I just turned 58 and awfully late to investing with barely any portfolio asides my 401k. I have a decent amount of cash saved up but I have some debt. I’m getting worried about retirement. How do I best optimize my savings of over $60k?
Retirement is now more difficult than it was in the past, it’s all about balancing your risk tolerance with your long-term goals. Maybe consider speaking to an advisor to help in diversifying your portfolio to spread out the risk.
Agreed, I’ve always delegated my excesses to an advisor, since suffering major portfolio loss early 2022. I’m now semi-retired and only work 7-8 hours a week with barely 25% short of my $2M retirement goal after subsequent investments to date.
Thanks for sharing your experience! I’ve been managing my portfolio myself, but it’s hasn’t worked out. Can you recommend a standard advisor? I could really use some help.
My CFA, *Joseph Nick Cahill* is a renowned figure in his field. I recommend searching his name online; you’ll find all his credentials and everything you need to work with a reliable professional. With many years of experience, he is a valuable resource for anyone looking to navigate the financial market.
Thank you so much for the suggestion, I really needed it. I looked him up on Google and explored his website, he has an impressive background in finance. I’ve sent an email and I hope to hear back from him soon!
In the 1990s I sold pensions on the strength that the tax free lump sum would pay off most if not all of the mortgage and leave the investor with a pension for life. Most were over a 40 year term plus, I was not alone.
it's vital for investors to seek personalized advice and adopt diversified financial strategies. Working with a knowledgeable financial advisor is crucial for achieving long-term financial stability and freedom
The approach of selling pensions with the promise that a tax-free lump sum would pay off mortgages and provide a lifelong pension was common in the 1990s. However, many factors can affect the outcome, including changes in the housing market and interest rates. It's crucial for investors to seek personalized advice and consider diversified financial strategies to ensure long-term financial stability.
I'm intrigued by this. I've searched for financial advisers online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’ Melissa Terri Swayne” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
Don't simply retire from something; have something to retire to. Start saving, keep saving, and stick to investments. Building wealth involves establishing routines, like consistently setting aside funds at regular intervals for smart investments.
It’s really heartbreaking to see how inflation and recession impact low-income families. The cost of living keeps rising, and many struggle just to meet basic needs, let alone save or invest. It’s a reminder of the importance of finding ways to create financial opportunities. You've helped me a lot Kandyse McClure! Imagine i invested $50,000 and received $190,500 after 14 days
I'm surprised that you just mentioned and recommend Mrs Kandyse McClure. I met her at a conference in 2018 and we have been working together ever since.
I'm surprised that you just mentioned and recommend Mrs Kandyse McClure. I met her at a conference in 2018 and we have been working together ever since.
I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I hate my job but can't leave because of I won't get my state pension. What do you think about doing a 70/30 stocks bond ratio?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery
When you’re feeling pressured to retire, it’s highly recommended to consult an advisor, as their guidance can help you make more informed investment decisions.
Well agreed, I'm quite lucky exposed to finance at early age, started job at 19, purchased first home at 28, got married shortly afterwards to raise kids early. Going forward, got laid-off at 40 amid covid '19 outbreak, immediately consulted with an advisor in order to stay afloat and after subsequent investments, I'm barely 15% short of $1m ballpark goal as of today.
Stacy Lynn Staples is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
I find it extremely sad and demoralising that we have to go through all of this chicanery just to leave money to our families. This government really hates success.
My father has been using the "gifts out of income" route for the last 5 or so years. A video about the fine details of this process would be appreciated. I think he has the options covered, but you never know.
Mark, Dad needs to firstly ensure he has excess income; ie 2.5k pm income in, 1.5k spent, so 1k spare. It must be spare income & not cash/capital. Then all Dad needs to do is record the details, eg £500pm to you on 1st of month from account x. This is the evidence log for executors & HMRC (if queried). It’s a great exemption as gifts immediately outside of estate, no 7y clock.
@@richpowell5449 Thanks for your comment. I would like to dig deeper on this matter and I hope a video could be made for us all. In the meantime, my dad does a yearly profit and loss account. Whatever is left at the end of the tax year he gives 25% to me. The rest accumulates and subsequently becomes classed as capital by HMRC after 1-2 years. My main concern is that he suffered a stroke last December, (has made a full recovery), but now wants to up the percentage gifted to virtually 100%. In your opinion is this excessive. He also fills in the IHT403 tax form to record the gifts.
Agreed a video would be useful on this subject. There does not seem to be a fail safe guide for gifts out of income. It will be up to your kids to prove it to HMRC. There seem to be be so many pitfalls where HMRC can disagree with your calculations and what is included. There rules are not very specific.
Great video as always Pete. So much food for thought - Thanks! One thing I am not up on is trusts - It would be good to know how the rich get out of paying IHT when passing on their wealth. Also, what is stopping me renaming my house Kevin’s farm and paying IHT at 20% instead of 40%? My kids bedrooms look like pigsty’s most of the time so there is every chance I might get away with it!
Great video Pete, and the final messages of don’t panic and make rash decisions, such as how many took their tax free cash pre budget? and more importantly the pension fund pot primary reason is to provide you with an income, not as a savings pot to pass onto your kids.
I’m 55 and now seriously thinking of early retirement to spend earlier. I'm in a high skilled job and was thinking of working to 62. That's changed now. I think this will force others to rethink whether is worth continuing work or spend their pensions earlier to beat IHT limits. I have property and a decent pension which I was planning to spend the pensions last and give any excess away to kids. That’s flipped on its head now. So early retirement is something I’m seriously considering now. I get that's what pensions are for but I'm Not sure this government have thought through what the effects this may have on employment and early retiring of skilled workers. And whilst I enjoy my job this is now my last job for sure as it makes little financial sense.
Congratulations for putting yourself in this win win situation. I'm definitely in the work until I've got enough and then my time becomes more valuable than work. If the changes mean for you retiring earlier becomes more appealing then grab it and enjoy the extra time not working that the government policy will give you.
I’ve worked hard for 40 years to provide a great retirement and look after my kids in their lives and this scum government are wiping our plans to the wall
It was bound to happen, Britain is bankrupt and has left well beyond its means. Be glad that you got to enjoy it for 40 years instead. We need to adjust our expectations
So many of us have children and gradchildren living overseas. It would be useful to have a video on how Inheritance tax and other taxes affect them when money is past to them.
Inheritance tax (IHT) in the UK is primarily determined by the domicile and residence status of the person who has died, rather than the location of their heirs. Here's how it typically works: Domiciled in the UK: If the parent or grandparent who passed away is domiciled (or deemed domiciled) in the UK, their worldwide estate is subject to UK inheritance tax. This includes assets located both within and outside the UK. Not Domiciled in the UK: If the deceased is not domiciled in the UK but owns UK assets (e.g., property in the UK), only those UK-based assets will be subject to UK inheritance tax.
@@zaidahmed9527 So if you sold your house in UK and went to live in say the Channel Islands on a permanent basis, then you would be domiciled there and not subject to UK Inheritance tax.
The residue of a private pension used to belong to the pension provider. In addition there used to be restrictions on how much you could draw out. George Osborne removed these restrictions. In my view the only issue with taxing pension funds is that the tax threshold is too low. I considered moving my pension fund to Gibraltar and living out of the uk, but instead I just doubled the amount I draw and spend it.
Interesting and well explained video Pete I have recently set up trusts as part of our rewritten wills for my myself and my wife Would you consider a future video with how pensions are treated if you have trusts set up one of these days pretty please?
Pensions policy should be fixed for the long term with no retrospective changes by governments on a whim. It's crazy that people save all their lives and governments can change the rules at will.
Thank you for outlining this information. Can I ask about if you die before 75. You mention that there would be 40% IHT to pay, I assume this would come into effect from April 2027. I have just changed my pension named beneficiaries to split the percentage between my wife, children and grandchildren. I will then amend it back to 100% for my wife a few days before the new IHT rules change. With my limited understanding this seems like the right course of action at this time.
The Westminster weasels don't have to worry about such things - they have people who sort these things out for them. Completely disconnected from the real world the rest of us live in.
Many thanks for explaining this. I did not think it was so complex but you have set it out in simple and precise language. I am really glad I viewed the video when recommended. Our government has really stitched this up quite tightly and view raiding the dead as ‘easy money’. Your explanation of pension taxation when the deceased is over 75% and the notional rate of 65% is frightening. Australia got rid of inheritance tax and beneficiaries pay on disposal of assets at the tax rate applicable, for example capital gains; this seems fair. The UK seems to have double and treble tax implications all for the benefit of increasing the government’s tax take. It would appear best to either gift the money/asset or spend it. The worse outcome is to die with any meaningful amount of assets in your estate. Homes cost so much in the UK so including a pension will easily make many exceed the £2m threshold. [Edit: That last bit about having tidy pensions when you die is very well made. I might buy Bitcoin too.]
Government policy encouraged private pensions for all, now they can help themselves to your money. I wrote about the problem of Gov policy changes back in 1990 look at the number of changes since. Only those who make correct decisions will have a good retirement.
Other considerations: 1. Contribute to LISA/ISA/SIPP for your kids within the 7 year rule. If they have good jobs then you could withdraw at 20pct tax for you and you can contribute to a SiPP for them and that contribution gets grossed up 40pct. 2. Not a fan of equity release. However as a current family homeowner in London, we definitely will be downsizing and using that freed up cash to also give to the kids.
@@nd9588he needs to be a 40pct tax payer for that to happen. But if he is, contributing to a SIPP will allow him to get the basic tax boost and I think the additional amount can be claimed via self assessment with HMRC.
For me this is absolutely obscene. All we have now is risk where the government faces none. We face the risk initially of our investment choices, or the risk of making a gift and then dying before 7 years, or the risk of dying and leaving a sum to my son who is 11 (I am 52) that a I have worked hard for all my life,only,for s faceless bureaucrat to take half of it. This on top of my house - a bog standard 3 bedroom semi - being worth 750,000k also being 50% consumed by tax. The government would take, in one day, more in tax than I have paid in my entire 30 year career and would have endured none of the risks. It’s immoral. How dare a government agency use force to seize such an obscene amount of someone’s life and planning and take away the standard of life for my children that I had to endure hardships to achieve.
Feel exactly the same, betrayed is how I feel. I think without doubt there will be a new government in 5 years and we can only hope they reverse some of what’s happening just now. The problem will be if any other party will be good enough at that time! Interesting times.
Don’t understand the whinge here - a PENSION is supposed to be for YOU, the pensioner, to give you a decent standard of living in retirement for your years of hard work not a tax free savings account for your kids. If you’ve projected you’ll have saved enough to provide for yourself as well as having a sizeable lump to gift your kids then you should be giving it away to them earlier. Downsize the house to 500k and gift the profits to your son in trust until he’s 18 or 21 or whatever if inheritance is that important to you. Or start a Sipp for him. Or just accept that at the very worst that when you die, he will be an instant tax-free half millionaire for doing absolutely nothing. And I notice a lot of people conveniently forget all of the ‘free’ tax relief that gets added to a pension pot, not so keen to pay all that back - this is nothing but an unnecessary IHT loophole that was introduced with the pension freedoms and it’s finally got round to being adjusted. Fly first class or your kids will
I'd retiring or working less in 8 years, and considering this financial recession, Im deciding to begin taking up skilled trades. I'm curious to know best how people split their pay, how much of it goes into savings, spendings or investments, I earn around $120K per year but nothing to show for it yet.
You should contribute to your retirement diligently, or better still look into financial planning don't come to youtube for advise, consult a Local or trusted online broker/ planner
Very true, I find myself lucky enough exposed to money management at an early age. Worked full time when I was 19, purchased first home at 28 fact forward time I'm 57 now not laid off
This is huge! would love to grow my reserve regardless of the economy situation, my 407k has lost everything accrued since early 2019, at this point, i'm in need of guidance, can you point me?
GREGORY LEO CATTEL is the licensed FA I work with, I can't speak much about him you should make a search with his name, you'd find the necessary details to schedule an appointment.
Glad to have stumbled upon this, curiously inputted him on the web, easily spotted his consulting page and was able to schedule a call session. Ive seen commentary about advisers but not this phenomenal
Love this content, very reassuring that there is plenty of opportunity to plan differently and take care of family, which is what I have been working for all my career to achieve THANK YOU - We are taking our son to Vietnam this Christmas and I feel some more shared experiences are in order over the next few years
Excellent video as always...are you able to do a video on how the new IHT rules affect DB pensions? I am due a teachers pension and would like to plan early (still only 38yrs old). Thanks
The problem with bringing pensions into IHT remit is that, unlike non-pension assets, which one could get rid of at any point, it is not possible to access the pension cash until retirement (at least). So net, net, we should expect more people to "retire" as soon as possible going forward. That would do well for the NHS waiting lists, etc.
I think beyond spending more and gifting more. The most obvious thing to do is take a chunk of a pension fund that you have and buy an annuity to then pay monthly for a joint life second death WOL policy written in trust, as you say it has the double whammy of reducing your estate instantly and makes provision for paying some or all of this bill. Honestly an estate of £2.3 million pounds sounds a fortune, but it will become less so over time. This will mean an instant £700 K IHT bill, massive, massive sums
i commented here many years ago on one of your videos think it was ISAs vs Pensions video that pensions would eventually get taxed and go for ISAs as you can easily access the money + tax free and look where we are folks!
But pensions are not being taxed in the way you imply… it’s inheritance… and why do think ISA is next.. ? There’s been a tax free savings vehicle for this for ages (Tessas).
Pete great video as ever. We live in Surrey so value of estate was always going to be a problem with our higher house values. That aside I have been pondering our strategy going forward and we considering joint whole life policy (which we have had for 20 years already), gifting strategy, equity release, downsizing etc - it's not easy but this episode has confirmed the options. How we are going to choose is another matter 🙂
I'm switching funds from SIPP into VCTs, which allows me to reclaim all the Income Tax on my SIPP withdrawals. After 5 years, the VCT can be sold tax-free, releasing cash that can be gifted to my children without the tax. I just need to leave long enough to get it all out in time!
I'm looking into AIM ISA's to reduce a 40% IHT liability to 20%, would welcome your opinion. I'm aware AIM is higher risk and more regulated,. Also trying to live longer and spend more but spending more is challenging after decades of thrift. Maybe our esteemed leaders could organise binge spending parties 😄
Always got to believe in the investment rather than the tax ‘wrapper’ ( noting it’s not really a wrapper in this case). AIM is down over the last 5 years, a global index is up massively. Not done the sums but it’s got to be close to being even even with IHT.
Hi Pete, one thing I don’t understand is the order in which inheritance tax is paid. For example could the entire bill be paid from a pension fund knowing that that was less valuable to the inheritors as they would have to pay tax when drawing on it?
My understanding is that IHT is calculated on the whole estate, including pensions from April 2027, but then is paid proportionally. Example: £500,000 of IHT payable, but pension is two-fifths of the total estate, pension would pay two-fifths of the IHT = £200,000. I believe that the balance can be paid from any other source, but I don't think it's going to be an option to have the pension fund pay all the IHT. We await legislation...
@@MeaningfulMoney presumably it’s not like that today? If the house is worth £1M and the other assets are worth £500K , it’s not 40% pro-rata off each? Surely HMRC don’t care where the IHT comes from in that case, so this is another adverse consequence of including DC pots?
The simple solution is to draw it down and gift it to whoever. They then invest it in ISAs and their own pensions. Making sure you give them the highest amount that they can invest (20k into an ISA and 60k into their pension). Do that yearly and then put two fingers up to labour. 4:27
Nice concise video, thanks. I am however yet to see a video covering an inherited SIPP that is free of income tax under the new rules. Buying an annuity will introduce income tax so inefficient through remaining life. It feels like spending and giving away from regular income (as you rightly point out) being the way forwards. Any thoughts?
It is indeed a pre-75 inherited pension that the saver didn't get to enjoy, and their surviving partner won't be able to spend alone. Niche situation perhaps but very much salt into the wound. Thanks for taking the time to reply. @MeaningfulMoney
@@andrewfielden284 hehe. That's interesting. When I first heard news of RR's changes it reminded me of a story some years ago about a guy who cashed in his entire pension pot and bought an Aston Martin. Seems like he was ahead of the curve! ;)
there is some good info here but one thing you forget to mention is that all gifts etc are recorded by self reporting to HMRC. so if you don't self report or fill out a tax self assessment report to HMRC then how do they know where the money goes.
As a relatively new financial adviser, I find your channel really useful for sense checking my own thoughts as well as learning little bits that I hadn't understood previously. Keep the content coming!
Very informative video, please could you provide us with an example where 89% notional tax is reached? I am doing something wrong I do not seem to get over 85%.
so on death a pension plan can be taxed 40% IHT, and then income tax when the beneficiary draws funds; whereas if it was held in bank or similar the beneficiary would receive the funds tax free after IHT is paid? This cannot be right, the pensions industry would be up in arms! ??
Its a very unfair policy that its only 500 k for a single person with an estranged partner , so a single kid can inherit up to 1 million off their parents tax free but 6 kids with a single parent( no contact with other parent) will get a lot less after the tax man gets hold of it- the labour policy is a brutal attack on working single parent families that worked hard ,
So if you use the bucket strategy and draw from your cash bucket is that classed as income? The bucket would have been filled by selling some of your investments. But the money when drawn out is used as income and taxed as income.
Where I think you hit the nail on the head is that pensions were intended to provide a retirement income and have lots of tax relief ‘on the way in’. Perhaps the government is actually trying to encourage people to spend their cash whilst they are alive (all sorts of economic reasons). Alternatively, they (gvt) view it as a tax loophole that some people use to avoid IHT and so they are choosing to close it.
IHT has a sequencing risk as well as the potential to now add HMRC as an unexpected dependant along with your kids! If Probate takes longer than the 6months the estate has to pay the IHT by then there’s potentially a cash availability issue here as access to estate cash will be locked/frozen. If I heard you right and the current proposal is that a Pension provider can pay some, or all, the IHT directly and quickly from the remaining Pension funds then that’s really useful, though I suspect that cant be done as the IHT liability wouldn’t be fully understood until Probate completes and that could take much longer than the 6 months after death that IHT must be paid by, unless the estate pays interest on the IHT bill as well, which can be mitigated by a WOL policy in a trust, which is expensive.
If i buy gold coins from the royal mint, its known as a gold collection and considered private, meaning that unlike equities, cars, properties - There is no legal requirement to register or transfer ownership when gifted. Thus the seven year rule would not apply??? Could i do that ??
And of course, future governments might even change these new rules. The various governments seem to have no compunction in radically altering what are lifelong plans for people. We plan and contribute measured in decades, they 'fiddle' in months
With the 7 year gifting rule, If parents give a gift from a joint account and one of them dies early but the other survives the 7 years does that trigger an inheritance tax charge ?
Hmrc usually views the contents of a joint account as split equally, as seen in help for self assessment. So maybe that helps, but I think you want real tax advice there.
Another very helpful and timely video, thanks, Pete. I need to watch it another couple of times to take in all the detail. I am wondering about something related - can you recommend a decent online resource or book for executors? It is a potentially very complicated and stressful job, done largely by non-professionals (I am a named executor in one will). Any suggestions gratefully received!
Pass it over to a solicitor, especially when there are complicated financial affairs. Then book another holiday abroad. Joking aside, being an executor can be very stressful and a waste of the weeks of limited life remaining on the planet.
More difficult to understand is taper relief on gifts. Nightmare. It looks like the taper starts after 3 years but is it that simple? The only examples you ever get are for gifts over 325k? Does that mean only gifts that exceed 325k count for taper relief? Hell of a gift.
Brilliant vid Pete. Really useful. Ref gifts out of income, does your pension or ISA need to be invested in income generating funds as opposed to growth/accumulation funds in order to qualify ?
I have exactly the same question. Can any accumulation funds increase in value be sold and considered to be income or shall I convert my funds to Income generating?
No the funds do not need to be income generating (dividend) based. Just have a clear own income need that can be demonstrated and then drawdown more each month and then gift this excess away being the same amount each month to make it easier to justify to HMRC.
@@jocar-1735 Let's assume I have already met my yearly income requirements via my personal pension and the old age pension. My £50K stocks & shares ISA has gone up in value by 10% in the tax year, be that the dividend being re-invested and or growth in its own right. I understand you are saying (in good faith) I could then sell £5K worth of units and still be able to claim this was excess income?
@@Mark-j3p You would be need to be able to demonstrate that you were not excessively eroding the pension or ISA capital to regularly gift to others, so it is important that annual withdrawals from pension/ISA pots are considered to be sustainable in the long term and 10% per year is probably not sustainable. Having a DB pension is much more easy as this "income" is added to the state pension, and if there is an excess to requirements regular income then this can be gifted by a regular amount each and every month. With a DC pension /ISA from what I have read is that a sustainable annual withdrawal (say 4%/yr) from each providing a regular monthly "income" in retirement if in excess of regular monthly expenditure requirements then the excess could be gifted outside of IHT. However, the pension pot would not be eroded and therefore if not left to spouse would be subject to IHT on death plus the beneficiary would probably have to pay income tax (assuming death after age 75). Alternatively, pulling the entire 25% tax free lump sum from a DC pension or a large lump sum from an ISA or drawdown from a DC pension to eventually deplete them could be gifted under the 7 yr IHT exemption rule.
Pension pots are for spending in retirement, not for inheritance tax planning. But this change makes it very hard for unmarried couples in long term relationships. £375k is small compared to 50% of a shared home and a pension pot. Effectively it requires people to marry for tax purposes.
@paulduncan789 Not really. An unmarried couple sharing a £500k house and £50k ISAs were comfortably below the threshold. But add in one of them having a £200k pension pot... It means people who've earned modestly all life, never in the 40% tax bracket, become subject to inheritance tax. IHT is no longer just in the realm of the well off who hire financial advisors.
Yes I’m not married and have live with my partner for 33 years. We just never thought about Marriage. I’m looking at a civil partnership now. I’m well over IHT in 2027.
Get married (cheaply) 😂 Now on our priority list after 28yrs together. Absolutely essential to avoid partner having to pay IHT. Should have done it years ago 😮
I have 800k in stocks shares cash etc and a factory/showroom 750k in my pension pot .I also have property and land so I am doing OK but my pla was to give it all to my daughter. What happens to the factory side as this is a asset but not cash ?
My first thought when this was announced was to consider a lifetime mortgage and giving the money to my children. Much better for them to have use of it in their 20s or 30s rather than wait until my wife and I are both dead, when they will potentially be in their 60s.
I think a *lot* of people will now be re-assessing their plans. Am I glad I didn't spend ££££s on professional financial planning advice! :) In effect these changes have turned everything around, and made it much less attractive to stack away a huge amount in your pension funds. Now it's, spend, spend, spend! Or a big handout to your kids, if you're feeling generous.
@ the problem with handouts is you may die before 7 years and reducing your pot meals lower annual draw downs without reducing it to zero. We need financial advisors to earn their money and come up with some smarter moves than that.
@@TheSilvercue The goal posts keep moving. Difficult to plan really. But yes, it's turned into a bit of a balancing act. Oh well I'm sure my kids will be happy with it.
@ My plan, which I have been working on for years, has been to load up my pension pot, move the funds to higher risk, higher reward and build it up so I can live off a 4% drawdown while it still grows and grows. Then leave the lot as a lump to my son, to set him up. I am not married, so have only 500k limit before IHT and my house is worth that due to where I live. So, now entire pension pot attracts 40% tax. And if I die over 75, as planned, then my son also will have to pay income tax on that, so it ends up being taxed 64%. That is disgusting and makes that plan now worthless.
Small taxes can affect investment decisions such as whether to choose tax-free municipal bonds over taxable bonds or do a Roth IRA conversion. I’ve been sitting on over $745K equity from a home sale and I want to invest on the stock market, how do I achieve this without being taxed twice?
Well wait until 2027, then the local councils will say when evaluting you finance for social care, your pension now part of your estate/IHT will be considered part of your assets and so you won't get any help as you be over the £23,000 limit
Can you just clarify the point at 2.23 please. If my son takes my pension on my death and puts it straight into a pension, it isn't subject to IHT, just the tax on drawdown? If the remainder is over the annual £60,000 pension allowance in any one year, can he still put it all into a pension fund and not pay IHT? Many thanks in advance and thanks for your very useful videos.
Unfortunately not and you can only put up to 100% of your income pa up to 60k into a pension. TBF he would be better of using your inheritance on day to day living and using salary sacrifice and only take 5k the new come April 25 employer NI allowance of his income and recovering income tax and NI also recovering employers NI and I would opt out of the work place pension and have all of that payed into a private pension. That's what I would do ;-)
Hi @MeaningfulMoney sorry if this question has been asked already… how does this work for spouses? My estate (including house, SIPP etc) will be easily in excess of my IHT allowance and I’m worried that, if I die, my wife will have to sell the house to pay the IHT bill. Can you explain the rules around this?
Yes, not yet definite. There is a school of thought that pension IHT might not go ahead and that a pension when passed to beneficiary will be subject to income tax regardless of age of death.
Interesting. Besides DC pensions I also have two DB pensions that I am using already. They generally have a statement that says that upon my death they will pay an ongoing monthly % to my widow - I am married. How are they going to calculate these type of DB pensions upon death? If the behavioural result of this is to encourage effectively spending either by me and my wife and potentially children via the gifts, then would this help notional growth in the economy with the provision of goods and services that these funds will buy earlier in time than would have otherwise been the case? Here's my economics and accounting brain working!!
Surely upon your death, the documented DB pension payment will continue to be made to your widow until her death. The pension will cease at that point and have no value in her estate. On your death, no IHT is owed assuming you leave everything to your widow.
Think of a DB pension as a joint life annuity. It's not part of the estate and so there's no IHT to pay on the income part. This vests to the survivor. Tax treatment of death in service benefit isn't clear yet.
Can a received inheritance be gifted directly down to the children? Will this be free of the 7 year rule. Also if funds are taken from a drawdown and passed down, would this funds would be above the day to day spending and so free of IHT?
If your house and pension fund is less than the Iht limit now. Can you gift whatever you like out of your pension pot after paying tax on it. I would like to give my 2 kids 10k for them to enjoy whilst I'm still around to see them enjoy it. Or does this 7 year rule still apply.
Re your mentions of annuities being a gamble about whether you will last 20 years to get the 5% back. I like guaranteed Annuities - particularly 30 year. In my case I can get about £6k per £100k - and you or your dependents are guaranteed to get at least £180k back. Plus whilst guaranteed annuities are subject to IHT - the 'Market Rate' calculations do I think come out a fair bit less than the original £100k - so they reduce IHT exposure a bit.
I'm sure it wont be long before pension companies and SIPP providers start pointing out how many people have stopped their pension contributions already. My daughters will welcome the cash instead I'm sure.
I think that's entirely a family-specific question, Graham. Inheritance is such an emotive subject and nothing splits families like money. So there's really no 'should' about it, it's going to be very much up to each set of grandparents to decide!
Helpful as always! I was just wondering, what about pensions abroad? My father has a private pension in republic of ireland and ireland doesn't have these tax rules on pension. So would that follow UK rules if I were to inherit it because I live and work here, or Irish tax rules? Also, is this only for SIPPs, or does it apply to workplace pensions like the NHS one, which I believe has death in service benefit etc
The estate pays IHT, not the recipient. If the estate is in another country then their laws apply. As for the transferring of that money across a border to you, you may need advice.
If I were to gift my child 100k from my ISA pot and lived beyond 7 years I assume that would be free of IHT. My child is likely to be financially well off when I retire. If say in 10 years time she wanted to gift me 10k a year from her ISA’s would that be allowed under current rules?
Exactly my thought. Gift kids and put in their ISA, call it theirs … technically it is, with the agreement they gift parts of it back if you need it. when you die..well it’s theirs anyway then tax free
The problem I have with tax is that we enter a tax paying workforce at 18 and have a social contract with the Government, which ever flavour is in power, for the rest of your working life. We make our choices on how we grow our wealth, or not as we see fit, with the circumstances we are dealt with for 50 years or so based on a set of principles that were in place, yet at the stroke of a pen, the goal posts change and what you have worked for, based on your own ideology, a huge chunk is ripped away with no effort on the Government’s part to negotiate or allow sufficient time to adjust. In the space of 2 years I have had Government decisions which wiped 10% of my personal pension, then a change in Government which now brings what is left in to my estate when I die with a further 40% impact, which has all to be paid up front before any inheritance can be realised. At least if HMRC would allow the assets to be disposed of before the tax was due would be somewhat a relief for grieving beneficiaries I wonder what the inheritance tax bill was for King Charles when his much beloved mother passed away? I am happy for my beneficiaries to pay the same percentage of my estate! I think we might need a revolution!
For someone in their early 40's and as a high rate tax payer, I think it still makes sense to lap up the tax relief currently on offer, along with the generous annual allowance and accumulate a large pension pot. If i get it to £2.5mio by retirement, I have options right? These options would just nit be available else and as a worst case, I can spend and gift it and incur a 45% tax... In reality, so much more will change between now and then. Love to hear your thoughts.
@@curiousjoe395 Best way to avoid IHT is to spend it. For a £2M plus pension pot, a £100K/yr drawdown should be sustainable this being a 5% drawdown rate.
Hi Pete. Thanks for starting to tackle this topic. Far more people will be dragged into IHT, particularly if a home owner in the SE. Can you talk more about the use of trusts and family investment companies for those with a 20 year + time horizon for estate planning? It would be interesting to see how these work particularly if wanting to retain control over capital in that period (e.g. discretionary loan trust or loans into a FIC)? Many thanks.
I just turned 58 and awfully late to investing with barely any portfolio asides my 401k. I have a decent amount of cash saved up but I have some debt. I’m getting worried about retirement. How do I best optimize my savings of over $60k?
Retirement is now more difficult than it was in the past, it’s all about balancing your risk tolerance with your long-term goals. Maybe consider speaking to an advisor to help in diversifying your portfolio to spread out the risk.
Agreed, I’ve always delegated my excesses to an advisor, since suffering major portfolio loss early 2022. I’m now semi-retired and only work 7-8 hours a week with barely 25% short of my $2M retirement goal after subsequent investments to date.
Thanks for sharing your experience! I’ve been managing my portfolio myself, but it’s hasn’t worked out. Can you recommend a standard advisor? I could really use some help.
My CFA, *Joseph Nick Cahill* is a renowned figure in his field. I recommend searching his name online; you’ll find all his credentials and everything you need to work with a reliable professional. With many years of experience, he is a valuable resource for anyone looking to navigate the financial market.
Thank you so much for the suggestion, I really needed it. I looked him up on Google and explored his website, he has an impressive background in finance. I’ve sent an email and I hope to hear back from him soon!
In the 1990s I sold pensions on the strength that the tax free lump sum would pay off most if not all of the mortgage and leave the investor with a pension for life. Most were over a 40 year term plus, I was not alone.
it's vital for investors to seek personalized advice and adopt diversified financial strategies. Working with a knowledgeable financial advisor is crucial for achieving long-term financial stability and freedom
The approach of selling pensions with the promise that a tax-free lump sum would pay off mortgages and provide a lifelong pension was common in the 1990s. However, many factors can affect the outcome, including changes in the housing market and interest rates. It's crucial for investors to seek personalized advice and consider diversified financial strategies to ensure long-term financial stability.
I'm intrigued by this. I've searched for financial advisers online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’ Melissa Terri Swayne” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
Thank you for this Pointer. It was easy to find your handler, She seems very proficient and flexible. I booked a call session with her.
Don't simply retire from something; have something to retire to. Start saving, keep saving, and stick to investments. Building wealth involves establishing routines, like consistently setting aside funds at regular intervals for smart investments.
It’s really heartbreaking to see how inflation and recession impact low-income families. The cost of living keeps rising, and many struggle just to meet basic needs, let alone save or invest. It’s a reminder of the importance of finding ways to create financial opportunities. You've helped me a lot Kandyse McClure! Imagine i invested $50,000 and received $190,500 after 14 days
Finding yourself a good broker is as same as finding a good wife, which you go less stress, you get just enough with so much little effort at things
Kandyse demonstrates an excellent understanding of market trends, making well informed decisions that leads to consistent profit
I'm surprised that you just mentioned and recommend Mrs Kandyse McClure. I met her at a conference in 2018 and we have been working together ever since.
I'm surprised that you just mentioned and recommend Mrs Kandyse McClure. I met her at a conference in 2018 and we have been working together ever since.
I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I hate my job but can't leave because of I won't get my state pension. What do you think about doing a 70/30 stocks bond ratio?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery
When you’re feeling pressured to retire, it’s highly recommended to consult an advisor, as their guidance can help you make more informed investment decisions.
Well agreed, I'm quite lucky exposed to finance at early age, started job at 19, purchased first home at 28, got married shortly afterwards to raise kids early. Going forward, got laid-off at 40 amid covid '19 outbreak, immediately consulted with an advisor in order to stay afloat and after subsequent investments, I'm barely 15% short of $1m ballpark goal as of today.
This aligns perfectly with my desire to organize my finances prior to retirement. Could you provide me with access to your advisor?
Stacy Lynn Staples is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
I find it extremely sad and demoralising that we have to go through all of this chicanery just to leave money to our families. This government really hates success.
No, actually they want people to pay their taxes. If no-one pays, we're all up a creek.
My father has been using the "gifts out of income" route for the last 5 or so years. A video about the fine details of this process would be appreciated. I think he has the options covered, but you never know.
Mark, Dad needs to firstly ensure he has excess income; ie 2.5k pm income in, 1.5k spent, so 1k spare. It must be spare income & not cash/capital.
Then all Dad needs to do is record the details, eg £500pm to you on 1st of month from account x. This is the evidence log for executors & HMRC (if queried).
It’s a great exemption as gifts immediately outside of estate, no 7y clock.
@@richpowell5449
Thanks for your comment. I would like to dig deeper on this matter and I hope a video could be made for us all.
In the meantime, my dad does a yearly profit and loss account. Whatever is left at the end of the tax year he gives 25% to me. The rest accumulates and subsequently becomes classed as capital by HMRC after 1-2 years. My main concern is that he suffered a stroke last December, (has made a full recovery), but now wants to up the percentage gifted to virtually 100%. In your opinion is this excessive. He also fills in the IHT403 tax form to record the gifts.
@@richpowell5449
Hi Rich. I did an earlier reply to you, but it doesn't appear to be shown.
Agreed a video would be useful on this subject. There does not seem to be a fail safe guide for gifts out of income. It will be up to your kids to prove it to HMRC. There seem to be be so many pitfalls where HMRC can disagree with your calculations and what is included. There rules are not very specific.
@@richpowell5449 but the 7 year rule does apply to gifts……
Great video as always Pete. So much food for thought - Thanks! One thing I am not up on is trusts - It would be good to know how the rich get out of paying IHT when passing on their wealth. Also, what is stopping me renaming my house Kevin’s farm and paying IHT at 20% instead of 40%? My kids bedrooms look like pigsty’s most of the time so there is every chance I might get away with it!
Hi Pete , Like others have already commented a 'gifts from income' video would be really useful 👍
Great video Pete, and the final messages of don’t panic and make rash decisions, such as how many took their tax free cash pre budget? and more importantly the pension fund pot primary reason is to provide you with an income, not as a savings pot to pass onto your kids.
I’m 55 and now seriously thinking of early retirement to spend earlier. I'm in a high skilled job and was thinking of working to 62. That's changed now.
I think this will force others to rethink whether is worth continuing work or spend their pensions earlier to beat IHT limits. I have property and a decent pension which I was planning to spend the pensions last and give any excess away to kids. That’s flipped on its head now. So early retirement is something I’m seriously considering now.
I get that's what pensions are for but I'm Not sure this government have thought through what the effects this may have on employment and early retiring of skilled workers. And whilst I enjoy my job this is now my last job for sure as it makes little financial sense.
Congratulations for putting yourself in this win win situation. I'm definitely in the work until I've got enough and then my time becomes more valuable than work. If the changes mean for you retiring earlier becomes more appealing then grab it and enjoy the extra time not working that the government policy will give you.
I’ve worked hard for 40 years to provide a great retirement and look after my kids in their lives and this scum government are wiping our plans to the wall
Same here, I am furious and gutted.
It was bound to happen, Britain is bankrupt and has left well beyond its means. Be glad that you got to enjoy it for 40 years instead. We need to adjust our expectations
At least you didn't pile all your money into a farm to avoid IHT, like some idiots did.
Simple solution LEAVE I did now have no worries
@ not that straight forward for many. Kids at school, elderly parents to look after, lack of second language and many reasons it can be difficult
So many of us have children and gradchildren living overseas. It would be useful to have a video on how Inheritance tax and other taxes affect them when money is past to them.
Inheritance tax (IHT) in the UK is primarily determined by the domicile and residence status of the person who has died, rather than the location of their heirs. Here's how it typically works:
Domiciled in the UK: If the parent or grandparent who passed away is domiciled (or deemed domiciled) in the UK, their worldwide estate is subject to UK inheritance tax. This includes assets located both within and outside the UK.
Not Domiciled in the UK: If the deceased is not domiciled in the UK but owns UK assets (e.g., property in the UK), only those UK-based assets will be subject to UK inheritance tax.
@@zaidahmed9527 So if you sold your house in UK and went to live in say the Channel Islands on a permanent basis, then you would be domiciled there and not subject to UK Inheritance tax.
The residue of a private pension used to belong to the pension provider. In addition there used to be restrictions on how much you could draw out. George Osborne removed these restrictions. In my view the only issue with taxing pension funds is that the tax threshold is too low. I considered moving my pension fund to Gibraltar and living out of the uk, but instead I just doubled the amount I draw and spend it.
Interesting and well explained video Pete
I have recently set up trusts as part of our rewritten wills for my myself and my wife
Would you consider a future video with how pensions are treated if you have trusts set up one of these days pretty please?
Pensions policy should be fixed for the long term with no retrospective changes by governments on a whim. It's crazy that people save all their lives and governments can change the rules at will.
It's a retrospective tax. What are the chances of "protection" for current accrued Pension Funds being introduced.
Good advice, well.presented. got me thinking about iht planning
Really enjoyed your talk
There really is a lot to think about.
90%bill for the kids 😮
Thank you for a straightforward video that is super helpful. I have subscribed.
Thank you for outlining this information. Can I ask about if you die before 75. You mention that there would be 40% IHT to pay, I assume this would come into effect from April 2027. I have just changed my pension named beneficiaries to split the percentage between my wife, children and grandchildren. I will then amend it back to 100% for my wife a few days before the new IHT rules change. With my limited understanding this seems like the right course of action at this time.
There is no way Probate will sort all these estates out within the 6 months demanded by the NEW HMRC IHT Pension deadline
The Westminster weasels don't have to worry about such things - they have people who sort these things out for them. Completely disconnected from the real world the rest of us live in.
@@davidrowe8747 Yes unfair to expect payment before you receive the funds
Many thanks for explaining this.
I did not think it was so complex but you have set it out in simple and precise language.
I am really glad I viewed the video when recommended.
Our government has really stitched this up quite tightly and view raiding the dead as ‘easy money’.
Your explanation of pension taxation when the deceased is over 75% and the notional rate of 65% is frightening.
Australia got rid of inheritance tax and beneficiaries pay on disposal of assets at the tax rate applicable, for example capital gains; this seems fair.
The UK seems to have double and treble tax implications all for the benefit of increasing the government’s tax take.
It would appear best to either gift the money/asset or spend it.
The worse outcome is to die with any meaningful amount of assets in your estate.
Homes cost so much in the UK so including a pension will easily make many exceed the £2m threshold.
[Edit: That last bit about having tidy pensions when you die is very well made. I might buy Bitcoin too.]
Great video, thanks Pete
Excellent video. Clear and concise. No hard sell. Now a subscriber. Video on pros and cons of Trusts would be appreciated.
Government policy encouraged private pensions for all, now they can help themselves to your money. I wrote about the problem of Gov policy changes back in 1990 look at the number of changes since. Only those who make correct decisions will have a good retirement.
Great video. Could you make one with some advice for UK residents who will inherit non-UK residents? Will the beneficiary need to pay taxes in the UK?
Other considerations:
1. Contribute to LISA/ISA/SIPP for your kids within the 7 year rule. If they have good jobs then you could withdraw at 20pct tax for you and you can contribute to a SiPP for them and that contribution gets grossed up 40pct.
2. Not a fan of equity release. However as a current family homeowner in London, we definitely will be downsizing and using that freed up cash to also give to the kids.
How does this work please? I fund a LISA for my Son. How do I contribute to a SIPP and gain 40pct? Thanks
@@nd9588he needs to be a 40pct tax payer for that to happen. But if he is, contributing to a SIPP will allow him to get the basic tax boost and I think the additional amount can be claimed via self assessment with HMRC.
For me this is absolutely obscene. All we have now is risk where the government faces none. We face the risk initially of our investment choices, or the risk of making a gift and then dying before 7 years, or the risk of dying and leaving a sum to my son who is 11 (I am 52) that a I have worked hard for all my life,only,for s faceless bureaucrat to take half of it. This on top of my house - a bog standard 3 bedroom semi - being worth 750,000k also being 50% consumed by tax. The government would take, in one day, more in tax than I have paid in my entire 30 year career and would have endured none of the risks. It’s immoral. How dare a government agency use force to seize such an obscene amount of someone’s life and planning and take away the standard of life for my children that I had to endure hardships to achieve.
We have the government that the people voted for. I doubt few will own up to putting us all in this mess.
If you're concerned about your son being supported if you die while he is under age, have you considered term assurance written in trust?
Feel exactly the same, betrayed is how I feel. I think without doubt there will be a new government in 5 years and we can only hope they reverse some of what’s happening just now. The problem will be if any other party will be good enough at that time! Interesting times.
Don’t understand the whinge here - a PENSION is supposed to be for YOU, the pensioner, to give you a decent standard of living in retirement for your years of hard work not a tax free savings account for your kids. If you’ve projected you’ll have saved enough to provide for yourself as well as having a sizeable lump to gift your kids then you should be giving it away to them earlier. Downsize the house to 500k and gift the profits to your son in trust until he’s 18 or 21 or whatever if inheritance is that important to you. Or start a Sipp for him. Or just accept that at the very worst that when you die, he will be an instant tax-free half millionaire for doing absolutely nothing. And I notice a lot of people conveniently forget all of the ‘free’ tax relief that gets added to a pension pot, not so keen to pay all that back - this is nothing but an unnecessary IHT loophole that was introduced with the pension freedoms and it’s finally got round to being adjusted. Fly first class or your kids will
@@johnsmith-ey8xe are you not affected by it John?
I'd retiring or working less in 8 years, and considering this financial recession, Im deciding to begin taking up skilled trades. I'm curious to know best how people split their pay, how much of it goes into savings, spendings or investments, I earn around $120K per year but nothing to show for it yet.
You should contribute to your retirement diligently, or better still look into financial planning don't come to youtube for advise, consult a Local or trusted online broker/ planner
Very true, I find myself lucky enough exposed to money management at an early age. Worked full time when I was 19, purchased first home at 28 fact forward time I'm 57 now not laid off
This is huge! would love to grow my reserve regardless of the economy situation, my 407k has lost everything accrued since early 2019, at this point, i'm in need of guidance, can you point me?
GREGORY LEO CATTEL is the licensed FA I work with, I can't speak much about him you should make a search with his name, you'd find the necessary details to schedule an appointment.
Glad to have stumbled upon this, curiously inputted him on the web, easily spotted his consulting page and was able to schedule a call session. Ive seen commentary about advisers but not this phenomenal
Love this content, very reassuring that there is plenty of opportunity to plan differently and take care of family, which is what I have been working for all my career to achieve THANK YOU - We are taking our son to Vietnam this Christmas and I feel some more shared experiences are in order over the next few years
Excellent video as always...are you able to do a video on how the new IHT rules affect DB pensions? I am due a teachers pension and would like to plan early (still only 38yrs old). Thanks
They don't affect gold-plated DB pensions of course (as MP's get those too!). Your DB pension will usually die when you do so there is no issue.
The problem with bringing pensions into IHT remit is that, unlike non-pension assets, which one could get rid of at any point, it is not possible to access the pension cash until retirement (at least). So net, net, we should expect more people to "retire" as soon as possible going forward. That would do well for the NHS waiting lists, etc.
I think beyond spending more and gifting more. The most obvious thing to do is take a chunk of a pension fund that you have and buy an annuity to then pay monthly for a joint life second death WOL policy written in trust, as you say it has the double whammy of reducing your estate instantly and makes provision for paying some or all of this bill. Honestly an estate of £2.3 million pounds sounds a fortune, but it will become less so over time. This will mean an instant £700 K IHT bill, massive, massive sums
I suggest exactly that towards the end of the video - I can see that happening quite a bit...
Any chance of doing an updated Equity Release Implications Vlog 2024?👍🤞
Thanks Pete for the insight. I am sure policies will change again when we get to retirement age :)
i commented here many years ago on one of your videos think it was ISAs vs Pensions video that pensions would eventually get taxed and go for ISAs as you can easily access the money + tax free and look where we are folks!
But pensions are not being taxed in the way you imply… it’s inheritance… and why do think ISA is next.. ? There’s been a tax free savings vehicle for this for ages (Tessas).
Pete great video as ever. We live in Surrey so value of estate was always going to be a problem with our higher house values. That aside I have been pondering our strategy going forward and we considering joint whole life policy (which we have had for 20 years already), gifting strategy, equity release, downsizing etc - it's not easy but this episode has confirmed the options. How we are going to choose is another matter 🙂
Great point about the RNRB loss 😨
What is the situation if you give any pension funds to charity?
Also, the IHT nil-rate bands could be changed in a few years. What do you think?
I have been waiting for this video Pete 👍
Me too !
Thanks for this
Yeah there is a lot to consider now. Trusts, gifts all sound like good options. Cheers
I'm switching funds from SIPP into VCTs, which allows me to reclaim all the Income Tax on my SIPP withdrawals. After 5 years, the VCT can be sold tax-free, releasing cash that can be gifted to my children without the tax. I just need to leave long enough to get it all out in time!
I'm looking into AIM ISA's to reduce a 40% IHT liability to 20%, would welcome your opinion. I'm aware AIM is higher risk and more regulated,. Also trying to live longer and spend more but spending more is challenging after decades of thrift. Maybe our esteemed leaders could organise binge spending parties 😄
GOOD IDEAR BAD IDEAR, NOTHING IN THE AIM WORTH INVSETING IN
Always got to believe in the investment rather than the tax ‘wrapper’ ( noting it’s not really a wrapper in this case). AIM is down over the last 5 years, a global index is up massively. Not done the sums but it’s got to be close to being even even with IHT.
They would only attend those parties if they were banned though
"Maybe our esteemed leaders could organise binge spending parties" - they have, with your money, but you are not invited!
Query for a video - What are the effects of April 2027 on defined benefit pension schemes?
Hi Pete, one thing I don’t understand is the order in which inheritance tax is paid. For example could the entire bill be paid from a pension fund knowing that that was less valuable to the inheritors as they would have to pay tax when drawing on it?
Beat me to it! It’s not one big pot if elements are treated differently for the recipients.
My understanding is that IHT is calculated on the whole estate, including pensions from April 2027, but then is paid proportionally.
Example: £500,000 of IHT payable, but pension is two-fifths of the total estate, pension would pay two-fifths of the IHT = £200,000. I believe that the balance can be paid from any other source, but I don't think it's going to be an option to have the pension fund pay all the IHT. We await legislation...
@@MeaningfulMoney presumably it’s not like that today? If the house is worth £1M and the other assets are worth £500K , it’s not 40% pro-rata off each? Surely HMRC don’t care where the IHT comes from in that case, so this is another adverse consequence of including DC pots?
@@simonm9923but they will care as paying from the pension will avoid possible income tax due.
Will this not force everyone back onto choosing Annuities?
The simple solution is to draw it down and gift it to whoever. They then invest it in ISAs and their own pensions. Making sure you give them the highest amount that they can invest (20k into an ISA and 60k into their pension). Do that yearly and then put two fingers up to labour. 4:27
Retire, draw down, spend + gift is probably going to be my MO. Might possibly buy an annuity too.
Thats ok if your not 82.
@@keyo525 yep, if your that old there's probably not much time left to do anything to avoid the IHT hit if it applies...
Nice concise video, thanks. I am however yet to see a video covering an inherited SIPP that is free of income tax under the new rules. Buying an annuity will introduce income tax so inefficient through remaining life. It feels like spending and giving away from regular income (as you rightly point out) being the way forwards. Any thoughts?
If it's a pre-75 inherited pension, I think there's real merit in taking it in big chunks and making gifts, yes.
It is indeed a pre-75 inherited pension that the saver didn't get to enjoy, and their surviving partner won't be able to spend alone. Niche situation perhaps but very much salt into the wound. Thanks for taking the time to reply. @MeaningfulMoney
Spend, spend, spend!!!
Or: retire and spend. Luxury cruises ahoy! ;)
That Ferrari looking more attractive now isn't it?
@@andrewfielden284 hehe. That's interesting. When I first heard news of RR's changes it reminded me of a story some years ago about a guy who cashed in his entire pension pot and bought an Aston Martin. Seems like he was ahead of the curve! ;)
@@CaldonianDude I tell you, if it wasn't for my kids, I'd be thinking along the same lines. I hope they realise what sacrifices I've made 🙂
Thanks Pete what about couples who have been together long term but not married, this decision is devastating
Same issue, solution is to get married.
there is some good info here but one thing you forget to mention is that all gifts etc are recorded by self reporting to HMRC. so if you don't self report or fill out a tax self assessment report to HMRC then how do they know where the money goes.
i bet they’ll be going through your bank statements with a fine tooth comb
As a relatively new financial adviser, I find your channel really useful for sense checking my own thoughts as well as learning little bits that I hadn't understood previously. Keep the content coming!
Very informative video, please could you provide us with an example where 89% notional tax is reached? I am doing something wrong I do not seem to get over 85%.
so on death a pension plan can be taxed 40% IHT, and then income tax when the beneficiary draws funds; whereas if it was held in bank or similar the beneficiary would receive the funds tax free after IHT is paid? This cannot be right, the pensions industry would be up in arms! ??
Its a very unfair policy that its only 500 k for a single person with an estranged partner , so a single kid can inherit up to 1 million off their parents tax free but 6 kids with a single parent( no contact with other parent) will get a lot less after the tax man gets hold of it- the labour policy is a brutal attack on working single parent families that worked hard ,
So if you use the bucket strategy and draw from your cash bucket is that classed as income? The bucket would have been filled by selling some of your investments. But the money when drawn out is used as income and taxed as income.
Where I think you hit the nail on the head is that pensions were intended to provide a retirement income and have lots of tax relief ‘on the way in’. Perhaps the government is actually trying to encourage people to spend their cash whilst they are alive (all sorts of economic reasons). Alternatively, they (gvt) view it as a tax loophole that some people use to avoid IHT and so they are choosing to close it.
Would really appreciate a video on international SIPPs. Just because one is forced to spend it, it doesnt mean we have to spend it in the UK!
Loyalist
IHT has a sequencing risk as well as the potential to now add HMRC as an unexpected dependant along with your kids! If Probate takes longer than the 6months the estate has to pay the IHT by then there’s potentially a cash availability issue here as access to estate cash will be locked/frozen. If I heard you right and the current proposal is that a Pension provider can pay some, or all, the IHT directly and quickly from the remaining Pension funds then that’s really useful, though I suspect that cant be done as the IHT liability wouldn’t be fully understood until Probate completes and that could take much longer than the 6 months after death that IHT must be paid by, unless the estate pays interest on the IHT bill as well, which can be mitigated by a WOL policy in a trust, which is expensive.
It’s ok your beneficiaries can take out a bridging loan at high interest rate to settle the iht bill. Not only does the taxman win the banks do too!
If i buy gold coins from the royal mint, its known as a gold collection and considered private, meaning that unlike equities, cars, properties - There is no legal requirement to register or transfer ownership when gifted. Thus the seven year rule would not apply??? Could i do that ??
Surely the spouse will get the proceeds first with no IHT, then on second death both allowances would be available?
Yes as long as the will stipulates all assets to spouse. At this point any unused IHT allowance from the deceased is transferred to spouse.
And of course, future governments might even change these new rules. The various governments seem to have no compunction in radically altering what are lifelong plans for people. We plan and contribute measured in decades, they 'fiddle' in months
With the 7 year gifting rule, If parents give a gift from a joint account and one of them dies early but the other survives the 7 years does that trigger an inheritance tax charge ?
Hmrc usually views the contents of a joint account as split equally, as seen in help for self assessment. So maybe that helps, but I think you want real tax advice there.
Hi Pete, If I take a drawdown @ age 55 and take income from it can I convert the money left in the drawdown to annuity @ age 75.
Another very helpful and timely video, thanks, Pete. I need to watch it another couple of times to take in all the detail. I am wondering about something related - can you recommend a decent online resource or book for executors? It is a potentially very complicated and stressful job, done largely by non-professionals (I am a named executor in one will). Any suggestions gratefully received!
Pass it over to a solicitor, especially when there are complicated financial affairs.
Then book another holiday abroad.
Joking aside, being an executor can be very stressful and a waste of the weeks of limited life remaining on the planet.
@@jocar-1735 that's exactly what I've been thinking, but wanted to educate myself on what is involved.
So when inheriting a persons pension you can choose to transfer the funds to your own pension ?
They can make gifts out of capital of other assets and use trusts to mitigate all tax provided they survive for 7 years
More difficult to understand is taper relief on gifts. Nightmare. It looks like the taper starts after 3 years but is it that simple? The only examples you ever get are for gifts over 325k? Does that mean only gifts that exceed 325k count for taper relief? Hell of a gift.
Brilliant vid Pete. Really useful. Ref gifts out of income, does your pension or ISA need to be invested in income generating funds as opposed to growth/accumulation funds in order to qualify ?
I have exactly the same question. Can any accumulation funds increase in value be sold and considered to be income or shall I convert my funds to Income generating?
No the funds do not need to be income generating (dividend) based.
Just have a clear own income need that can be demonstrated and then drawdown more each month and then gift this excess away being the same amount each month to make it easier to justify to HMRC.
@@jocar-1735 Let's assume I have already met my yearly income requirements via my personal pension and the old age pension.
My £50K stocks & shares ISA has gone up in value by 10% in the tax year, be that the dividend being re-invested and or growth in its own right. I understand you are saying (in good faith) I could then sell £5K worth of units and still be able to claim this was excess income?
@@Mark-j3p
You would be need to be able to demonstrate that you were not excessively eroding the pension or ISA capital to regularly gift to others, so it is important that annual withdrawals from pension/ISA pots are considered to be sustainable in the long term and 10% per year is probably not sustainable.
Having a DB pension is much more easy as this "income" is added to the state pension, and if there is an excess to requirements regular income then this can be gifted by a regular amount each and every month.
With a DC pension /ISA from what I have read is that a sustainable annual withdrawal (say 4%/yr) from each providing a regular monthly "income" in retirement if in excess of regular monthly expenditure requirements then the excess could be gifted outside of IHT. However, the pension pot would not be eroded and therefore if not left to spouse would be subject to IHT on death plus the beneficiary would probably have to pay income tax (assuming death after age 75).
Alternatively, pulling the entire 25% tax free lump sum from a DC pension or a large lump sum from an ISA or drawdown from a DC pension to eventually deplete them could be gifted under the 7 yr IHT exemption rule.
What is the IHT situation if I am tax resident in another country when I die but my son is still in the UK?
Pension pots are for spending in retirement, not for inheritance tax planning.
But this change makes it very hard for unmarried couples in long term relationships. £375k is small compared to 50% of a shared home and a pension pot. Effectively it requires people to marry for tax purposes.
That has been one of the incentives for people to get married for quite a long time.
@paulduncan789 Not really. An unmarried couple sharing a £500k house and £50k ISAs were comfortably below the threshold. But add in one of them having a £200k pension pot...
It means people who've earned modestly all life, never in the 40% tax bracket, become subject to inheritance tax. IHT is no longer just in the realm of the well off who hire financial advisors.
Yes I’m not married and have live with my partner for 33 years. We just never thought about Marriage. I’m looking at a civil partnership now. I’m well over IHT in 2027.
Get married (cheaply) 😂
Now on our priority list after 28yrs together.
Absolutely essential to avoid partner having to pay IHT.
Should have done it years ago 😮
@@jocar-1735 yes. We will also get a Civil partnership now. Just as legally binding without all the hassle.
I have 800k in stocks shares cash etc and a factory/showroom 750k in my pension pot .I also have property and land so I am doing OK but my pla was to give it all to my daughter. What happens to the factory side as this is a asset but not cash ?
oh man, you are going to get roasted!
My first thought when this was announced was to consider a lifetime mortgage and giving the money to my children. Much better for them to have use of it in their 20s or 30s rather than wait until my wife and I are both dead, when they will potentially be in their 60s.
Even without the budget change that’s a good plan.
Yes I've been looking into this as well. Depending on what interest rate you get it's definitely a very viable option.
That budget has just shafted years of my planning. I hope they get the boot and new givernment reverse this.
I think a *lot* of people will now be re-assessing their plans. Am I glad I didn't spend ££££s on professional financial planning advice! :) In effect these changes have turned everything around, and made it much less attractive to stack away a huge amount in your pension funds. Now it's, spend, spend, spend! Or a big handout to your kids, if you're feeling generous.
@ the problem with handouts is you may die before 7 years and reducing your pot meals lower annual draw downs without reducing it to zero. We need financial advisors to earn their money and come up with some smarter moves than that.
@@TheSilvercue The goal posts keep moving. Difficult to plan really. But yes, it's turned into a bit of a balancing act. Oh well I'm sure my kids will be happy with it.
I would be interested to know what you were planning, and how the budget had seemingly destroyed those plans.
@ My plan, which I have been working on for years, has been to load up my pension pot, move the funds to higher risk, higher reward and build it up so I can live off a 4% drawdown while it still grows and grows. Then leave the lot as a lump to my son, to set him up. I am not married, so have only 500k limit before IHT and my house is worth that due to where I live. So, now entire pension pot attracts 40% tax. And if I die over 75, as planned, then my son also will have to pay income tax on that, so it ends up being taxed 64%. That is disgusting and makes that plan now worthless.
Small taxes can affect investment decisions such as whether to choose tax-free municipal bonds over taxable bonds or do a Roth IRA conversion. I’ve been sitting on over $745K equity from a home sale and I want to invest on the stock market, how do I achieve this without being taxed twice?
Well wait until 2027, then the local councils will say when evaluting you finance for social care, your pension now part of your estate/IHT will be considered part of your assets and so you won't get any help as you be over the £23,000 limit
If i take monthly PCLS and nil income will this count as income or capital in respect of the gifting out of income rules I'm guessing capital
Any withdrawal after the tfc is classed as income
Can you just clarify the point at 2.23 please. If my son takes my pension on my death and puts it straight into a pension, it isn't subject to IHT, just the tax on drawdown? If the remainder is over the annual £60,000 pension allowance in any one year, can he still put it all into a pension fund and not pay IHT? Many thanks in advance and thanks for your very useful videos.
Unfortunately not and you can only put up to 100% of your income pa up to 60k into a pension. TBF he would be better of using your inheritance on day to day living and using salary sacrifice and only take 5k the new come April 25 employer NI allowance of his income and recovering income tax and NI also recovering employers NI and I would opt out of the work place pension and have all of that payed into a private pension. That's what I would do ;-)
Hi @MeaningfulMoney sorry if this question has been asked already… how does this work for spouses? My estate (including house, SIPP etc) will be easily in excess of my IHT allowance and I’m worried that, if I die, my wife will have to sell the house to pay the IHT bill. Can you explain the rules around this?
There is no IHT to pay on assets passed to spouse when you die.
@ thank you
Thanks Pete. My take away from this video is that it's vital I die BEFORE 6th April 2027 😞
Great video though! 👍
We are all being worked to death so that shouldn't be a problem! 😢
25% PCLS now look a good bet and live life to the full.
I understood that these changes were subject to consultation so not yet 100% confirmed?
Correct. ✅
Yes, not yet definite.
There is a school of thought that pension IHT might not go ahead and that a pension when passed to beneficiary will be subject to income tax regardless of age of death.
Interesting. Besides DC pensions I also have two DB pensions that I am using already. They generally have a statement that says that upon my death they will pay an ongoing monthly % to my widow - I am married. How are they going to calculate these type of DB pensions upon death? If the behavioural result of this is to encourage effectively spending either by me and my wife and potentially children via the gifts, then would this help notional growth in the economy with the provision of goods and services that these funds will buy earlier in time than would have otherwise been the case? Here's my economics and accounting brain working!!
Surely upon your death, the documented DB pension payment will continue to be made to your widow until her death. The pension will cease at that point and have no value in her estate. On your death, no IHT is owed assuming you leave everything to your widow.
Think of a DB pension as a joint life annuity. It's not part of the estate and so there's no IHT to pay on the income part. This vests to the survivor. Tax treatment of death in service benefit isn't clear yet.
5:11 does dividend "income" count from ISA/GIA?
Only if it is actually income. So dividends and interest, not withdrawing your own money…
Can a received inheritance be gifted directly down to the children? Will this be free of the 7 year rule.
Also if funds are taken from a drawdown and passed down, would this funds would be above the day to day spending and so free of IHT?
Deed of variation.
I am 66 next year, what do you charge for advice on my investments ad pension?
If your house and pension fund is less than the Iht limit now. Can you gift whatever you like out of your pension pot after paying tax on it. I would like to give my 2 kids 10k for them to enjoy whilst I'm still around to see them enjoy it. Or does this 7 year rule still apply.
What if you buy/ own assets abroad or move cash abroad, will this fall into my estate and still be liable to IHT?
Yes.
Re your mentions of annuities being a gamble about whether you will last 20 years to get the 5% back. I like guaranteed Annuities - particularly 30 year. In my case I can get about £6k per £100k - and you or your dependents are guaranteed to get at least £180k back. Plus whilst guaranteed annuities are subject to IHT - the 'Market Rate' calculations do I think come out a fair bit less than the original £100k - so they reduce IHT exposure a bit.
That's a great point, @dwuk99 - something to consider
I think you'll find lifetime annuities won't be counted for IHT just income tax at the recipients marginal rate.
I'm sure it wont be long before pension companies and SIPP providers start pointing out how many people have stopped their pension contributions already. My daughters will welcome the cash instead I'm sure.
Do you think grandparents should pass inheritance directly to grandchildren when they die? Maybe a good subject for a video?
I think that's entirely a family-specific question, Graham. Inheritance is such an emotive subject and nothing splits families like money. So there's really no 'should' about it, it's going to be very much up to each set of grandparents to decide!
Helpful as always! I was just wondering, what about pensions abroad? My father has a private pension in republic of ireland and ireland doesn't have these tax rules on pension. So would that follow UK rules if I were to inherit it because I live and work here, or Irish tax rules? Also, is this only for SIPPs, or does it apply to workplace pensions like the NHS one, which I believe has death in service benefit etc
The estate pays IHT, not the recipient. If the estate is in another country then their laws apply.
As for the transferring of that money across a border to you, you may need advice.
This will spike house prices, no downsizing, ploughing money into single house.
If I were to gift my child 100k from my ISA pot and lived beyond 7 years I assume that would be free of IHT.
My child is likely to be financially well off when I retire. If say in 10 years time she wanted to gift me 10k a year from her ISA’s would that be allowed under current rules?
Exactly my thought. Gift kids and put in their ISA, call it theirs … technically it is, with the agreement they gift parts of it back if you need it. when you die..well it’s theirs anyway then tax free
Think I know but ISAS are not liable for IHT are they ?
They absolutely are part of your estate and subject to IHT if you exceed the thresholds.
@ oh dear !
The problem I have with tax is that we enter a tax paying workforce at 18 and have a social contract with the Government, which ever flavour is in power, for the rest of your working life. We make our choices on how we grow our wealth, or not as we see fit, with the circumstances we are dealt with for 50 years or so based on a set of principles that were in place, yet at the stroke of a pen, the goal posts change and what you have worked for, based on your own ideology, a huge chunk is ripped away with no effort on the Government’s part to negotiate or allow sufficient time to adjust.
In the space of 2 years I have had Government decisions which wiped 10% of my personal pension, then a change in Government which now brings what is left in to my estate when I die with a further 40% impact, which has all to be paid up front before any inheritance can be realised. At least if HMRC would allow the assets to be disposed of before the tax was due would be somewhat a relief for grieving beneficiaries
I wonder what the inheritance tax bill was for King Charles when his much beloved mother passed away? I am happy for my beneficiaries to pay the same percentage of my estate!
I think we might need a revolution!
For someone in their early 40's and as a high rate tax payer, I think it still makes sense to lap up the tax relief currently on offer, along with the generous annual allowance and accumulate a large pension pot. If i get it to £2.5mio by retirement, I have options right? These options would just nit be available else and as a worst case, I can spend and gift it and incur a 45% tax...
In reality, so much more will change between now and then.
Love to hear your thoughts.
Common sense.
Correct now that the LTA has been abolished.
@@jocar-1735 Thanks. My only concern is that I may be storing a IHT problem further down the line...
@@curiousjoe395
With a very large pension pot you could explore IHT minimisation options with specialist tax accountant.
@@curiousjoe395
Best way to avoid IHT is to spend it.
For a £2M plus pension pot, a £100K/yr drawdown should be sustainable this being a 5% drawdown rate.
Hi Pete. Thanks for starting to tackle this topic. Far more people will be dragged into IHT, particularly if a home owner in the SE. Can you talk more about the use of trusts and family investment companies for those with a 20 year + time horizon for estate planning? It would be interesting to see how these work particularly if wanting to retain control over capital in that period (e.g. discretionary loan trust or loans into a FIC)? Many thanks.