (along with many other countries) don’t have IHT. There must be a large amount of people watching your excellent videos that are in a similar situation. I’d be interested to hear your thoughts about how IHT planning across borders could be managed. Maybe an idea for a video??
So true! I retired to Thailand 3 years ago. Before the budget, my worldwide assets would have been assessed for UK IHT, as both my parents were born in the UK. Now, with the change in rules regarding non-doms, as long as I haven’t been a UK resident for 10 years before I die, I will not have a UK IHT bill. Thailand does have IHT, but the threshold is about £2m, and the rate for direct descendants is 5%.
No, but other rates of tax are higher and the cost of living is MUCH higher in Switzerland. Look at the WHOLE picture to determine the net, net effect.
So you take as much from the UK as you can and then refuse to pay tax on it like the rest of us.... I wonder how we ended up in this economic situation? Is it because noone wants to pay thier fair share anymore? You've benefited from the UK, you took a British person's job, pay the tax.
@northernnaysayer1240 If you believe what you said, then good luck to you. You want to blame someone, blame the government. The odds have always been stacked against the working class and anyone who dared to dream for a better, more prosperous life. That includes you, too.
Great video again. I think one of THE best finance communicators on you tube. On a related topic I’m so glad they did not change the tax free amount you can take out and reduce the tax relief going in. I think with both this government and future the freezing of allowances across the board will be a challenge to future generations.
Your examples are good James, but the situation for the single or unmarried folk is dire. They may wish to leave cash to nieces and nephews or others, but their inheritance tax allowance is only £325,000. There is no nil rate band for family property in their case. £325K might sound like a lot, but average home value in the UK is now about £300K. In the south if the UK especially London and the southeast you can double it. This terrible situation has been present for years, the Conservatives froze the inheritance tax rates in 2009, they never pegged them to inflation. The tax grab from this will be enormous unless pensions and assets are either gifted early and within the tax rules, or you spend the lot on a good retirement. Labour haven’t factored in the rush for the door from older workers who will realise that piling up more pension after a certain point, just isn’t worth it.
I am not a political animal but Gordon Brown destroyed the final salary pension is 1997 when he implemented taxing pensions and took away the retirement plans of 10's of thousands on people. now after only a few months they are at it again. i have no financial background but surely both the price of houses and inflation should be taken into consideration when setting the level of IHT. Also another attack on those who try to organise their life for the future instead of wasting all their money.
The UK pension scheme is by a significant way the single best investment vehicle in the western world. There's nowhere that allows you to have £60000 entirely free of tax, each year, then invest it and keep all the dividends totally free of income tax, and then keep all of the compound capital gains, free if tax. And then, you get to take 25% (ish!) totally tax free on retirement, before then utilising another £12k a year tax free. You show me anywhere else you get such huge tax advantages. In the US their contributions are about £17k max and no tax free on draw down
@@j8ybbseems to me like putting money into a pension is a gable that you will live to see said pension otherwise I'd hate for my inheritance recipients to be taxed at 40% just to fund the life of dole wallers that have done nothing all their life and played it smart. Does it pay to pay into a pension... yes, what if you live in the UK then it's a resounding no if your just a regular income worker (up for 50k a year) then your better off spending all your money and put your hand out for the government in later life. Yes the 60k allowance is nice but show me how many other countries tax you at 40% of what you leave your heirs (only for the stupid people, smart alecs like the king pay nil. tax. Was personally planning to upp my pension contributions but after the latest changes think I'll just aim to use all my money by the time I reach retirement and put my arm out for all the freebies.
Good explanation and totally agree with your thoughts-it makes more sense to gift money earlier if you don't need it. For those like me though who plan to spend every penny,this budget makes almost zero difference unlike other less trustworthy channels were suggesting with their clickbait content prior to the budget. James is definitely in the top 3 channels for financial planning in the UK
Well done James for being the only YT channel to identify the 2027 impact. Please could you consider a pros/cons video on the use of trusts and/or family investment company.
I've seen several channels mentioning this - that's how I learned of it since it was not announced in the Budget Speech EDIT: TBF this was the most detailed so far
Spot on Colin and also with impacts on the forthcoming March/April 2025 budget - which is likely to be equally painful as the most recent one - this is the first video by James I stumbled on; - excellent video indeed
If Henry gives his £400 000 house to his children while he is alive, what happens? I assume children don't have to pay tax on the rest of the inheritance and the problem is resolved.
Then where would Henry live? If he keeps living there, he would need to pay his children a market rent rate. Otherwise, if he lived there rent free, he's not really given it to them has he, and it's seen as a gift with "reservation of benefit" and would still fall within his estate.
@JamesShack thank you for your reply. I didn't know about the "reservation of benefit". However, I still believe that there is a way around it if you have a loving, caring family because you could pay them the rent and they could just give you your money back. Things are different, of course, if you don't have a good relationship with your children and can't trust them not to throw you out.
@@aleta5024 it’s funny why would any father r mother r grand father and grand mother would have to pay any rent when they are living with their sons or daughters.. This shows lots of political corruption in the name of taxes
@@aleta5024 There would still be a paper trail of the money going back to Henry and therefore HMRC would deem that he isn't actually paying the rent.....unless of course he keeps a lot of cash under his mattress
Great video James, very comprehensive guide to post budget pensions. Only friendly criticism is not including the state pension, as it uses up most of the threshold. Apart from that, top notch as always.
True, but OTOH most of his clients / audience will retire before state pension age. A tangential point might be to ask how long the triple lock can survive. Its current implementation means that pensions rise faster than any of the three measures over years. In the meantime the state pension becomes an increasingly important low-risk component of retirement income.
@@mlj9931 the triple lock is only sustainable by increasing the age required to access it also, and we've seen it happening, so it will easily be 70+ by the time most of us in our 30's are retiring. Mostly its best to just assume the state pension won't even exist by the time we get there - anything that we do qualify for will be a bonus.
What a great explanation of a chaotic process! The one thing that stood out for me was the final tower chart ; down low, all very simple, but once in the upper half a whole boat load of "options" appear for tax efficiency! Doesn't feel very balanced.
James what’s your view on 2.17 of the consultation? ‘Technical consultation - Inheritance Tax on pensions: liability, reporting and payment’ Part 2.17. Requiring Inheritance Tax to be paid directly from pension funds will also prevent an additional Income Tax liability becoming due on the funds used to pay the Inheritance Tax. That appears to be designed to prevent double taxation. Surely the fact the provider would need to obtain the Nil rate from the personal representatives and calculate any IHT would enable them to declare the relevant taxable and non taxable pension element’s through the RTI submission, assuming HMRC provide specific elements for this purpose from 2027. If the provider has deducted the IHT that should suffice, negating the need for the beneficiaries to be charged income tax on income related to such elements on death after 75 going forwards. It was inevitable that the tax free nature of pre 75 death benefits would cease at some point but surely, regardless of whether death occurs pre or post age 75, there’s no need for income tax to be payable on such income once the balance of a DC pot become subject to IHT. Double taxation would be incredibly unfair following the death of a loved one.
That is not my understanding. As I read it, that paragraph is simply clarifying that because IHT is paid directly from the pension, i.e from money that is GROSS of income tax, there is a tax advantage. Compared with all IHT having to be paid from non-pension assets, or NET of income tax assets.
@ thank you, in which case 2.17 is very badly worded. I guess we’ll find out in due course but if it means a death benefit payment is subject to both IHT and Income tax in addition that seems incredibly unfair.
I would be interested in a video about family investment companies. Also business property relief investments. I can see the IHT/pension ussie becoming a BIG area of interest. Thanks
Having earlier this year been through the nightmare called "probate" on a fairly simple estate, the last thing I want to do is put my two "kids" through the same and given the complexity of my estate be obliged to engage in far, far more complicated process. Whether this is within your remit, I would be extremely interested to hear your views about professional executors. I do not wish to let my kids go through the pain and grief that mine and my wife's death will cause on an estate of circa 1.7 million.
My parents specified which IFA should be used for advice in administering the estate. We ended up paying him about £6000 but he saved us four times that in IHT compared to my calculations. Obviously I don't know your kids but do you think they would agree on what to do ? Better to have an experienced person advising them. Finally a personal tip would be to specify "the house will be sold" in your will.
@@MrDuncl I am very grateful for your input it is much appreciated. I intend to sift through IFA's and hopefully find one who I would be confident could do the necessary. I must say, if it could be done for say £6K I'd be delighted, given I had visions of many tens of thousands. Good tip about selling the house.
@@dontuno Due to the IFA retiring we ended up with a different IFA from the same local company. However, just specifying the company in the will was useful. Maybe add a backup as well. Like I said I don't know your kids. Obviously I know my sister, who is inclined to think she is an expert in everything. She certainly isn't an expert in house buying having never done that and, partially as a result of the pandemic, is back living in what was my parents house.
Hi James, great video. I'd love it if you could do a video on some pension investing strategies for people in their early 40's with different levels of earning power. I'm in the 45% tax threshold and am investing a big % of my wage into pensions (and maxing ISA), but I'm now worried it's too much with the new IHT rules. Is there a total cash value at which a pension pot becomes inefficient large?
How could a pension ever ever become inefficient, now we have no max cap?! At the top end pensions provide 47-62% tax efficiency on entry....where you can then keep all the capital gains entirely tax free (until you draw down, of course!). There's simply no other scheme anywhere near as generous in allowing you to have so much capital to play with! (Because to get access to that capital you have to wave goodbye to 47-62% of it!)
@@j8ybb If you are paying in such large sums to qualify for 47+% relief on the way in, you're almost certainly going to be paying 40+% on the way out anyway. Its worth contributing to get your TFC (if that even still exists by the time you start drawing!), but you lose all the flexibility in when you can draw. The age is already going up to 58, so it is easily 60+ by the time those of us in our 30's get to that point. A balanced approach including maxing the ISA is definitely required to fund retiring in your 50's. At 7 figure sizes it also becomes a bit of a worry that the income tax rates today will be lower than the ones of the future, and there's no guarantee the max cap doesn't return too, so hedging your bets and having some in and some outside of the wrapper is likely to be wise. And that is before you even start thinking about how it impacts passing it on!
My target retirement fund in my 401(k) had poor returns compared to the S&P 500. I switched everything to the S&P 500, but I regret not doing it earlier. What are the best options for investing $200k for reliable cash flow?
you need a certified financial planner straight up! personally, I invest in ETF's and also love investing in individual stocks. yes it’s riskier but am comfortable in my financial environment
I agree with you. As an early investor in NVDA, AVGO, ANSS, and PLTR, my financial advisor's advice was incredibly helpful. Over the past 7 years, she has helped me find stocks that did 10x multiple times. With her help, I've grown my portfolio to over a million dollars.
Sure i don't mind. I've stuck with ‘’Sophia Irene Powell ” for years now, and her performance has been consistently impressive. She’s quite known in her field, look her up.
Great video James. My father (married and over 75) has cash to live off and a sizeable pension over £1m we had been planning to pass this down to myself and my brother but given the potential rule changes we would incur significant IHT. Could you offer thoughts on how to reduce this the last section of the video seemed to cover this but i’d like a little more information if possible.
Hallelujah! God is still performing wonders. I'm positioning myself for such miracles. This is the best thing I've seen today on UA-cam-thank you so much!.540k earned so far. ...........
To be successfully in life one must take risk, investing brings success that’s why the rich will never come out in public to tell you how they make their money
*_The crypto market has been unfavorable for months and I keep losing my money selling-off during dips, I'm very scared of holding right now, how do you guys still make so much….?_*
Venturing into crypto as a newbie was very difficult due to lack of experience which resulted in loosing funds... But miss noah rachel, restored hope shes a good woman
You're right! I've been trying to trade but I keep making losses and it's frustrating Who is your mentor please. how can I reach him/her I really need help
Excellent video - THANK YOU. It would be really useful to have a specific video for an older retiree with assets mostly in a pension and a fund over £2m - as there are another whole raft of considerations
Both my parents died in the last 2 years, mum then dad. fortunately they had decent life insurance cover so we were able to pay the 150k IHT. i dont understand why we had to pay the iht within 6 months of dads death. If they didn't have these life policies we wouldn't have been able to get probate and sell their house to pay the iht in time. It makes no sense...some people must have to get loans just to pay iht
I'm sorry to hear that, but thank you for sharing this. Probate is a nightmare, and this is a great example of how life insurance can help the situation.
@@JamesShackSimilar situation in my family. Auntie died about 15 months ago (husband passed about 10 years before her and no kids) estate worth about 800k so IHT bill was due before her house was sold. Luckily estate had cash available to settle the bill as my parents would have had to raise the funds otherwise which seems an unnecessary stress. I get that they don't want people avoiding paying iht by not selling property but where house was on the market it would make more sense to align the payment to the house sale.
@@dafruk1 IHT shouldn't exist at all. It's a disgusting action by the state. Your aunty and uncle worked hard all their life to afford what they had, and then when they pass it onto their family it becomes a burden instead of a blessing. Utterly shameful thievery.
Best bet - lease a nice new car every couple of years, make sure you always have the latest phone, enjoy a couple of foreign holidays a year. And then when you stop work, you're the government's problem but at least you got to spend the money on yourself rather than them taking it when you die. Or if you do want to invest, make sure some of it is in a form that might get missed as part of your estate...
@@br5380 either that or poor now to save for a good retirement that might not happen and whether it does or not, give a load of it to the government at the end.
@@hooksforestchin Or just do what 'sensible people' do, live within your means while saving for retirement. And a 'basket' of savings should look at the tax implications for both spending & saving - including for when you die. This is why the aristocracy is still the aristocracy, they plan for the future, in the long term.
Great video James. Many thanks. Do you know how the inheritance tax charge that will be allocated against your pension pot interacts with the lump sum death benefit allowance? Is the lump sum death benefit allowance tested after the deduction of inheritance tax from the Pension pot or before? I can't find anything in the guidance that seems to answer this question. many thanks
Such a great video James. I have a question. If you open a join account with your children, put funds in it and you die, would that form part of your estate? Also, few additional things to consider: If you are a higher rate taxpayer with a employer match and salary sacrifice pensions are most definitely a no brainer (don't believe this was part of your chart). Increasing contributions into your spouses pension to take advantage of both tax free allowances and stay under the 20% tax threshold. Take out life insurance/assurance (in trust) to cover inheritance tax costs Depending on your age (I'm 40), income tax and pension tax free lump sum thresholds are likely to increase so current thresholds should deter you from contributing if you're close to breaching. Again great video, thank you
If you open a joint account with your children, and then die, HMRC will look to see where the money in the joint account came from, and if it came from you, they will determine that it as your money (you are/were the beneficial owner) and decide that it is part of your estate - it won't save any IHT. While a Higher Rate tax payers with employer match and salary sacrifice option wasn't shown on the chart, if you were following James' logic, it was clearly better than for a basic rate tax payer. Life insurance as a way of paying IHT is likely to be very expensive (although not as much as the IHT), because you are certain to claim on the insurance (you would need Whole Life insurance to guarantee a payout. Term Insurance might leave a periods at the end of your life when you are uninsured). Therefore you would expect the total premiums to be higher than the sum assured.
One nuance I've not seen covered in videos is the effect that the IHT changes will have on unmarried couples. The pension cannot be passed to the surviving member of the couple in the same manner as it can with married couples (or couples in a civil partnership), IHT will be assessed on the death of the first member of the couple rather than the 2nd, this could have a significant effect on the living standards of the survivor. The number of couples not in a marriage or civil partnership is something like 25% and the trend has been increasing.
That was one of the main arguments for introducing Civil Partnerships. Someone I know keeps a "spare" house in case her partner dies which would result in all his assets going to his children.
Great video James! What is your advice for people in work who are fully "tapered" in the 45% band and can only pay in £10k per year tax free? Assuming ISA allowance is also fully used do you advise to pay in above £10k and take the tax hit on the way in? Are there other solutions?
James I think you need to show 1) Higher Rate Taxpayer when putting money in and Basic Rate when taking out with FTC - 10% tax on way out 2) Higher Rate Taxpayer when putting money in and Basic Rate when taking out without FTC
For Gifts Out of Income, what would counts as Regular? Could you for example have an annual standing order set up? Maybe as long as its happened a couple of times be ok?
Great video once again James - thanks so much for your ongoing education with costed examples across various scenarios. As an addendum, would you be prepared to issue a 5 min video highlighting your scenarios for someone living in Scotland? Given the lower tax bands and higher actual percentages applied, what is the impact for 1. Paying into pensions and 2. Pension withdrawals,? Fantastic videos!
Each time I increase my AVC I am surprised how little difference it makes to my take home pay. And that isn't even considering things like the drop in the personal savings allowance when you become a higher rate tax payer. I'd rather lease a salary sacrifice EV than be a higher rate tax payer but thankfully there were no changes in that area in the budget.
If you get an inheritance of a pension that has to be paid as a lump sum and get taxed on it, use it to fund your own SIPP most people won't be fully using their pension contribution allowance so can get any income tax on the lump sum back that way, can also use the permissible previous years allowance if necessary.
That would only apply to quite small lump sums. Using previous year's allowance (carry-forward) is only applicable to people earning over £60k and your pension contributions in any tax year are always limited by annual income, so with median earnings around £35k, only very few people would be able to benefit.
Pension contributions are limited to 100% of income in that tax year (minimum £2800, maximum £60,000, plus one year carry back). The inheritance does not count as income, so only a small amount of it could be used as a SIPP contribution
Great video James - Thanks! I paid the majority of contributions into my pension in recent years on the basis that anything I have left I can pass on to my children, whether people agree with that or not - Do you believe there is any possibility any money paid in to date will be ring fenced? It just strikes me as incredibly unfair that this government are moving the goal posts.
The moving goal posts certainly makes things very hard to plan. I do not think they will bring in a ringfence like that. Are you a higher rate tax payer?
@ Thanks, that’s unfortunate. Yes, I consider myself very fortunate to be a higher rate tax payer and do not have an issue paying my fair share of taxes, however, going from my children getting everything to potentially losing the vast majority of the pension I have worked hard to pay into hardly seems fair. I think Imposing a 20% IHT would have been fairer.
@@RogerRamjet-t4q fair point but if I withdraw my pension at £40K PA I would only pay 20% tax on that. The problem when governments try and take too much is that people then go out of their way to avoid paying IHT. I suspect more people would avoid gifting and other avoidance measures if the tax was fairer.
I come from a poor working class family, my parents instilled good financial sense, taught me to work hard and never take a penny from the system. I did and in my 50s now I'm heading towards that magic million mark in pensions and savings and now I'm beginning to think a) why didn't I just throw myself on the mercy of the state and get my freebies ( joking! ) or b) retire as soon as I can, piss it all away and "die with yer boots on" and with a smile on your face! Seriously, as my wife has said as we dicsussed the new changes, it's as if they've made it so damned complicated they know you'll miss something and your kids will get stung for tax like they've never been stung before. It makes you so angry that you worked so hard all your life, saved like crazy as you were supposed to and now you're just a giant ATM to the government and their utterly pathetic ability to manage the public purse. ( Put my soapbox away! ) Looks like my IFA I engaged with 6 months ago is about to earn his money!
But hopefully you've got plenty of time on your side. You can either choose to give money away sooner or accept if you take the "hey kids have what's left when I'm gone" approach that there maybe an IHT bill attached to it. Even before this change I've always intended to start disposing of assets before the end. I'd rather see the kids get some benefit of it in my life time. Should I reach a great old age and then leave everything the kids may themselves be at retirement age by then and the benefit of receiving that money at that time of life would probably be somewhat less
My thoughts exactly, where would we be if everyone just claimed benefits never working though? Gov is soooooo bad at manager everything from wasting money to just not incentivising people into work and helping companies become successful it's beyond a joke. The country needs to be run by better people instead of these jokers / thieves.
You've clearly had plenty of "Free money" whilst building you 1m pension & savings pot (40%) tax relief, im sure you'll have a happy and long retirement, if by chance you leave your children over £500'000 each i'm sure they will manage any tax due !
Marvellous video delivered with supreme clarity. Thanks James. In the bit where you compare the inheritance of ISA v Pension, I can see how both get clobbered by the 40% IHT but with the ISA you can then use or stick in a savings account, etc. with the pension, you have to pay further marginal tax rate in order to use. Am I missing something?
Can't they ask for the money back if they gift it and then run out? Seriously, is someone going to gift their child a wad of cash and then that child sits on it and laughs while their parent starves?
Agree - it's perverse that changes made to a long-term saving product are now effectively encouraging people to bur through their savings all the more quickly!
@@davidcouper7445 Then they're mortgage free and can support mum and dad. "Oh but what if this and what if that" How about people use their pensions on what they're meant to be used on. Good grief, anybody who is inheriting an amount that qualifies for tax is still going to get a pretty sweet sum.
Love the content on your channel👍 A question on pensions being considered as part of one's estate from 2027, if I may. Is there a risk that pensions will lose typical 'trust' protections i.e. protections from creditors - policyholder being forced to access pension policy to pay off debt? Thanks in advance.
Great video . Been speaking to my financial advisor today funnily enough. I’ve worked since I was 18 paid 10 percent of my earnings into my pension and am now 62. I have two rental properties and my own house all bought and paid for and am now going to be robbed by Rachel Thieves for money I wanted to pass on to kids and grand kids. Total rethink now required.
Don't you think you've had a rather blessed existence where 44 years of work has permitted you to buy three houses outright? Ask people of your kids' and grandkids' generation how many houses they expect to own at 62 if they had the same length of career and saved the same amount of money you did. I suspect your kids' generation will aspire to own 1 house (which they will still be paying off whie working at 68) and your grandkids' will expect to rent in perpetuity, as all the property was bought up years ago by landlords like yourself and passed on to be rented out forever. Redistributive measures like IHT help give those future generations a meagre hint at the possibility of following your fortunate financial circumstances, which are as much due to the socialised system you laboured in as the actual work you did.
@@meepmeep1313 Future generations can do what he did and work. Taking what someone has earned and pretending your doing it for someone else's benefit is dishonest. If you're going to steal from people at least have the decency to be honest about it instead of being mealy mouthed and using weasel words.
@@illegalopinions4082 my whole point is that they can work just as long and hard as he did and they will accumulate less wealth than him, as a result of his generation pulling up the drawbridge by minimising their contribution to society and becoming the first people in history to be wealthier than their children and grandchildren's generation. Tax is not theft. It is the proportion of your labour you contribute in order to have a functioning society around you, without which you would have no job, income, home, pension or opportunity to raise a family, because there would be no infrastructure to support any of those things existing.
Years ago a "Living Will" used to be a way of passing on property ahead of time before you die. Is that still the case and/or are there any drawbacks from this?
INT was never designed to be a wrapper. The tax benefits are generous so you can look after yourself in old age. The intention was never so your kids can have it fax free. People are now choosing to spend ISA and NOT their pension, therefore this closes that loophole. The issue is really that IHT was originally for the wealthy. But the allowance has not moved up much, especially now that people with a decent house will now find themselves paying it. They should just make IHT relevant to £10m+ and reset who it affects.
@@wl660 IHT allowance is absolutely fine where it is. Children should ideally inherit 0, and above all expect to inherit 0. If you want to give it away during your lifetime, to children or to Battersea Dogs Home, that's also fine. Just stop the whining when it comes to the cash-cow coffin-cheaters who you also sometimes call Mum and Dad. Kerching!!!!
Not for most people, but for some it's become an alternative to buying up farmland. Glad to see these loopholes are being closed, to be honest. If farmland is not valuable for IHT then its price will drop fairly rapidly and farms will stop being worth as much as they are stressing out today. IIRC Clarkson, the hypocrite, says that farmland near him is £40k an acre as a result of the existing rules! £10k is normal. But Labour should have increased the IHT threshold given this new rule, or allowed say, 200k in a pension to be passed down (400k spousal) on top of the 350k/500k/1m to not affect most people.
@@AgileSnowWeasel Simple solution, if the farm is passed to farming offspring and those individuals demonstrably farm that land, then no IHT due. If the farm is sold within 10 years then IHT is due. This would fix the problem. Of course, Robber Reeves has different ideas.
Very informative video; thank you James! Please can you comment on pensions’ management if one were to retire outside the UK and be a non-Uk resident for tax purposes.
Henry is also a model train enthusiast, which his ex-wife says eventually led to the divorce as he spent more time in the cellar he converted into a realistic model of the Greater London area.
11.53 the taxable investment account has a return of about 800 - but wouldn’t the capital gains tax only be on the capital gained? Therefore if zero growth you would still get the initial 1,000 out? It would still be joint bottom in your sliding scale.
So if you got back 10% (e.g., S+P500) over 20 years, the 1000 would be £6720 (with a real value of £3733 but CGT applies on actual values not inflation-adjusted values). Your allowance is £3000, so you would pay CGT on £2720, which is £490 in CGT (assuming you time your sale to be in a low income tax year). Obviously the CGT allowance effect is less if you are talking about £67200 sold each year which might be a fair pension drawdown in 20 years time from a large (500k+ today) pot.
Can I ask a silly question. Why does the gov have any business in taxing our already taxed assets, isa (paid in after being taxed), house, (bought with taxed income) any other assets we have bought with our taxed income. How did this ever become something legal 😂
Because you didn’t pay tax on the GROWTH in value of your assets. That’s still, ultimately, income you have and everyone else gets to pay tax on it. House inflation is the prime example. If you bought a house for £100k and it’s worth £500k on your death, no one has ever taxed that £400k before (and if you have children, they will get another big wodge of tax-free-ness).
The government taxes lots of things you've already paid tax on e.g. VAT, Council Tax. Also, factually, a pension isn't something you've already paid tax on.
@@CarolinePicking but your primary residence is excluded from CGT as well as ISA’s. Anything over the 20k isa allowance (normal stocks and shares account) and second properties should be subject to it only. Why do other countries not do this and we do?
Well as a former boss of her's has now revealed, she is not an economist, she worked below him and he was aware her and 3 senior managers were signing off on each other's expenses and just avoided being sacked , she was almost sacked but resigned to save face when it was discovered her many dental/ doctors appointments were actually her Labour council activities. She was was never an economist for the Bank of England and her LinkedIn profile has been amended to cover up her lies. In business anyone assuming a job based upon a fraudulent CV can be sacked. Which begs the obvious question.
Great analysis, James. Thanks for sharing. As frustrating as some might find it, I think this is an eminently sensible decision by the government. A pension should pay for one's retirement, it's (in my opinion) wrong for it to be used as a vehicle for IHT avoidance.
I'm glad you found it useful! As demonstrated in the video, under the new rules, if you're a 40% taxpayer, a pension is STILL an OK vehicle for passing on wealth to future generations. Which goes to show how generous the old rules were!
@@JamesShack Hey James do you mind me asking why it’s generous of them when, really, should we paying IHT at all? i think the general person who has a full time job pays enough into the country without IHT
@@BG26278gg Because we don't pay taxation on the money itself. We pay taxation when money changes hands. ie. on transactions. When you die, your money/estate is going to other people. THEY are gaining income via a transaction from you to them. So the taxation for that transaction is paid in either IHT or Income tax. HOWEVER, I do have an issue with the new pension rules, in that some dependents will be inheriting Pension funds (from the over 75s) that will be subject to both IHT AND Income Tax. I think this is where they have overstepped the mark. If Pension funds are now subject to IHT, I don't think dependents should also pay Income Tax.
Very good video James. Although I’m ‘only’ 65, I do unfortunately suffer from ill health (and am therefore at greater risk of not surviving the 7 years) so I will be adopting the approach of tentatively over drawing down pension income and gifting some of it away hopefully qualifying for the normal expenditure out of income IHT exemption. Excel spreadsheet a must! So glad that you are still advocating the principle of saving into a pension: the Tories’ trick of turning pensions into IHT savings schemes warped their prime aim of providing an income in retirement which will still be IHT free for you and your spouse or civil partner.
I am single so only have £500k IHT allowance. I live in South East, so my house alone is more than that. My whole plan was to invest in pension, build a large pot to live of ~4% drawdown and leave the pot to my son. Now that will be taxed at 40%. I am not rich and this is a huge kick in the balls.
If you own a house worth more than 500k & have a ‘large’ pension pot then *you are rich*. You may not feel it, but compared to many you are! Especially if there lots left at the end after paying for care.
@@paulcollier7138according to who? Labour? DC pensions are savings accounts, I put all the money there myself. The only thing DC pensions had going for them was this.
For someone who’s income is purely from property (private ll not though a company), does it make sense to put money (max £2880) into a pension rather than an ISA? If the Pension drawdown would take you over into the next tax bracket surely an ISA would be a better vehicle? You can draw nothing and keep it invested for however long you want or you can draw all of it completely tax free and it doesn’t impact your tax bracket..
I'm not rich by any means and I don't need to be. But I am keeping a lid on my savings, with a couple of trips to Mexico each year. It doesn't matter if I burn through my ISA, but it does matter if I'm going to be penalised in the future for having done without in my 50s. Maybe I'll just get a motor home and store my savings in a big brown suitcase.
Hi James, really enjoy your content, thank you. Your advice has helped me immensely for some time now. On the subject of the changes to pensions, I have a particular concern over beneficiaries. At present, Trustees take advice from the 'Expression of Wish form' but are not duty bound to follow this. The pension currently falls outside IHT because it is held in Trust, with Trustees having final say on such matters. If pensions are to fall within the Estate for IHT, should we not be able to specify Beneficiaries with certainty? ...Is there even a role for Trustees in the future? I appreciate that nobody has the answers yet but the Government's proposals seem, to me, to require a complete restructure of pension legal framework.
It's also worth noting that a Lifetime ISA can also be a useful tool for saving for retirement. If we follow the same lines of analysis as the video: If you invest £1,000 into an LISA, you get a 25% government boost, which will take you up to £1,250. Then, just like other ISAs, you don't pay any tax on withdrawal, leaving you with £1,250. Better than a normal ISA. HOWEVER, you can only access money in your LISA (without penalty) from 60. You can only open one if you're
Hi James, great video. Question. What about Trusts? Would be great if you could do a video on Trusts and how these vehicles can help with reducing IHT. Thanks
@@JamesShack I will prob move to Argentina and I would work of Milei’s words that tax is robbery 😂😂 Once I leave the UK, I could draw from my pension and not pay UK tax on it? Thanks for replying! ☺️
My issue with pensions is you end up paying tax on your investments once they've 5X in 20 years. I'd rather pay 20% tax on £20k now, than pay 20% tax on £100k later in life. As such, I prioritise my ISA unless I need to salary sacrifice to reduce my earnings for tax reasons.
When life insurance is used in later life, it's typically used to help pay an inheritance tax bill. Say you have a family home that would be difficult to sell or you want to pass it onto future generations (but the IHT bill would forced you to sell it). You can setup a life assurance policy that will pay a lump sum on your death to help pay the bill. If it's written into a trust, the payout can fall outside of your estate. Which means that not only does it avoid IHT but it's paid very quickly, which can help your executor pay the IHT within the 6 month deadline.
Great ... as always James! I couldn't help but think that you missed "options to deal with your main residence" i.e. gifting it to a child/grandchild. I might have thought that this would become a more popular choice now to offset the effects of the pension + ISA being included?
In terms of the number of people affected by inheritance tax, the most recent HMRC statistics show less than 4% of estates paid inheritance tax in 2020-21.
I'm curious how you define it as a tax on working people? It's a tax you pay on wealth given to you which other have earned. It seems to me it's probably the one tax you pay without working for at all
Trusts have to pay inheritance tax every 10 years and CGT if they dispose of assets. I've set up a Trust to protect my disabled child and I'm far from wealthy. Anyone can do it.
@@Phobosandpanic It's not a tax YOU pay it is paid by the estate on assets that have already been taxed. IHT does not exist in many western modern democracies because it is a terrible tax (eg Canada, Australia, Isreal, etc no IHT or in the USA it kicks in at massive values in the 10s of millions). Tax income and transactions, do not tax after-tax assets because the owner has died. That is not good tax theory, nor is "gift tax". If I buy you lunch, are you paying tax on that? No? Then why does it matter if the value is much higher?
55yrs old retired and I'm favoured, $24k every 2 week's! I can now give back to the locals in my community also support Charity organizations and able to take care of my family.
Investment is currently the most lucrative business in the world. Both real estate, stock, and crypto currencies are positively changing people's lives.
My wife and I both have a SIPP. She has been rather unwell - we are both 55. If she passes before me her pension can move to me with no IHT to pay. If I nominate her pension to go directly to our children - can I do this while maintaining the nil rate of IHT that would exist if the assets came to me directly or would it be at 40%? hanks - great video.
*If you are not in the financial market space right now, you are making a huge mistake. I understand that it could be due to ignorance, but if you want to make your money work for you..prevent inflation.*
I started investing in crypto and def earlier this year and it's the best decision I've ever made. My portfolio is now worth almost a million and I've realized that if a cryptocurrency hits the news, you're probably pretty late to the game. The idea is to get in on blue chips early before they go public. There are a lot of life-changing opportunities in the market that you should make the most of.
Hello, I am very interested. As you know, there are tons of investments out there and without in-depth knowledge, I can't decide which is best. Can you elaborate on how you invest and earn?
The same goes for me, I do a wide range of investments with the help of my financial advisor. I advise you to find a professional to help you plan and improve your management skills. By the way, working with Michael Wayne was a great experience.
I'm favoured, $4,000 every week! I can now give back to the locals in my community and also support God's work and the church. God bless America, God bless Trump,, all thanks to Mr Michael Wayne
Rachel Reeves smugly stood there and bragged that she wasn't raising income tax etc. She's froze far too many thresholds and brackets. The fiscal drag is ruining the average person.
Why do people like yourselves always blame the people fixing it instead of looking at the route cause. The Country is screwed fincially, between brexit and 14 years of managed decline to enrich the already rich.
Hi James, thanks for all your videos, they are always really informative. It would be great to see a video on hiw to go about thinking about retiring very early e.g. 40-45. I'm in my late 30s and would love to get to a point where I can retire soon, I'm just not sure how to think about it since the returement period would (hopefully) be a lot longer than a more conventional retirement period, so hearing how you would think about it and seeing one of your usual excellent examples would be really helpful! 🙂 Thanks again for all your videos.
It is being reformed. If you're referring to that grifter party named "reform", then you probably also believe that North Korea is a democratic people's republic.
It’s a huge difference to what people may inherit in their pockets. I’ve heard leaving money in a trust might be exempt from inheritance tax but ask the experts about as I don’t understand what that means
This video is very informative, but it would be better if you talked about real money. Talk about Cryptonica; it's real money every day. What you're discussing doesn't seem as cool
My pension is just that. I walked away from tradfi a few years ago and I haven’t looked back. I now have my retirement in place already and I only started in 2017. Give it another 2-3 years and then UK retail will start getting used to it and catch up with other countries and governments that are now leading the space.
Please let me know your questions! Will these changes affect your approach to pensions?
Perhaps they need to make being in receipt of a pension tax free as it’s going to be taxed at a huge rate.
Hi James, great video. Question. What about Trusts? Would be great if you could do a video on Trusts and how these vehicles can help with reducing IHT. Thanks
Hi @JamesShack. Thanks for the video/content!
What happens if your pension has significantly higher fees than your stocks and shares ISA (invested in a low cost index fund) and grows more slowly as well? Wouldn't it be more beneficial to prioritise the S&S ISA in this instance if I've still got 20/25/30 years for it to grow? Presumably it'd be more beneficial to choose higher growth and lower fees over the tax top up that you receive initially, but will need to pay tax on later?
I'm 28 by the way and aiming to retire at 55.
@@ghx783 does your pension provider offer partial transfers? If so then you could keep siphoning off chunks into a lower cost SIPP.
Just going to have to spend or gift like hell now 😂
Having spent most of my working career alongside financial advisers, James’ ability to communicate complex matters clearly & simply really stands out. Great work again.
Spot on - clear, concise ( little BS) even me being autistic I can gasp his excellent video
I agree. I wish my advisor was 10% this good.
I passed my advanced diploma this week in regulated financial advice and I have to say your videos are more engaging and educational than 99% of the articles I see from major providers in the UK. Thank you James for helping me on my journey!
I'm glad you think so, maybe you could CPD this ?! Congrats on the exam!
Tbh, this is the best video so far out of all the Finance experts online on the ISA vs Pension debate. You have clearly outlined a spectrum on how to determine instead of the usual ‘it depends’ without any models or context. More like this please
yes absolutely pensions are worth having. Provided you use them for retirement planning instead of for inheritance tax & estate purposes.
completely agree
And that's what pensions are designed for!! To provide a fu**ing PENSION!!
work hard at school get to uni get a degree get a job and pay into a pension Become a wage slave for the rest of your life Thats what the Govt want you to do and then die at 75 and pay 40% of your lifes work There has to be a better way
@@richsmart321 the problem is you have no idea how long you are going to live - so you you either end up with to much or run out before you die. It’s immoral.
@@charlesstewart2304 was the same not true with final salary or annuities, just that you knew there was nothing to pass to your children with those. at least with DC pensions there is the possibility that they might get something, which is still better even if it is taxed as laid out by james.
People are facing a tough retirement. and it's even harder for workers to save due to low-paying jobs, inflation, and high rents. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire in.
The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.
It's recommended to save at least 20% of your income in a 401k. Sonya Lee Mitchell taught me to estimate how much you should save based on your age and income. I've been with her for years now and her decades of experience in the markets translate to chunks of value in so may ways! She has upscaled my portffolio and even got me reading self help books haha
That's an intriguing outcome. How can I contact your Asset manager?
Google Sonya Lee Mitchell and do your own research. She has portfolio management down to a science
I ran an online search on her name and came across her websiite; pretty well educated. thank you for sharing.
The biggest lesson I learned in 2023 about the stock market is that nobody knows what will happen next, so practice some humility and low a strategy with a long-term edge.
Nobody knows anything; You need to create your process, manage risk, and stick to the plan, through thick or thin, While also continuously learning from mistakes and improving.
@@FarukStingl I agree with you. As an early investor in NVDA, AVGO, ANSS, and LRCX, my financial advisor's advice was incredibly helpful. Over the past seven years, she has helped me find stocks that have performed 10x multiple times. With her help, I've grown my portfolio to over a million dollars.
@@JoeWilmoth-k2w Could you kindly elaborate on the advisor's background and qualifications?
@@TerrencesSheldons My CFA ’’ MARGARET MOLLI ALVEY, is a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
@@JoeWilmoth-k2w Thanks for this. Found her and looked through her credentials before contacting her. Once again many thanks.
You also haven't counted in the free money your employer puts into your pension.
James - I know you said it took you a while to put this video together, but it shows. There are a number of complex topics/what-if scenarios in this video and you walk us through them with your usual clarity. An excellent video with something here for everyone.
This is the problem with pensions, the control is with the government, who knows what pensions will be like in 30/40 years time...
The Government move the goalposts constantly
True but the can move the goals on other things like BTLs or ISAs
Not just the government, on top of that the company through which you invest decides what they offer you at the end! ISA all day long people, don’t worry about the 20% the government add, that just gets taken away in tax at the end anyway?!
It's a game that normal people can't win.
But that's inevitable considering the huge tax benefits of pensions. I don't think it's unreasonable for the government to impose rules on how pensions are used and taxed when contributions are tax-free.
James, I used to organise an event programme for IFAs here in the UK and have met thousands of experts. That was the best, most logical and sequential explanation I have ever heard. Geoff
Thank you very much for saying so! It took me a while to put together!
I’ve lived in the UK for almost all of my working life. However, I’m planning to return to Switzerland when I retire. Switzerland (along with many other countries) don’t have IHT. There must be a large amount of people watching your excellent videos that are in a similar situation. I’d be interested to hear your thoughts about how IHT planning across borders could be managed. Maybe an idea for a video??
So true! I retired to Thailand 3 years ago. Before the budget, my worldwide assets would have been assessed for UK IHT, as both my parents were born in the UK. Now, with the change in rules regarding non-doms, as long as I haven’t been a UK resident for 10 years before I die, I will not have a UK IHT bill. Thailand does have IHT, but the threshold is about £2m, and the rate for direct descendants is 5%.
@@Coolhandmeister but any uk asset would still be liable to IHT in UK
No, but other rates of tax are higher and the cost of living is MUCH higher in Switzerland. Look at the WHOLE picture to determine the net, net effect.
So you take as much from the UK as you can and then refuse to pay tax on it like the rest of us....
I wonder how we ended up in this economic situation? Is it because noone wants to pay thier fair share anymore?
You've benefited from the UK, you took a British person's job, pay the tax.
@northernnaysayer1240 If you believe what you said, then good luck to you. You want to blame someone, blame the government. The odds have always been stacked against the working class and anyone who dared to dream for a better, more prosperous life. That includes you, too.
Great video again. I think one of THE best finance communicators on you tube. On a related topic I’m so glad they did not change the tax free amount you can take out and reduce the tax relief going in. I think with both this government and future the freezing of allowances across the board will be a challenge to future generations.
Here we go! Proper quality pension advice 😃
Your examples are good James, but the situation for the single or unmarried folk is dire. They may wish to leave cash to nieces and nephews or others, but their inheritance tax allowance is only £325,000. There is no nil rate band for family property in their case. £325K might sound like a lot, but average home value in the UK is now about £300K. In the south if the UK especially London and the southeast you can double it. This terrible situation has been present for years, the Conservatives froze the inheritance tax rates in 2009, they never pegged them to inflation. The tax grab from this will be enormous unless pensions and assets are either gifted early and within the tax rules, or you spend the lot on a good retirement. Labour haven’t factored in the rush for the door from older workers who will realise that piling up more pension after a certain point, just isn’t worth it.
I am not a political animal but Gordon Brown destroyed the final salary pension is 1997 when he implemented taxing pensions and took away the retirement plans of 10's of thousands on people. now after only a few months they are at it again. i have no financial background but surely both the price of houses and inflation should be taken into consideration when setting the level of IHT. Also another attack on those who try to organise their life for the future instead of wasting all their money.
@@AndySlater-i6vno we destroyed final salaries by living longer and longer. They are simply unaffordable
The UK pension scheme is by a significant way the single best investment vehicle in the western world. There's nowhere that allows you to have £60000 entirely free of tax, each year, then invest it and keep all the dividends totally free of income tax, and then keep all of the compound capital gains, free if tax. And then, you get to take 25% (ish!) totally tax free on retirement, before then utilising another £12k a year tax free. You show me anywhere else you get such huge tax advantages. In the US their contributions are about £17k max and no tax free on draw down
@@j8ybbseems to me like putting money into a pension is a gable that you will live to see said pension otherwise I'd hate for my inheritance recipients to be taxed at 40% just to fund the life of dole wallers that have done nothing all their life and played it smart.
Does it pay to pay into a pension... yes, what if you live in the UK then it's a resounding no if your just a regular income worker (up for 50k a year) then your better off spending all your money and put your hand out for the government in later life.
Yes the 60k allowance is nice but show me how many other countries tax you at 40% of what you leave your heirs (only for the stupid people, smart alecs like the king pay nil. tax.
Was personally planning to upp my pension contributions but after the latest changes think I'll just aim to use all my money by the time I reach retirement and put my arm out for all the freebies.
Good explanation and totally agree with your thoughts-it makes more sense to gift money earlier if you don't need it. For those like me though who plan to spend every penny,this budget makes almost zero difference unlike other less trustworthy channels were suggesting with their clickbait content prior to the budget. James is definitely in the top 3 channels for financial planning in the UK
Well done James for being the only YT channel to identify the 2027 impact. Please could you consider a pros/cons video on the use of trusts and/or family investment company.
I've seen several channels mentioning this - that's how I learned of it since it was not announced in the Budget Speech
EDIT: TBF this was the most detailed so far
@@intruder313 You are correct, I should have said "identify the impacts in detail"
Spot on Colin and also with impacts on the forthcoming March/April 2025 budget - which is likely to be equally painful as the most recent one - this is the first video by James I stumbled on; - excellent video indeed
If Henry gives his £400 000 house to his children while he is alive, what happens? I assume children don't have to pay tax on the rest of the inheritance and the problem is resolved.
Then where would Henry live?
If he keeps living there, he would need to pay his children a market rent rate. Otherwise, if he lived there rent free, he's not really given it to them has he, and it's seen as a gift with "reservation of benefit" and would still fall within his estate.
@JamesShack thank you for your reply. I didn't know about the "reservation of benefit". However, I still believe that there is a way around it if you have a loving, caring family because you could pay them the rent and they could just give you your money back. Things are different, of course, if you don't have a good relationship with your children and can't trust them not to throw you out.
@@aleta5024 it’s funny why would any father r mother r grand father and grand mother would have to pay any rent when they are living with their sons or daughters.. This shows lots of political corruption in the name of taxes
Isn't it still subject to capital gains as it is an asset transfer
@@aleta5024 There would still be a paper trail of the money going back to Henry and therefore HMRC would deem that he isn't actually paying the rent.....unless of course he keeps a lot of cash under his mattress
Best post budget video I’ve seen so far. Great work as ever James.
Appreciate that!
"Pension providers have terrible customer service"
Ah ha, you have dealt with Mercer too.
Good luck with AJBell.
Don't get me started on ReAssure. I have never encountered so much incompetence, on a continual basis, in all my life. The sheer irony in the name ...
And good luck with Aegon!
You'll need to say a prayer before you call 'The People's Pension!' 🙏 xx
AXA: "Hold my beer..."
Great video James, very comprehensive guide to post budget pensions.
Only friendly criticism is not including the state pension, as it uses up most of the threshold.
Apart from that, top notch as always.
True, but OTOH most of his clients / audience will retire before state pension age.
A tangential point might be to ask how long the triple lock can survive. Its current implementation means that pensions rise faster than any of the three measures over years. In the meantime the state pension becomes an increasingly important low-risk component of retirement income.
@@mlj9931 Agreed, but this leads to another complexity that your strategy may need to change at your state retirement age.
@@mlj9931 the triple lock is only sustainable by increasing the age required to access it also, and we've seen it happening, so it will easily be 70+ by the time most of us in our 30's are retiring. Mostly its best to just assume the state pension won't even exist by the time we get there - anything that we do qualify for will be a bonus.
Hopefully this will kick start some UA-cam content on Trusts and FICs now.
Been wanting much more of these videos for years.
Best video I have seen yet explaining the newly proposed pension and IHT rules. Thank you James!
What a great explanation of a chaotic process!
The one thing that stood out for me was the final tower chart ; down low, all very simple, but once in the upper half a whole boat load of "options" appear for tax efficiency! Doesn't feel very balanced.
First class James. Although I already knew most of what you explained it is good to hear someone verify things - and you do it very well!
James what’s your view on 2.17 of the consultation?
‘Technical consultation - Inheritance Tax on pensions: liability, reporting and payment’
Part 2.17. Requiring Inheritance Tax to be paid directly from pension funds will also prevent an additional Income Tax liability becoming due on the funds used to pay the Inheritance Tax.
That appears to be designed to prevent double taxation.
Surely the fact the provider would need to obtain the Nil rate from the personal representatives and calculate any IHT would enable them to declare the relevant taxable and non taxable pension element’s through the RTI submission, assuming HMRC provide specific elements for this purpose from 2027.
If the provider has deducted the IHT that should suffice, negating the need for the beneficiaries to be charged income tax on income related to such elements on death after 75 going forwards.
It was inevitable that the tax free nature of pre 75 death benefits would cease at some point but surely, regardless of whether death occurs pre or post age 75, there’s no need for income tax to be payable on such income once the balance of a DC pot become subject to IHT.
Double taxation would be incredibly unfair following the death of a loved one.
That is not my understanding.
As I read it, that paragraph is simply clarifying that because IHT is paid directly from the pension, i.e from money that is GROSS of income tax, there is a tax advantage.
Compared with all IHT having to be paid from non-pension assets, or NET of income tax assets.
@ thank you, in which case 2.17 is very badly worded. I guess we’ll find out in due course but if it means a death benefit payment is subject to both IHT and Income tax in addition that seems incredibly unfair.
Great video James, it’s so useful to see these complex financial decisions outlined in such a clear way, thank you.
What about buying gold Britannia coins which are cgt and iht free?
I would be interested in a video about family investment companies. Also business property relief investments. I can see the IHT/pension ussie becoming a BIG area of interest. Thanks
Having earlier this year been through the nightmare called "probate" on a fairly simple estate, the last thing I want to do is put my two "kids" through the same and given the complexity of my estate be obliged to engage in far, far more complicated process. Whether this is within your remit, I would be extremely interested to hear your views about professional executors. I do not wish to let my kids go through the pain and grief that mine and my wife's death will cause on an estate of circa 1.7 million.
My parents specified which IFA should be used for advice in administering the estate. We ended up paying him about £6000 but he saved us four times that in IHT compared to my calculations. Obviously I don't know your kids but do you think they would agree on what to do ? Better to have an experienced person advising them. Finally a personal tip would be to specify "the house will be sold" in your will.
@@MrDuncl I am very grateful for your input it is much appreciated. I intend to sift through IFA's and hopefully find one who I would be confident could do the necessary. I must say, if it could be done for say £6K I'd be delighted, given I had visions of many tens of thousands. Good tip about selling the house.
@@dontuno Due to the IFA retiring we ended up with a different IFA from the same local company. However, just specifying the company in the will was useful. Maybe add a backup as well.
Like I said I don't know your kids. Obviously I know my sister, who is inclined to think she is an expert in everything. She certainly isn't an expert in house buying having never done that and, partially as a result of the pandemic, is back living in what was my parents house.
Hi James, great video. I'd love it if you could do a video on some pension investing strategies for people in their early 40's with different levels of earning power. I'm in the 45% tax threshold and am investing a big % of my wage into pensions (and maxing ISA), but I'm now worried it's too much with the new IHT rules. Is there a total cash value at which a pension pot becomes inefficient large?
How could a pension ever ever become inefficient, now we have no max cap?! At the top end pensions provide 47-62% tax efficiency on entry....where you can then keep all the capital gains entirely tax free (until you draw down, of course!). There's simply no other scheme anywhere near as generous in allowing you to have so much capital to play with! (Because to get access to that capital you have to wave goodbye to 47-62% of it!)
@@j8ybb If you are paying in such large sums to qualify for 47+% relief on the way in, you're almost certainly going to be paying 40+% on the way out anyway. Its worth contributing to get your TFC (if that even still exists by the time you start drawing!), but you lose all the flexibility in when you can draw. The age is already going up to 58, so it is easily 60+ by the time those of us in our 30's get to that point. A balanced approach including maxing the ISA is definitely required to fund retiring in your 50's. At 7 figure sizes it also becomes a bit of a worry that the income tax rates today will be lower than the ones of the future, and there's no guarantee the max cap doesn't return too, so hedging your bets and having some in and some outside of the wrapper is likely to be wise. And that is before you even start thinking about how it impacts passing it on!
My target retirement fund in my 401(k) had poor returns compared to the S&P 500. I switched everything to the S&P 500, but I regret not doing it earlier. What are the best options for investing $200k for reliable cash flow?
I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of 5%.
you need a certified financial planner straight up! personally, I invest in ETF's and also love investing in individual stocks. yes it’s riskier but am comfortable in my financial environment
I agree with you. As an early investor in NVDA, AVGO, ANSS, and PLTR, my financial advisor's advice was incredibly helpful. Over the past 7 years, she has helped me find stocks that did 10x multiple times. With her help, I've grown my portfolio to over a million dollars.
I find your situation fascinating. Would you be willing to suggest a trusted advisr you've worked with?
Sure i don't mind. I've stuck with ‘’Sophia Irene Powell ” for years now, and her performance has been consistently impressive. She’s quite known in her field, look her up.
Great video James. My father (married and over 75) has cash to live off and a sizeable pension over £1m we had been planning to pass this down to myself and my brother but given the potential rule changes we would incur significant IHT. Could you offer thoughts on how to reduce this the last section of the video seemed to cover this but i’d like a little more information if possible.
Brilliant James, but going to have to watch this about 10 times to take it all in 'cause that was going at a hare's pace.
Mate, no questions just feedback that you’re doing an amazing job here that’s really helping.
Thanks!
Hallelujah! God is still performing wonders. I'm positioning myself for such miracles. This is the best thing I've seen today on UA-cam-thank you so much!.540k earned so far.
...........
To be successfully in life one must take risk, investing brings success that’s why the rich will never come out in public to tell you how they make their money
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Venturing into crypto as a newbie was very difficult due to lack of experience which resulted in loosing funds... But miss noah rachel, restored hope shes a good woman
You're right! I've been trying to trade but I keep making losses and it's frustrating
Who is your mentor please. how can I reach him/her I really need help
So nice to see noah rachel talked about here,her good works are speaking already, and like wide fire she's spreading.
Excellent video - THANK YOU. It would be really useful to have a specific video for an older retiree with assets mostly in a pension and a fund over £2m - as there are another whole raft of considerations
Both my parents died in the last 2 years, mum then dad. fortunately they had decent life insurance cover so we were able to pay the 150k IHT. i dont understand why we had to pay the iht within 6 months of dads death. If they didn't have these life policies we wouldn't have been able to get probate and sell their house to pay the iht in time. It makes no sense...some people must have to get loans just to pay iht
I'm sorry to hear that, but thank you for sharing this. Probate is a nightmare, and this is a great example of how life insurance can help the situation.
@@bidders77 so their life insurance covered the IHT bill? Then you got to keep the inheritance without paying any of the tax?
@@JamesShackSimilar situation in my family. Auntie died about 15 months ago (husband passed about 10 years before her and no kids) estate worth about 800k so IHT bill was due before her house was sold. Luckily estate had cash available to settle the bill as my parents would have had to raise the funds otherwise which seems an unnecessary stress.
I get that they don't want people avoiding paying iht by not selling property but where house was on the market it would make more sense to align the payment to the house sale.
@@dafruk1 IHT shouldn't exist at all. It's a disgusting action by the state. Your aunty and uncle worked hard all their life to afford what they had, and then when they pass it onto their family it becomes a burden instead of a blessing. Utterly shameful thievery.
@@illegalopinions4082 No tax is fair...
The examples and illustrations in this video were great!
We are old now, from osrs to pension planning
Best bet - lease a nice new car every couple of years, make sure you always have the latest phone, enjoy a couple of foreign holidays a year. And then when you stop work, you're the government's problem but at least you got to spend the money on yourself rather than them taking it when you die.
Or if you do want to invest, make sure some of it is in a form that might get missed as part of your estate...
✂️👃🙃
So your aim is to be a poor pensioner - top work!
@@br5380 either that or poor now to save for a good retirement that might not happen and whether it does or not, give a load of it to the government at the end.
@@hooksforestchin Or just do what 'sensible people' do, live within your means while saving for retirement.
And a 'basket' of savings should look at the tax implications for both spending & saving - including for when you die. This is why the aristocracy is still the aristocracy, they plan for the future, in the long term.
Great video James. Many thanks. Do you know how the inheritance tax charge that will be allocated against your pension pot interacts with the lump sum death benefit allowance? Is the lump sum death benefit allowance tested after the deduction of inheritance tax from the Pension pot or before? I can't find anything in the guidance that seems to answer this question. many thanks
Frozen tax thresholds are tax rises
They’re such a drag
Fiscal drag
Such a great video James. I have a question. If you open a join account with your children, put funds in it and you die, would that form part of your estate? Also, few additional things to consider:
If you are a higher rate taxpayer with a employer match and salary sacrifice pensions are most definitely a no brainer (don't believe this was part of your chart).
Increasing contributions into your spouses pension to take advantage of both tax free allowances and stay under the 20% tax threshold.
Take out life insurance/assurance (in trust) to cover inheritance tax costs
Depending on your age (I'm 40), income tax and pension tax free lump sum thresholds are likely to increase so current thresholds should deter you from contributing if you're close to breaching.
Again great video, thank you
If you open a joint account with your children, and then die, HMRC will look to see where the money in the joint account came from, and if it came from you, they will determine that it as your money (you are/were the beneficial owner) and decide that it is part of your estate - it won't save any IHT. While a Higher Rate tax payers with employer match and salary sacrifice option wasn't shown on the chart, if you were following James' logic, it was clearly better than for a basic rate tax payer. Life insurance as a way of paying IHT is likely to be very expensive (although not as much as the IHT), because you are certain to claim on the insurance (you would need Whole Life insurance to guarantee a payout. Term Insurance might leave a periods at the end of your life when you are uninsured). Therefore you would expect the total premiums to be higher than the sum assured.
One nuance I've not seen covered in videos is the effect that the IHT changes will have on unmarried couples. The pension cannot be passed to the surviving member of the couple in the same manner as it can with married couples (or couples in a civil partnership), IHT will be assessed on the death of the first member of the couple rather than the 2nd, this could have a significant effect on the living standards of the survivor. The number of couples not in a marriage or civil partnership is something like 25% and the trend has been increasing.
And no children
The impact here is significant especially if one is much wealthier than the other
That was one of the main arguments for introducing Civil Partnerships. Someone I know keeps a "spare" house in case her partner dies which would result in all his assets going to his children.
Great video James! What is your advice for people in work who are fully "tapered" in the 45% band and can only pay in £10k per year tax free? Assuming ISA allowance is also fully used do you advise to pay in above £10k and take the tax hit on the way in? Are there other solutions?
James I think you need to show
1) Higher Rate Taxpayer when putting money in and Basic Rate when taking out with FTC - 10% tax on way out
2) Higher Rate Taxpayer when putting money in and Basic Rate when taking out without FTC
James for chancellor 😊
For Gifts Out of Income, what would counts as Regular?
Could you for example have an annual standing order set up?
Maybe as long as its happened a couple of times be ok?
Very clear, thank you James
Great video once again James - thanks so much for your ongoing education with costed examples across various scenarios. As an addendum, would you be prepared to issue a 5 min video highlighting your scenarios for someone living in Scotland? Given the lower tax bands and higher actual percentages applied, what is the impact for 1. Paying into pensions and 2. Pension withdrawals,?
Fantastic videos!
Correction. Tax Relief on pension contributions DO NOT boost your contributions.
The money was yours in the first place . . .
You avoided tax...
Each time I increase my AVC I am surprised how little difference it makes to my take home pay. And that isn't even considering things like the drop in the personal savings allowance when you become a higher rate tax payer. I'd rather lease a salary sacrifice EV than be a higher rate tax payer but thankfully there were no changes in that area in the budget.
‘Whether you have enough?” Well said. It’s exactly what we more people to ask themselves. Great video James. Thanks.
Exactly!
If you get an inheritance of a pension that has to be paid as a lump sum and get taxed on it, use it to fund your own SIPP most people won't be fully using their pension contribution allowance so can get any income tax on the lump sum back that way, can also use the permissible previous years allowance if necessary.
That would only apply to quite small lump sums. Using previous year's allowance (carry-forward) is only applicable to people earning over £60k and your pension contributions in any tax year are always limited by annual income, so with median earnings around £35k, only very few people would be able to benefit.
Pension contributions are limited to 100% of income in that tax year (minimum £2800, maximum £60,000, plus one year carry back). The inheritance does not count as income, so only a small amount of it could be used as a SIPP contribution
I get my DC pension at 67. I want to retire way earlier than that. Let’s say 57. Should I look at stocks and share isa to bridge the 10 year gap?
Great video James - Thanks! I paid the majority of contributions into my pension in recent years on the basis that anything I have left I can pass on to my children, whether people agree with that or not - Do you believe there is any possibility any money paid in to date will be ring fenced? It just strikes me as incredibly unfair that this government are moving the goal posts.
The moving goal posts certainly makes things very hard to plan.
I do not think they will bring in a ringfence like that. Are you a higher rate tax payer?
@ Thanks, that’s unfortunate. Yes, I consider myself very fortunate to be a higher rate tax payer and do not have an issue paying my fair share of taxes, however, going from my children getting everything to potentially losing the vast majority of the pension I have worked hard to pay into hardly seems fair. I think Imposing a 20% IHT would have been fairer.
@@Oxers-KObut the money goes into your pension before tax so it’s worth 40% more than if you were paid it as salary
@@RogerRamjet-t4q fair point but if I withdraw my pension at £40K PA I would only pay 20% tax on that. The problem when governments try and take too much is that people then go out of their way to avoid paying IHT. I suspect more people would avoid gifting and other avoidance measures if the tax was fairer.
@@RogerRamjet-t4qActually the benefit is 66.6% more than the take-home pay would have been, if 40% tax had been paid. That's a fantastic benefit.
On this comparison of ISA and pensions, have you forgotten to add in the receipt of state pension which would eat into your allowance?
I come from a poor working class family, my parents instilled good financial sense, taught me to work hard and never take a penny from the system. I did and in my 50s now I'm heading towards that magic million mark in pensions and savings and now I'm beginning to think a) why didn't I just throw myself on the mercy of the state and get my freebies ( joking! ) or b) retire as soon as I can, piss it all away and "die with yer boots on" and with a smile on your face!
Seriously, as my wife has said as we dicsussed the new changes, it's as if they've made it so damned complicated they know you'll miss something and your kids will get stung for tax like they've never been stung before. It makes you so angry that you worked so hard all your life, saved like crazy as you were supposed to and now you're just a giant ATM to the government and their utterly pathetic ability to manage the public purse. ( Put my soapbox away! ) Looks like my IFA I engaged with 6 months ago is about to earn his money!
But hopefully you've got plenty of time on your side. You can either choose to give money away sooner or accept if you take the "hey kids have what's left when I'm gone" approach that there maybe an IHT bill attached to it. Even before this change I've always intended to start disposing of assets before the end. I'd rather see the kids get some benefit of it in my life time. Should I reach a great old age and then leave everything the kids may themselves be at retirement age by then and the benefit of receiving that money at that time of life would probably be somewhat less
My thoughts exactly, where would we be if everyone just claimed benefits never working though?
Gov is soooooo bad at manager everything from wasting money to just not incentivising people into work and helping companies become successful it's beyond a joke.
The country needs to be run by better people instead of these jokers / thieves.
B
The absolute best part of being a saver like you is retiring early!
You've clearly had plenty of "Free money" whilst building you 1m pension & savings pot (40%) tax relief, im sure you'll have a happy and long retirement, if by chance you leave your children over £500'000 each i'm sure they will manage any tax due !
@@DixieDaydreamer I agree. They have robbed us
Marvellous video delivered with supreme clarity. Thanks James.
In the bit where you compare the inheritance of ISA v Pension, I can see how both get clobbered by the 40% IHT but with the ISA you can then use or stick in a savings account, etc. with the pension, you have to pay further marginal tax rate in order to use. Am I missing something?
Error on graphic at 1:00 where you say £500,000 ISAs verbally but graphic shows £50,000
He clarifies he meant £50,000 with an asterisk on £50,000 in text on RHS of screen.
Thanks! Does anyone have a list of which U.K. pension providers provide ‘all 3’ pension options on death? And equally which providers don’t ?
"Hi it's the government, we're here to help!"
Help ourselves to you're pension pot. 😮
😂
Hi James it would be really helpful to provide an example under the new rules with b2l property structured inside and outside a SPV.
Gifting will become more common, hence people running out of money as well
Can't they ask for the money back if they gift it and then run out?
Seriously, is someone going to gift their child a wad of cash and then that child sits on it and laughs while their parent starves?
@ I agree but you’d be surprised how money changes personalities, when the gift was spend
Agree - it's perverse that changes made to a long-term saving product are now effectively encouraging people to bur through their savings all the more quickly!
The children might not be in a position to pay it back, they might have used it to pay off their mortgage etc.
@@davidcouper7445 Then they're mortgage free and can support mum and dad.
"Oh but what if this and what if that"
How about people use their pensions on what they're meant to be used on. Good grief, anybody who is inheriting an amount that qualifies for tax is still going to get a pretty sweet sum.
Thank you James, invaluable advice whatever your age and circumstances. Clearly and carefully presented. Excellent work.
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Love the content on your channel👍
A question on pensions being considered as part of one's estate from 2027, if I may.
Is there a risk that pensions will lose typical 'trust' protections i.e. protections from creditors - policyholder being forced to access pension policy to pay off debt? Thanks in advance.
Great video . Been speaking to my financial advisor today funnily enough. I’ve worked since I was 18 paid 10 percent of my earnings into my pension and am now 62. I have two rental properties and my own house all bought and paid for and am now going to be robbed by Rachel Thieves for money I wanted to pass on to kids and grand kids. Total rethink now required.
Family Investment Company is worth considering!
Don't you think you've had a rather blessed existence where 44 years of work has permitted you to buy three houses outright? Ask people of your kids' and grandkids' generation how many houses they expect to own at 62 if they had the same length of career and saved the same amount of money you did. I suspect your kids' generation will aspire to own 1 house (which they will still be paying off whie working at 68) and your grandkids' will expect to rent in perpetuity, as all the property was bought up years ago by landlords like yourself and passed on to be rented out forever.
Redistributive measures like IHT help give those future generations a meagre hint at the possibility of following your fortunate financial circumstances, which are as much due to the socialised system you laboured in as the actual work you did.
Inheritance Tax is only valid on a sliding scale for the last 7 years. Give them your money/assets before you die.
@@meepmeep1313 Future generations can do what he did and work. Taking what someone has earned and pretending your doing it for someone else's benefit is dishonest. If you're going to steal from people at least have the decency to be honest about it instead of being mealy mouthed and using weasel words.
@@illegalopinions4082 my whole point is that they can work just as long and hard as he did and they will accumulate less wealth than him, as a result of his generation pulling up the drawbridge by minimising their contribution to society and becoming the first people in history to be wealthier than their children and grandchildren's generation.
Tax is not theft. It is the proportion of your labour you contribute in order to have a functioning society around you, without which you would have no job, income, home, pension or opportunity to raise a family, because there would be no infrastructure to support any of those things existing.
Do you take on new clients? I’d love to know how I’m doing against my goals with a forecast
James, could you tell me when I’m going to die as that would really helpful with my planning
I'm glad you found it useful!
Years ago a "Living Will" used to be a way of passing on property ahead of time before you die. Is that still the case and/or are there any drawbacks from this?
Great advice, the frustration is that a pension has been bastardized as an IHT wrapper rather than a retirement planning tool.
INT was never designed to be a wrapper. The tax benefits are generous so you can look after yourself in old age. The intention was never so your kids can have it fax free. People are now choosing to spend ISA and NOT their pension, therefore this closes that loophole.
The issue is really that IHT was originally for the wealthy. But the allowance has not moved up much, especially now that people with a decent house will now find themselves paying it. They should just make IHT relevant to £10m+ and reset who it affects.
@@wl660 IHT allowance is absolutely fine where it is. Children should ideally inherit 0, and above all expect to inherit 0. If you want to give it away during your lifetime, to children or to Battersea Dogs Home, that's also fine. Just stop the whining when it comes to the cash-cow coffin-cheaters who you also sometimes call Mum and Dad. Kerching!!!!
Not for most people, but for some it's become an alternative to buying up farmland.
Glad to see these loopholes are being closed, to be honest. If farmland is not valuable for IHT then its price will drop fairly rapidly and farms will stop being worth as much as they are stressing out today. IIRC Clarkson, the hypocrite, says that farmland near him is £40k an acre as a result of the existing rules! £10k is normal.
But Labour should have increased the IHT threshold given this new rule, or allowed say, 200k in a pension to be passed down (400k spousal) on top of the 350k/500k/1m to not affect most people.
@@AgileSnowWeasel Simple solution, if the farm is passed to farming offspring and those individuals demonstrably farm that land, then no IHT due. If the farm is sold within 10 years then IHT is due. This would fix the problem. Of course, Robber Reeves has different ideas.
Bloodline trusts
Very informative video; thank you James!
Please can you comment on pensions’ management if one were to retire outside the UK and be a non-Uk resident for tax purposes.
Henry is also a model train enthusiast, which his ex-wife says eventually led to the divorce as he spent more time in the cellar he converted into a realistic model of the Greater London area.
Before he retired, he worked at The Equitable, as Henry the dog on TV advertisments 😂
11.53 the taxable investment account has a return of about 800 - but wouldn’t the capital gains tax only be on the capital gained? Therefore if zero growth you would still get the initial 1,000 out? It would still be joint bottom in your sliding scale.
So if you got back 10% (e.g., S+P500) over 20 years, the 1000 would be £6720 (with a real value of £3733 but CGT applies on actual values not inflation-adjusted values). Your allowance is £3000, so you would pay CGT on £2720, which is £490 in CGT (assuming you time your sale to be in a low income tax year).
Obviously the CGT allowance effect is less if you are talking about £67200 sold each year which might be a fair pension drawdown in 20 years time from a large (500k+ today) pot.
Can I ask a silly question. Why does the gov have any business in taxing our already taxed assets, isa (paid in after being taxed), house, (bought with taxed income) any other assets we have bought with our taxed income. How did this ever become something legal 😂
Because you didn’t pay tax on the GROWTH in value of your assets. That’s still, ultimately, income you have and everyone else gets to pay tax on it. House inflation is the prime example. If you bought a house for £100k and it’s worth £500k on your death, no one has ever taxed that £400k before (and if you have children, they will get another big wodge of tax-free-ness).
The government taxes lots of things you've already paid tax on e.g. VAT, Council Tax. Also, factually, a pension isn't something you've already paid tax on.
@@CarolinePicking but your primary residence is excluded from CGT as well as ISA’s. Anything over the 20k isa allowance (normal stocks and shares account) and second properties should be subject to it only. Why do other countries not do this and we do?
As others have said, a pension is to provide for you when you retire, it shouldn't be an IHT avoidance tool.
@@smc812 I didn’t list pension due to it being untaxed until you start drawing down depending on the amount.
Well as a former boss of her's has now revealed, she is not an economist, she worked below him and he was aware her and 3 senior managers were signing off on each other's expenses and just avoided being sacked , she was almost sacked but resigned to save face when it was discovered her many dental/ doctors appointments were actually her Labour council activities. She was was never an economist for the Bank of England and her LinkedIn profile has been amended to cover up her lies.
In business anyone assuming a job based upon a fraudulent CV can be sacked. Which begs the obvious question.
Hoping pmqs brings it up.
Great analysis, James. Thanks for sharing.
As frustrating as some might find it, I think this is an eminently sensible decision by the government. A pension should pay for one's retirement, it's (in my opinion) wrong for it to be used as a vehicle for IHT avoidance.
I'm glad you found it useful!
As demonstrated in the video, under the new rules, if you're a 40% taxpayer, a pension is STILL an OK vehicle for passing on wealth to future generations.
Which goes to show how generous the old rules were!
@@JamesShack Hey James do you mind me asking why it’s generous of them when, really, should we paying IHT at all? i think the general person who has a full time job pays enough into the country without IHT
@@BG26278gg Because we don't pay taxation on the money itself. We pay taxation when money changes hands. ie. on transactions. When you die, your money/estate is going to other people. THEY are gaining income via a transaction from you to them. So the taxation for that transaction is paid in either IHT or Income tax. HOWEVER, I do have an issue with the new pension rules, in that some dependents will be inheriting Pension funds (from the over 75s) that will be subject to both IHT AND Income Tax. I think this is where they have overstepped the mark. If Pension funds are now subject to IHT, I don't think dependents should also pay Income Tax.
Very good video James. Although I’m ‘only’ 65, I do unfortunately suffer from ill health (and am therefore at greater risk of not surviving the 7 years) so I will be adopting the approach of tentatively over drawing down pension income and gifting some of it away hopefully qualifying for the normal expenditure out of income IHT exemption. Excel spreadsheet a must! So glad that you are still advocating the principle of saving into a pension: the Tories’ trick of turning pensions into IHT savings schemes warped their prime aim of providing an income in retirement which will still be IHT free for you and your spouse or civil partner.
For people who don't want to pay for Excel, Google Sheets is free and just as capable for this sort of financial modeling.
I am single so only have £500k IHT allowance. I live in South East, so my house alone is more than that. My whole plan was to invest in pension, build a large pot to live of ~4% drawdown and leave the pot to my son. Now that will be taxed at 40%. I am not rich and this is a huge kick in the balls.
Just give him his inheritance early, you got to live 7 years and you beat the 40%.
That’s not what a pension is for
If you own a house worth more than 500k & have a ‘large’ pension pot then *you are rich*. You may not feel it, but compared to many you are!
Especially if there lots left at the end after paying for care.
@@paulcollier7138according to who? Labour? DC pensions are savings accounts, I put all the money there myself. The only thing DC pensions had going for them was this.
@leonhenry4861 yes, may have to consider this. But 7 years is guesswork that may not work out
For someone who’s income is purely from property (private ll not though a company), does it make sense to put money (max £2880) into a pension rather than an ISA? If the Pension drawdown would take you over into the next tax bracket surely an ISA would be a better vehicle? You can draw nothing and keep it invested for however long you want or you can draw all of it completely tax free and it doesn’t impact your tax bracket..
I'm not rich by any means and I don't need to be. But I am keeping a lid on my savings, with a couple of trips to Mexico each year. It doesn't matter if I burn through my ISA, but it does matter if I'm going to be penalised in the future for having done without in my 50s. Maybe I'll just get a motor home and store my savings in a big brown suitcase.
Do it in metal, not in worthless paper
@@illegalopinions4082metal isn’t that useful to do the shopping with.
Hi James, really enjoy your content, thank you. Your advice has helped me immensely for some time now. On the subject of the changes to pensions, I have a particular concern over beneficiaries. At present, Trustees take advice from the 'Expression of Wish form' but are not duty bound to follow this. The pension currently falls outside IHT because it is held in Trust, with Trustees having final say on such matters. If pensions are to fall within the Estate for IHT, should we not be able to specify Beneficiaries with certainty? ...Is there even a role for Trustees in the future? I appreciate that nobody has the answers yet but the Government's proposals seem, to me, to require a complete restructure of pension legal framework.
I have also had the same thoughts, we’ll need to see what happens as part of this consultation as it will need to be addressed.
It's also worth noting that a Lifetime ISA can also be a useful tool for saving for retirement.
If we follow the same lines of analysis as the video:
If you invest £1,000 into an LISA, you get a 25% government boost, which will take you up to £1,250. Then, just like other ISAs, you don't pay any tax on withdrawal, leaving you with £1,250. Better than a normal ISA.
HOWEVER, you can only access money in your LISA (without penalty) from 60. You can only open one if you're
Hi James, great video. Question. What about Trusts? Would be great if you could do a video on Trusts and how these vehicles can help with reducing IHT. Thanks
James, what happens to your pension and ISAs when you move abroad for retirement? Prob outside EU
@@marinaderosario That depends on where you move to, as different jurisdictions tax them differently.
Can you pay in both a normal isa and a lifetime isa in the same year?
@@JamesShack I will prob move to Argentina and I would work of Milei’s words that tax is robbery 😂😂 Once I leave the UK, I could draw from my pension and not pay UK tax on it?
Thanks for replying! ☺️
My issue with pensions is you end up paying tax on your investments once they've 5X in 20 years. I'd rather pay 20% tax on £20k now, than pay 20% tax on £100k later in life. As such, I prioritise my ISA unless I need to salary sacrifice to reduce my earnings for tax reasons.
Spend your pensions in retirement. If you want to look after people after you're gone, use life insurance.
How much do you think life insurance would be for a 75 year old? That would have a big impact on retirement income.
When life insurance is used in later life, it's typically used to help pay an inheritance tax bill.
Say you have a family home that would be difficult to sell or you want to pass it onto future generations (but the IHT bill would forced you to sell it).
You can setup a life assurance policy that will pay a lump sum on your death to help pay the bill. If it's written into a trust, the payout can fall outside of your estate. Which means that not only does it avoid IHT but it's paid very quickly, which can help your executor pay the IHT within the 6 month deadline.
@@malcolmedwards557exactly, you need to take out life insurance when you are young and healthy.
Great ... as always James! I couldn't help but think that you missed "options to deal with your main residence" i.e. gifting it to a child/grandchild. I might have thought that this would become a more popular choice now to offset the effects of the pension + ISA being included?
It’s hard to do that! Unless you’re willing to pay market rate rent to your children.
Wealthy people don’t pay inheritance tax. They put assets in trust.
Inheritance tax is a tax on normal working people.
Why don’t you put it in a trust then
In terms of the number of people affected by inheritance tax, the most recent HMRC statistics show less than 4% of estates paid inheritance tax in 2020-21.
I'm curious how you define it as a tax on working people? It's a tax you pay on wealth given to you which other have earned. It seems to me it's probably the one tax you pay without working for at all
Trusts have to pay inheritance tax every 10 years and CGT if they dispose of assets. I've set up a Trust to protect my disabled child and I'm far from wealthy. Anyone can do it.
@@Phobosandpanic It's not a tax YOU pay it is paid by the estate on assets that have already been taxed. IHT does not exist in many western modern democracies because it is a terrible tax (eg Canada, Australia, Isreal, etc no IHT or in the USA it kicks in at massive values in the 10s of millions). Tax income and transactions, do not tax after-tax assets because the owner has died. That is not good tax theory, nor is "gift tax". If I buy you lunch, are you paying tax on that? No? Then why does it matter if the value is much higher?
What ever you do make sure you max out employers matching of workplscae pension contributions before you start putting more into ISA's
I know so many that have opted out of employers Pensions with matching contributions 😮😮😮😮
55yrs old retired and I'm favoured, $24k every 2 week's! I can now give back to the locals in my community also support Charity organizations and able to take care of my family.
Hello
How're you earning such weekly? sometimes I feel down on myself because of low finances,but I still believe in God
Thanks to Mrs. Elizabeth Regina Nelsen's time in my life, which had a profound impact on me.
Sounds familiar. I have heard her name on several occasions and read about her success stories in wall street journal!
Who's Elizabeth Regina Nelsen!?looking forward to this opportunity Can I also sign up from Ontario Canada?
Investment is currently the most lucrative business in the world. Both real estate, stock, and crypto currencies are positively changing people's lives.
My wife and I both have a SIPP. She has been rather unwell - we are both 55. If she passes before me her pension can move to me with no IHT to pay. If I nominate her pension to go directly to our children - can I do this while maintaining the nil rate of IHT that would exist if the assets came to me directly or would it be at 40%? hanks - great video.
*If you are not in the financial market space right now, you are making a huge mistake. I understand that it could be due to ignorance, but if you want to make your money work for you..prevent inflation.*
I started investing in crypto and def earlier this year and it's the best decision I've ever made. My portfolio is now worth almost a million and I've realized that if a cryptocurrency hits the news, you're probably pretty late to the game. The idea is to get in on blue chips early before they go public. There are a lot of life-changing opportunities in the market that you should make the most of.
Waking up every 14th of each month to $30,000 it's a blessing to I and my family... Big gratitude to Michael Wayne 🙌
Hello, I am very interested. As you know, there are tons of investments out there and without in-depth knowledge, I can't decide which is best. Can you elaborate on how you invest and earn?
The same goes for me, I do a wide range of investments with the help of my financial advisor. I advise you to find a professional to help you plan and improve your management skills. By the way, working with Michael Wayne was a great experience.
I'm favoured, $4,000 every week! I can now give back to the locals in my community and also support God's work and the church. God bless America, God bless Trump,, all thanks to Mr Michael Wayne
Great video again. Can I ask what you mean by marginal rates of tax when a pension is passed to your wife after death over 75. Thanks
Rachel Reeves smugly stood there and bragged that she wasn't raising income tax etc. She's froze far too many thresholds and brackets. The fiscal drag is ruining the average person.
Why do people like yourselves always blame the people fixing it instead of looking at the route cause.
The Country is screwed fincially, between brexit and 14 years of managed decline to enrich the already rich.
This is fantastic work, clear, insightful and expertly delivered. Thanks to you and your team for your research 👍
“At some point, socialists run out of other people’s money.”
Hi James, thanks for all your videos, they are always really informative. It would be great to see a video on hiw to go about thinking about retiring very early e.g. 40-45. I'm in my late 30s and would love to get to a point where I can retire soon, I'm just not sure how to think about it since the returement period would (hopefully) be a lot longer than a more conventional retirement period, so hearing how you would think about it and seeing one of your usual excellent examples would be really helpful! 🙂 Thanks again for all your videos.
Britain needs reform
Tosser
Reform UK
It is being reformed. If you're referring to that grifter party named "reform", then you probably also believe that North Korea is a democratic people's republic.
@@MusingsOAMgrifter? You describe starmer and his freebies extremely well.
Reform....a cash cow for that snake oil salesman Farage
It’s a huge difference to what people may inherit in their pockets. I’ve heard leaving money in a trust might be exempt from inheritance tax but ask the experts about as I don’t understand what that means
This video is very informative, but it would be better if you talked about real money. Talk about Cryptonica; it's real money every day. What you're discussing doesn't seem as cool
My pension is just that. I walked away from tradfi a few years ago and I haven’t looked back. I now have my retirement in place already and I only started in 2017. Give it another 2-3 years and then UK retail will start getting used to it and catch up with other countries and governments that are now leading the space.
Brilliant summary. Real food for thought. Thanks for explaining how to think about the impact of the changes.
Glad it was helpful!