WEBVTT - UPDATE: Why Your Tax-Free Pension Lump Sum Is Under Growing Threat 0:00:00.200 --> 0:00:01.640 Hey, Maren Talks Money listeners. 0:00:01.639 --> 0:00:03.640 We put this pot out earlier in the week, and 0:00:03.720 --> 0:00:06.120 some of our listeners wrote in, thanks very much for 0:00:06.200 --> 0:00:07.760 doing that, by the way, to tell us that they 0:00:07.760 --> 0:00:10.319 felt that some bits of it were unclear and they 0:00:10.320 --> 0:00:14.319 wanted some clarification around part of the podcast. So there 0:00:14.360 --> 0:00:16.360 is something that comes up later in this podcast that 0:00:16.400 --> 0:00:19.000 I just want to add a little more detail and 0:00:19.360 --> 0:00:22.400 nuance to. Right now, we talk to our expert Mark 0:00:22.560 --> 0:00:25.959 Word about everything around with drawing your tax free amount 0:00:26.040 --> 0:00:29.520 from your pension fund, but there was one bit that 0:00:29.680 --> 0:00:31.760 wasn't as clear as I would have liked it to be. 0:00:31.840 --> 0:00:34.040 Some listeners have written in and said, is this right? 0:00:34.159 --> 0:00:34.680 Is this wrong? 0:00:34.880 --> 0:00:38.440 So I just want to clarify exactly what we were 0:00:38.479 --> 0:00:41.360 talking about what we said in the interview. Sorry, what 0:00:41.400 --> 0:00:43.519 our guest said in the interview was that if you 0:00:43.560 --> 0:00:46.840 take your twenty five percent tax freelump summerday age fifty 0:00:46.920 --> 0:00:49.560 five or later, you've effectively retired and you can no 0:00:49.640 --> 0:00:52.199 longer put money into your pension with tax relief. That 0:00:52.320 --> 0:00:56.320 is not exactly right. There is nuance in there from 0:00:56.360 --> 0:00:59.080 the minimum pension age you can take what it's not 0:00:59.120 --> 0:01:01.480 actually twenty five anymore. As the amount that used to 0:01:01.520 --> 0:01:04.840 be twenty five percent of your pension pot tax free, 0:01:05.040 --> 0:01:08.280 but also start taking taxable income from that pension fund 0:01:08.520 --> 0:01:10.920 as another lump sum payment or as a drawdown of 0:01:10.959 --> 0:01:15.319 some kind. At that point the money purchase annual allowance 0:01:15.400 --> 0:01:19.440 the MPAA rules apply, and after that you can only 0:01:19.520 --> 0:01:22.160 put in ten thousand pounds a year. So the key 0:01:22.200 --> 0:01:26.800 point is simply withdrawing the lump sum does not mean 0:01:27.120 --> 0:01:29.920 that you are treated as retards. You can continue to 0:01:30.000 --> 0:01:33.160 contribute and get tax relief after that. It's only when 0:01:33.240 --> 0:01:37.680 you start taking more income that MPAA clicks in. 0:01:37.920 --> 0:01:40.040 So complicated but important. 0:01:40.120 --> 0:01:42.240 We just wanted to clarify that, and thank you so 0:01:42.400 --> 0:01:44.920 much to all those listeners who wrote. 0:01:44.680 --> 0:01:46.320 In asking for that clarification. 0:01:46.480 --> 0:01:47.720 We really appreciate it. 0:01:47.760 --> 0:01:50.840 Please do write in and let us know every time 0:01:50.920 --> 0:01:53.880 something doesn't seem quite right or developed enough for you. 0:01:57.320 --> 0:02:09.960 Bloomberg Audio Studios podcast US Radio News. 0:02:11.600 --> 0:02:14.400 Welcome to Merin Talks Your Money, the personal finance edition 0:02:14.440 --> 0:02:17.240 of Merin Talks Money. In these episodes, we talk about 0:02:17.240 --> 0:02:20.120 the best strategies for making the most of your money. 0:02:20.200 --> 0:02:22.239 I'm marrying something set Web and this week I want 0:02:22.280 --> 0:02:24.959 to talk about something that I think will affect an 0:02:25.000 --> 0:02:28.120 awful lot of our listeners a major policy shift from 0:02:28.160 --> 0:02:33.120 the government around tax. Now grieving families, rather than pension providers, 0:02:33.280 --> 0:02:37.040 are about to be responsible for calculating and paying inheritance 0:02:37.080 --> 0:02:39.760 tax on unused pension pots. And that's you, of course, 0:02:39.800 --> 0:02:41.840 the idea that you're going to pay inheritance tax on 0:02:41.880 --> 0:02:44.480 your unused pension pot when you die. So if you 0:02:44.560 --> 0:02:48.400 die now after the age of seventy five, beneficiaries will 0:02:48.520 --> 0:02:52.080 probably also face income tax, and there is potential in 0:02:52.160 --> 0:02:55.360 here for you to end up paying a marginal tax 0:02:55.440 --> 0:03:00.320 rate of sixty seven percent on pension pots after the 0:03:00.360 --> 0:03:02.600 death everever held that pot in the first place. 0:03:02.919 --> 0:03:03.960 That sounds complicated. 0:03:04.120 --> 0:03:06.359 Maybe it is tablets makes sense of all this. I've 0:03:06.400 --> 0:03:09.360 got with me today, Mark Wood, chairman of Everest Funeral Concierge. 0:03:09.680 --> 0:03:11.639 Mark is also the pharmacy. 0:03:11.200 --> 0:03:14.120 Of Prudential and the current chair of Pension b So 0:03:14.280 --> 0:03:17.240 no one knows more about pensions than Mark. 0:03:17.280 --> 0:03:19.560 Mark. Thank you for being with us today. I pleasure 0:03:20.280 --> 0:03:20.840 now listen. 0:03:21.360 --> 0:03:23.280 I think I made that will sound more complicated than 0:03:23.280 --> 0:03:26.960 I needed to in the introduction. Just explain exactly what 0:03:27.040 --> 0:03:28.519 these huge changes are. 0:03:28.639 --> 0:03:30.480 Well, I think We've got to go back a decade 0:03:30.560 --> 0:03:34.400 to George Osborne being Chancellor and the changes that he 0:03:34.480 --> 0:03:39.640 made in the twenty fourteen twenty fifteen Budget and Finance Act, 0:03:40.360 --> 0:03:47.000 which really revolutionized the tax position of pensions and moved 0:03:47.080 --> 0:03:50.720 pensions from being something that broadly speaking, either you pay 0:03:50.960 --> 0:03:54.680 inheritance tax on your defined contribution pension pot or you 0:03:54.760 --> 0:03:57.960 lose all the money from your defined benefit pots. So 0:03:58.560 --> 0:04:01.600 what he did was to remove this concept of compulsory 0:04:01.640 --> 0:04:04.040 and utization at the age of seventy five, so that 0:04:04.160 --> 0:04:07.800 people could have an asset in terms of the money 0:04:07.840 --> 0:04:10.680 that had accumulated for their pensures that they could then 0:04:10.720 --> 0:04:15.960 transfer on to their beneficiaries without inheritance sax. It became 0:04:16.160 --> 0:04:19.200 an anomaly within the assets that somebody has when and 0:04:19.240 --> 0:04:24.200 they eventually die. The oragial reeves change reverses all of that, and, 0:04:24.520 --> 0:04:28.599 as you say, puts the onus on those people left behind, 0:04:28.640 --> 0:04:32.080 the grieving families at a time when really nobody's equipped 0:04:32.160 --> 0:04:36.560 to think about the complexities of probate and all of 0:04:36.600 --> 0:04:43.680 the dreadful administration that comes particularly with unexpected death. And 0:04:43.720 --> 0:04:46.480 these changes hit hardest for those that die before the 0:04:46.520 --> 0:04:48.800 age of seventy five, which these days is dying young. 0:04:49.120 --> 0:04:51.200 That's true, Mark, Can I just take you back a 0:04:51.200 --> 0:04:53.919 little bit to how it was before. So there was 0:04:53.920 --> 0:04:56.280 a stage pre Osborne, as you say, whereas you had 0:04:56.279 --> 0:04:58.719 your pension pop built up and your defined contribution pot, 0:04:58.760 --> 0:05:01.120 your set whatever whatever it was, and then when you 0:05:01.160 --> 0:05:03.840 came to retirement age, the only way you could draw 0:05:03.920 --> 0:05:06.560 that money unless you could prefer There was quite a 0:05:06.560 --> 0:05:08.599 strict group of conditions that meant that you could do 0:05:08.640 --> 0:05:11.840 it differently, but in the main you had to take 0:05:11.880 --> 0:05:15.159 that large parle of money and pay for an annuity 0:05:15.160 --> 0:05:17.040 which gave you a regular stream of income forever. And 0:05:17.080 --> 0:05:20.720 the innuity market was a mess. Older people might remember 0:05:20.760 --> 0:05:24.760 that it was a massive exploitation and conflict of interest 0:05:24.800 --> 0:05:26.840 and all sorts of things, wasn't it. And so when 0:05:26.839 --> 0:05:30.120 George osbyne Osborne did this, it was an absolute revolution 0:05:30.360 --> 0:05:34.360 for pensions. And it effectively made the pension pot into 0:05:34.360 --> 0:05:38.320 a family trust because you could pass it down generationally 0:05:38.360 --> 0:05:40.960 without paying any inheritance tax at all, and you could 0:05:41.080 --> 0:05:44.480 hold it inside the trust and simply draw income from 0:05:44.520 --> 0:05:47.000 it as and when. So if you had a low income, 0:05:47.040 --> 0:05:48.600 you could draw money from it and then you would 0:05:48.600 --> 0:05:50.279 be paying either no or a very low level of 0:05:50.279 --> 0:05:52.200 income tax on it. If you had a higher rate 0:05:52.240 --> 0:05:54.520 of income tax, maybe you you'd hold off on drawing 0:05:54.520 --> 0:05:57.880 money from it. So it effectively, after all these years 0:05:58.000 --> 0:06:01.680 of climping down on trusts and ways for people to 0:06:01.720 --> 0:06:05.200 avoid taxation via the trust system, this produced a whole 0:06:05.279 --> 0:06:08.080 new system for allowing people to pass large amounts of 0:06:08.080 --> 0:06:10.720 money down for the generations. Right, And we kept looking 0:06:10.760 --> 0:06:13.599 at it and saying that's nuts. At some point, at 0:06:13.680 --> 0:06:15.640 some point someone's going to go, well, hang on a 0:06:15.720 --> 0:06:18.159 tech here that's got to be liable for inheritance tax, 0:06:18.200 --> 0:06:19.880 and oh, here we are right. 0:06:20.200 --> 0:06:22.599 And it was even more dramatic than that because the 0:06:22.640 --> 0:06:26.480 focus previously had been on age seventy five. What happened 0:06:26.560 --> 0:06:29.400 under this change was that from the age of fifty 0:06:29.480 --> 0:06:32.039 five you could start drawing on your pensions so you 0:06:32.040 --> 0:06:35.560 could carry on working. You had accumulated your pension pop. 0:06:35.600 --> 0:06:37.560 You could then begin to take money out of your 0:06:37.560 --> 0:06:40.520 pension book and maybe pass it to the next generation, 0:06:40.640 --> 0:06:43.000 taking advantage of what was the seven year rule for 0:06:43.040 --> 0:06:49.680 inheritance tax. So it gave huge personal financial flexibility over 0:06:49.800 --> 0:06:52.159 what is you know, for the vast majority of people, 0:06:52.240 --> 0:06:54.839 their largest or their second, you know, with the family 0:06:54.960 --> 0:06:57.240 home their largest or their second largest asset. 0:06:57.520 --> 0:06:58.240 And this then. 0:06:58.160 --> 0:07:00.320 Created the incentive for people to pour it as much 0:07:00.320 --> 0:07:03.119 money into pensions as possible. And when we were giving 0:07:03.120 --> 0:07:05.840 people ideas about how to manage their money, we would 0:07:05.839 --> 0:07:08.279 say to them, do you know what, spend everything else? First, 0:07:08.400 --> 0:07:10.880 spend the ives, spend everything you have outside of it, 0:07:10.920 --> 0:07:14.080 and protect that pension at all costs because that is 0:07:14.120 --> 0:07:16.679 going to your heirs HT three hooray. 0:07:17.000 --> 0:07:18.440 Yeah. And of course we had the growth of the 0:07:18.480 --> 0:07:21.400 equity release market as a consequence, with people taking money 0:07:21.440 --> 0:07:25.120 out of their residential property and as you say, keeping 0:07:25.240 --> 0:07:29.080 the pension pot protected what they drew money from elsewhere. 0:07:29.840 --> 0:07:30.080 Yeah. 0:07:30.120 --> 0:07:31.800 And now what we're saying is that I've just been 0:07:31.840 --> 0:07:34.600 looking at some chance is we are seeing exactly the opposite. 0:07:34.640 --> 0:07:37.280 We are seeing a rush to get money as quickly 0:07:37.320 --> 0:07:39.160 as you can out of pension. So the number of 0:07:39.200 --> 0:07:41.840 people drawing, the amount of money that you're allowed to 0:07:41.840 --> 0:07:43.920 take out of your pension tax free, which used to 0:07:43.920 --> 0:07:45.680 be twenty five percent of your pot you could take 0:07:45.720 --> 0:07:48.080 out tax free when you hit retirement age, and now 0:07:48.200 --> 0:07:51.400 it's a maximum of two hundred and sixty eight thousand, 0:07:51.520 --> 0:07:54.560 two hundred and seventy five pounds is a maximum you 0:07:54.560 --> 0:07:56.640 can take out now and less, by the way, and 0:07:56.680 --> 0:07:58.760 you will know more about this than I do, MRK. 0:07:58.840 --> 0:08:02.119 Unless you have one of them any many fixed protections 0:08:02.160 --> 0:08:04.080 for our rich older people who always seem to have 0:08:04.080 --> 0:08:06.400 some kind of protection or the other. If you have 0:08:06.480 --> 0:08:09.120 there's one particularly good protection. If you have it, you 0:08:09.160 --> 0:08:13.440 can take out over six hundred thousand pounds tax free. 0:08:13.560 --> 0:08:16.280 Well done those of you who have that exemption. We 0:08:16.320 --> 0:08:18.280 don't really like you, but you know there it is. 0:08:18.640 --> 0:08:22.400 There's another wrinkle that's coming here, which is the looming 0:08:22.520 --> 0:08:26.360 threat that that tax free withdrawal that you've just been 0:08:26.400 --> 0:08:28.800 talking about also gets taken away. 0:08:29.240 --> 0:08:31.320 Oh just why everyone is rushing to do it now? 0:08:31.320 --> 0:08:33.520 And if you look at the charts of this amount 0:08:33.520 --> 0:08:37.320 of money being withdrawn, you can see this exponential rise 0:08:37.720 --> 0:08:40.080 over the last eighteen months or so of people just going, 0:08:40.080 --> 0:08:41.560 do you know what? I want it out of that 0:08:41.600 --> 0:08:45.000 wrapper and in my control. I'm no longer interested in 0:08:45.040 --> 0:08:48.360 the tax benefits of holding money inside a pension. I 0:08:48.480 --> 0:08:50.760 just want it under my control, although of course they'll 0:08:50.800 --> 0:08:52.160 be sorry if it turns out one of the things 0:08:52.200 --> 0:08:54.160 I'm produced in the next budget is a wealth tax 0:08:54.160 --> 0:08:57.760 that excludes pensions to another conversation, indeed. 0:08:57.720 --> 0:09:00.920 But I think and also we've just got to I mean, 0:09:01.160 --> 0:09:04.120 you were taking people back to a previous period. And 0:09:04.160 --> 0:09:07.240 of course, in the previous period, many, many, many people 0:09:07.880 --> 0:09:10.960 relied on their occupational pension schemes. They're so called define 0:09:11.000 --> 0:09:14.800 benefit pension schemes. And another of the consequences of the 0:09:14.800 --> 0:09:20.400 Osborne budgets pension changes is that people took what were 0:09:20.640 --> 0:09:23.839 described as enhanced transfer values, taking money out of their 0:09:23.880 --> 0:09:27.520 occupational pension scheme and putting it into a SIP. And 0:09:27.559 --> 0:09:30.520 of course the logic for doing that was that the 0:09:30.760 --> 0:09:33.240 defined benefit pension plan is a little bit like the 0:09:33.280 --> 0:09:37.520 annuity that you were previously forced to purchase. It expired 0:09:37.600 --> 0:09:41.000 with you, whereas if you held money in the defined 0:09:41.040 --> 0:09:43.440 contribution pot, that was an asset as you say, that 0:09:43.520 --> 0:09:46.280 you can then take and use with your family, your 0:09:46.280 --> 0:09:49.440 family can inherit, etc. Etc. All of that now, so 0:09:49.520 --> 0:09:52.880 all of the considerations around the tax planning that people 0:09:52.880 --> 0:09:55.280 had been so careful about over the last decade now 0:09:55.320 --> 0:09:56.839 needs completely rewriting. 0:09:57.360 --> 0:09:59.920 Yeah, so this comes in, So let's talk about what 0:10:00.240 --> 0:10:03.480 planned now By Rachel Reeves who may or may not 0:10:03.559 --> 0:10:06.760 still be in post when these changes come in, which 0:10:06.800 --> 0:10:09.880 is at the moment moved to be April twenty twenty seven, right, 0:10:10.200 --> 0:10:14.840 And so from from that date, if you die older 0:10:14.880 --> 0:10:17.640 than seventy five, it's different for under seventy five, isn't it. 0:10:17.679 --> 0:10:21.240 So we'll come back to that. Over seventy five, that 0:10:21.480 --> 0:10:25.439 pension pot is then liable for inheritance tax. And then 0:10:25.559 --> 0:10:28.560 once you start to draw from that pension pot, the 0:10:28.600 --> 0:10:32.040 money that you draw out as the air will also 0:10:32.240 --> 0:10:35.000 be liable for income tax. So when we talk about 0:10:35.000 --> 0:10:38.480 a possible rate of sixty seven percent, we're talking about 0:10:38.520 --> 0:10:42.520 forty percent inheritance tax paid first, followed by paying the 0:10:42.600 --> 0:10:43.920 higher rate of income tax. 0:10:44.000 --> 0:10:44.920 Is that right correct? 0:10:45.440 --> 0:10:48.000 Okay, doesn't seem to be much you can do about that. 0:10:48.880 --> 0:10:50.800 I guess it's kind of the reverse of what you 0:10:50.880 --> 0:10:53.360 were just describing, you know, rather than leave all the 0:10:53.360 --> 0:10:55.600 money in the pension pot, you know, maybe we're going 0:10:55.640 --> 0:10:58.160 to see advisers now talking about taking all the money 0:10:58.160 --> 0:11:00.600 out of the pension pod. But the difficut is, how 0:11:00.600 --> 0:11:04.960 do you create a tax free income stream from the 0:11:05.000 --> 0:11:07.920 pot that somebody has bequeathed over the age of seventy 0:11:07.920 --> 0:11:12.840 five So I guess you know SIPs would be ices 0:11:12.920 --> 0:11:15.960 rather would be an option where you could build up 0:11:16.120 --> 0:11:18.960 an amount. But you know, it's that there are caps 0:11:18.960 --> 0:11:20.560 to the amount that you can put in for most 0:11:20.600 --> 0:11:24.160 pension pots of any size, that would be insufficient. But 0:11:24.280 --> 0:11:29.480 looking at a way to shelter that money otherwise is tricky. 0:11:29.720 --> 0:11:33.199 That I mean, some advisers are talking about putting insurance 0:11:33.200 --> 0:11:36.600 in place to cover the inheritance tax obligations of shifting 0:11:36.640 --> 0:11:39.800 the pot early, so now have to look at a 0:11:39.840 --> 0:11:43.960 ten year runway in terms of making gifts to beneficiaries. 0:11:44.000 --> 0:11:47.320 But that element of inheritance tax planning, how do you 0:11:47.360 --> 0:11:51.320 give money away so that it doesn't get into probate 0:11:51.400 --> 0:11:53.719 and doesn't become acid and the family don't have to 0:11:53.760 --> 0:11:57.160 worry about the inheritance tax. That's gaining huge traction with 0:11:57.240 --> 0:12:01.680 financial advisors and pretty much annual review now is having 0:12:01.760 --> 0:12:06.280 to take account of age, wealth, beneficiaries and the current 0:12:07.400 --> 0:12:09.800 arrangements that are put in place by the will and 0:12:09.960 --> 0:12:11.160 how them modifying. 0:12:12.000 --> 0:12:14.000 Yeah, I mean, the obvious immediate thing to do is 0:12:14.040 --> 0:12:16.520 to take that twenty five percent up to the highest 0:12:16.559 --> 0:12:18.760 amount that you can and to give it straight to 0:12:18.760 --> 0:12:20.680 your kids, assuming you can afford to do that. 0:12:20.840 --> 0:12:24.480 Yeah, it's such an unusual benefit. It's I mean, it's 0:12:24.800 --> 0:12:27.640 it's politically very difficult to do. I mean, along with 0:12:27.679 --> 0:12:29.800 the triple lock. It's been a statement of faith the 0:12:29.800 --> 0:12:32.200 governments for a long period of time. But it is 0:12:32.240 --> 0:12:34.520 an anomaly in the tax regime in that you get 0:12:34.520 --> 0:12:37.240 tax really on the way in, and for this amount 0:12:37.240 --> 0:12:39.200 of money, you get tax really from the way out. 0:12:40.559 --> 0:12:42.600 Whereas I says, of course, so the opposite, you get 0:12:42.600 --> 0:12:44.600 no tax relief on the way in, but you get 0:12:44.600 --> 0:12:45.480 it all on the way out. 0:12:45.480 --> 0:12:46.160 And that makes sense. 0:12:46.200 --> 0:12:48.040 And when we look at pensions, we think of it 0:12:48.080 --> 0:12:49.959 as being tax relief on the way in and nothing 0:12:49.960 --> 0:12:50.520 on the way out. 0:12:50.520 --> 0:12:52.160 But of course there is hidden away. 0:12:52.240 --> 0:12:55.200 There's twenty five percent or two hundred and sixty two 0:12:55.280 --> 0:12:57.760 hundred and seventy five pounds, which is tax relief on 0:12:57.760 --> 0:13:00.640 the way in and the way out. That's great, that's 0:13:00.679 --> 0:13:04.880 the great incentive of pensions. Without that, and without ageterially, 0:13:04.920 --> 0:13:07.319 if it's hard to see how anyone would be incentivized 0:13:07.600 --> 0:13:11.120 to save anything beyond the minimum of their auto enrollment 0:13:11.120 --> 0:13:13.200 contributions into a pension, Yes. 0:13:13.040 --> 0:13:14.559 I mean they were. I think we've seen quite a 0:13:14.559 --> 0:13:16.559 lot of research recently. I think we have Pension be 0:13:16.679 --> 0:13:19.520 just published on research showing just how small people's pension 0:13:19.559 --> 0:13:22.720 pots are. So there's a delicate balance there. There is 0:13:22.760 --> 0:13:24.640 a trap, of course that people have got to be 0:13:24.679 --> 0:13:28.559 aware of with the tax free s, the current rules 0:13:28.559 --> 0:13:30.520 allowing you to take the tax free some from the 0:13:30.559 --> 0:13:33.800 age of fifty five. So yeah, it's quite tempting, you know, 0:13:33.840 --> 0:13:36.040 if you're fifty six, fifty seven to fifty eight and 0:13:36.080 --> 0:13:38.719 you see this looming change, it's quite tempting to take 0:13:38.760 --> 0:13:41.320 that money out straight away. But if you do that, 0:13:41.440 --> 0:13:44.240 from a text point of view, you have retired and 0:13:44.280 --> 0:13:47.600 therefore you can't put any further money into the basket 0:13:49.200 --> 0:13:51.680 that you'll get tax relief on as the money goes in. 0:13:52.200 --> 0:13:56.680 So it's it requires a careful calculation. You need to 0:13:56.679 --> 0:13:59.480 be confident that the pot, the residual pot, is sufficient 0:13:59.520 --> 0:14:01.640 for what you're requs are likely to be when you 0:14:01.720 --> 0:14:03.520 eventually cease early. 0:14:04.240 --> 0:14:09.120 Right, Okay, good, good point, good trap information. Can I 0:14:09.200 --> 0:14:11.640 just ask you to explain what's different when you're under 0:14:11.679 --> 0:14:12.400 seventy five. 0:14:16.880 --> 0:14:18.560 But I'll tell you what I think it is. 0:14:18.760 --> 0:14:20.880 I think under seventy five, I think it would still 0:14:20.880 --> 0:14:23.120 be liable for HT, but it is not liable for 0:14:23.160 --> 0:14:26.840 income tax because under the old rules, under the old rules, 0:14:26.840 --> 0:14:30.840 if you died before seventy five, that that pension could 0:14:30.840 --> 0:14:33.680 then simply break and you would receive the entire amount 0:14:33.720 --> 0:14:35.720 tax free, or you could withdraw from it tax free, 0:14:35.720 --> 0:14:38.160 which was really fairly extraordinary. I mean, that really is 0:14:38.200 --> 0:14:39.720 no tax on the way and no tax on the 0:14:39.720 --> 0:14:42.280 way out, whereas if you were over seventy five previously 0:14:42.400 --> 0:14:44.440 you were, you did have to pay the income tax 0:14:44.480 --> 0:14:49.440 on it. So that that's the difference. That's I just 0:14:49.480 --> 0:14:51.040 wonder why you didn't know the answer to that one. 0:14:51.120 --> 0:14:53.000 Fascinating? Do I get that right? 0:14:53.080 --> 0:14:53.800 Then? Yeah? 0:14:53.840 --> 0:14:56.280 Yeah, okay, good, okay. 0:14:56.320 --> 0:14:57.840 And then the other thing that I wanted to ask 0:14:57.960 --> 0:15:00.120 a little more detail on is this idea of taking 0:15:00.160 --> 0:15:01.080 out insurance. 0:15:01.240 --> 0:15:02.000 How does that work? 0:15:02.640 --> 0:15:06.880 So the tricky decision is knowing when you're going to die. 0:15:06.960 --> 0:15:09.360 So death is certain, but the date of your death 0:15:09.400 --> 0:15:15.120 is not certain, and so looking forward and planning, you 0:15:15.160 --> 0:15:18.040 know the cashloads are required to keep you in whatever 0:15:18.080 --> 0:15:19.640 style of life you want to be kept in for 0:15:20.680 --> 0:15:23.440 your life. How much of the pot is then left 0:15:23.480 --> 0:15:27.720 over and how much can you afford to gift away. 0:15:27.840 --> 0:15:30.680 So there are a bunch of different thresholds for gifts. 0:15:31.800 --> 0:15:33.440 You know, if you've got a child or a grandchild, 0:15:33.440 --> 0:15:35.800 getting married, you get the five thousand pounds allowance for 0:15:36.240 --> 0:15:41.040 a wedding gift. On the birth of a child or grandchild, 0:15:41.960 --> 0:15:45.080 there's a three thousand pounds allowance, says the annual occasional 0:15:45.120 --> 0:15:48.520 gifts of two hundred and fifty pounds. A whole labyrinth 0:15:48.600 --> 0:15:51.560 and there's a very good government website that covers all 0:15:51.560 --> 0:15:54.400 that stuff. But the big one is how do you 0:15:54.480 --> 0:15:59.480 make gifts that will not impact your lifestyle? Very important 0:16:00.120 --> 0:16:05.040 to write a letter to the beneficiary saying, dear beneficiary, 0:16:05.360 --> 0:16:08.640 I'm giving you five pounds, please rest and sure this 0:16:08.720 --> 0:16:10.680 is going to have no impact on my standard of 0:16:10.720 --> 0:16:14.360 living because that's the tax trigger. Yes, so you make 0:16:14.440 --> 0:16:18.000 that clarification in the letter that accompanies the check or 0:16:18.000 --> 0:16:22.400 the bank transfer. But then once that money has gone across, 0:16:22.400 --> 0:16:24.720 you've got to survive for a period of time. So 0:16:24.800 --> 0:16:30.280 there's a graduated declining tax liability. Currently over seven years. 0:16:30.360 --> 0:16:34.680 It seemed to be over ten years where there's residual tax. 0:16:34.880 --> 0:16:38.440 So in order to avoid so let's imagine that somebody 0:16:38.440 --> 0:16:41.480 pays off their mortgage, or they know, they pay school fees, 0:16:41.600 --> 0:16:44.000 or they buy a car or whatever, you know, some 0:16:44.120 --> 0:16:47.520 capital amount. They then don't have the cash to pay 0:16:47.680 --> 0:16:51.560 the tax that would happen if the person giving the 0:16:51.600 --> 0:16:54.680 money dies in three years or four years. So the 0:16:54.720 --> 0:16:58.440 prudent thing that many financial advisors would suggest that the 0:16:58.760 --> 0:17:01.600 person giving the gift is to take it at declining 0:17:02.720 --> 0:17:05.840 value of insurance out over the residual period, so that 0:17:05.920 --> 0:17:08.639 when the you know, in the unlikely of then something 0:17:08.680 --> 0:17:11.440 horrible happens and you've got the tax liability, crystallize the 0:17:11.520 --> 0:17:14.000 insurance policy. Phase it wrong. You have to find the. 0:17:13.880 --> 0:17:15.520 Cash, okay. 0:17:15.680 --> 0:17:20.399 So basically you're taking insurance on money that you have 0:17:20.520 --> 0:17:23.080 handed over early. There isn't really a way to take 0:17:23.119 --> 0:17:25.440 out insurance if you haven't gifted money. 0:17:25.440 --> 0:17:26.359 That would make no sense. 0:17:26.520 --> 0:17:28.080 That's right, okay? 0:17:28.280 --> 0:17:29.960 And can I just take you back to gifts out 0:17:29.960 --> 0:17:30.800 of gifts. 0:17:30.560 --> 0:17:31.240 Out of income. 0:17:31.359 --> 0:17:33.560 I thought that there was not a tax liability on 0:17:33.640 --> 0:17:35.679 regular gifts out of income that did not affect your 0:17:35.680 --> 0:17:36.399 standard of living. 0:17:36.760 --> 0:17:38.399 No, there isn't, there is it? 0:17:38.480 --> 0:17:40.080 Okay? Yeah, I just wanted to clarify that. 0:17:40.359 --> 0:17:43.280 I mean, the reason I make the point about the 0:17:43.280 --> 0:17:49.000 the clarification is that if you're making a gift of 0:17:49.080 --> 0:17:54.040 some substance and your estate is opened up, it's very 0:17:54.040 --> 0:17:56.280 helpful for the person to receive the money to have 0:17:56.400 --> 0:17:57.359 that the letter. 0:17:57.760 --> 0:18:00.640 Yeah, but those gifts have to be regular, don't they. 0:18:01.000 --> 0:18:04.119 Isn't that the idea. You can't just give a lump salmon. 0:18:04.160 --> 0:18:05.680 Call it a gift out of income. 0:18:05.840 --> 0:18:09.000 The classic way in which the So let's imagine that 0:18:09.040 --> 0:18:13.200 somebody's got five grandchildren and they're helping with the school fees. 0:18:13.920 --> 0:18:17.080 That's going to amount to quite a big amount of money, yes, 0:18:17.480 --> 0:18:20.280 for that individual, but it can be affordable and it 0:18:20.320 --> 0:18:23.720 can be regular. But it's worth just jotting down in 0:18:23.760 --> 0:18:26.240 a note. You know, I'm paying this, but it's not 0:18:26.280 --> 0:18:27.040 having an impact. 0:18:27.680 --> 0:18:32.159 Okay, understood, thank you. Okay. Now let's say that I'm. 0:18:32.040 --> 0:18:34.520 Looking at all this and I'm looking at Rachel Reeves 0:18:34.840 --> 0:18:37.600 and I'm looking at Kirstarma, and I'm thinking for myself, gosh, 0:18:37.640 --> 0:18:39.680 you know, maybe he would go, maybe she would go. 0:18:39.840 --> 0:18:42.080 Maybe there might be something even more left wing put 0:18:42.119 --> 0:18:43.800 in place. Maybe my tax is going to go up 0:18:43.800 --> 0:18:46.160 more and more and more. And I'm kind of over 0:18:46.240 --> 0:18:49.280 this whole thing. So I am going to move to 0:18:49.359 --> 0:18:51.719 Milan with all the other rich people, and I'm going 0:18:51.800 --> 0:18:54.040 to go there and carry on with a bidding up 0:18:54.080 --> 0:18:56.320 of house prices so that local people can't afford to buy. 0:18:56.359 --> 0:18:58.840 You know, the usual dynamic, right, the usual dynamic. As 0:18:58.840 --> 0:19:01.080 someone puts in place something to attract rich people, rich 0:19:01.119 --> 0:19:03.960 people come, they price out ordinary people, and then ten 0:19:04.040 --> 0:19:06.000 years later they reverse the rules on the rich people. 0:19:06.000 --> 0:19:08.439 But here we are, We're going to Milan where their 0:19:08.560 --> 0:19:10.240 rules are still in plaze. I only have to pay 0:19:10.280 --> 0:19:12.520 I think it's two hundred thousand dollars a undred thousand 0:19:12.560 --> 0:19:15.320 years two hundred thousand years a year flat rate, however 0:19:15.400 --> 0:19:16.200 high my income. 0:19:16.240 --> 0:19:17.720 So I'm all over. 0:19:17.480 --> 0:19:20.080 That I had to Milana buy myself a nice penthouse 0:19:20.080 --> 0:19:21.520 flat and maybe a nice townhouse. 0:19:21.520 --> 0:19:23.320 I don't know. I think i'd prefer townhouse personally, but 0:19:23.359 --> 0:19:24.240 you may prefer flat. 0:19:25.320 --> 0:19:29.680 How long How long do I have to worry that 0:19:29.720 --> 0:19:31.800 they're still gonna come after my pension? 0:19:31.880 --> 0:19:33.960 Well quite quite a long time. And I think he's 0:19:34.040 --> 0:19:38.040 the answer. We do, of course, have the reverse situation, 0:19:38.800 --> 0:19:41.280