Latest / Merryn Talks Money / UPDATE: Why Your Tax-Free Pension Lump Sum Is Under Growing Threat

Transcript

UPDATE: Why Your Tax-Free Pension Lump Sum Is Under Growing Threat · Merryn Talks Money

0:00
Speaker 1: Hey, Maren Talks Money listeners.
0:01
Speaker 2: We put this pot out earlier in the week, and
0:03
Speaker 2: some of our listeners wrote in, thanks very much for
0:06
Speaker 2: doing that, by the way, to tell us that they
0:07
Speaker 2: felt that some bits of it were unclear and they
0:10
Speaker 2: wanted some clarification around part of the podcast. So there
0:14
Speaker 2: is something that comes up later in this podcast that
0:16
Speaker 2: I just want to add a little more detail and
0:19
Speaker 2: nuance to. Right now, we talk to our expert Mark
0:22
Speaker 2: Word about everything around with drawing your tax free amount
0:26
Speaker 2: from your pension fund, but there was one bit that
0:29
Speaker 2: wasn't as clear as I would have liked it to be.
0:31
Speaker 1: Some listeners have written in and said, is this right?
0:34
Speaker 1: Is this wrong?
0:34
Speaker 2: So I just want to clarify exactly what we were
0:38
Speaker 2: talking about what we said in the interview. Sorry, what
0:41
Speaker 2: our guest said in the interview was that if you
0:43
Speaker 2: take your twenty five percent tax freelump summerday age fifty
0:46
Speaker 2: five or later, you've effectively retired and you can no
0:49
Speaker 2: longer put money into your pension with tax relief. That
0:52
Speaker 2: is not exactly right. There is nuance in there from
0:56
Speaker 2: the minimum pension age you can take what it's not
0:59
Speaker 2: actually twenty five anymore. As the amount that used to
1:01
Speaker 2: be twenty five percent of your pension pot tax free,
1:05
Speaker 2: but also start taking taxable income from that pension fund
1:08
Speaker 2: as another lump sum payment or as a drawdown of
1:10
Speaker 2: some kind. At that point the money purchase annual allowance
1:15
Speaker 2: the MPAA rules apply, and after that you can only
1:19
Speaker 2: put in ten thousand pounds a year. So the key
1:22
Speaker 2: point is simply withdrawing the lump sum does not mean
1:27
Speaker 2: that you are treated as retards. You can continue to
1:30
Speaker 2: contribute and get tax relief after that. It's only when
1:33
Speaker 2: you start taking more income that MPAA clicks in.
1:37
Speaker 1: So complicated but important.
1:40
Speaker 2: We just wanted to clarify that, and thank you so
1:42
Speaker 2: much to all those listeners who wrote.
1:44
Speaker 3: In asking for that clarification.
1:46
Speaker 1: We really appreciate it.
1:47
Speaker 2: Please do write in and let us know every time
1:50
Speaker 2: something doesn't seem quite right or developed enough for you.
1:57
Speaker 4: Bloomberg Audio Studios podcast US Radio News.
2:11
Speaker 2: Welcome to Merin Talks Your Money, the personal finance edition
2:14
Speaker 2: of Merin Talks Money. In these episodes, we talk about
2:17
Speaker 2: the best strategies for making the most of your money.
2:20
Speaker 2: I'm marrying something set Web and this week I want
2:22
Speaker 2: to talk about something that I think will affect an
2:25
Speaker 2: awful lot of our listeners a major policy shift from
2:28
Speaker 2: the government around tax. Now grieving families, rather than pension providers,
2:33
Speaker 2: are about to be responsible for calculating and paying inheritance
2:37
Speaker 2: tax on unused pension pots. And that's you, of course,
2:39
Speaker 2: the idea that you're going to pay inheritance tax on
2:41
Speaker 2: your unused pension pot when you die. So if you
2:44
Speaker 2: die now after the age of seventy five, beneficiaries will
2:48
Speaker 2: probably also face income tax, and there is potential in
2:52
Speaker 2: here for you to end up paying a marginal tax
2:55
Speaker 2: rate of sixty seven percent on pension pots after the
3:00
Speaker 2: death everever held that pot in the first place.
3:02
Speaker 3: That sounds complicated.
3:04
Speaker 2: Maybe it is tablets makes sense of all this. I've
3:06
Speaker 2: got with me today, Mark Wood, chairman of Everest Funeral Concierge.
3:09
Speaker 3: Mark is also the pharmacy.
3:11
Speaker 2: Of Prudential and the current chair of Pension b So
3:14
Speaker 2: no one knows more about pensions than Mark.
3:17
Speaker 3: Mark. Thank you for being with us today. I pleasure
3:20
Speaker 3: now listen.
3:21
Speaker 2: I think I made that will sound more complicated than
3:23
Speaker 2: I needed to in the introduction. Just explain exactly what
3:27
Speaker 2: these huge changes are.
3:28
Speaker 5: Well, I think We've got to go back a decade
3:30
Speaker 5: to George Osborne being Chancellor and the changes that he
3:34
Speaker 5: made in the twenty fourteen twenty fifteen Budget and Finance Act,
3:40
Speaker 5: which really revolutionized the tax position of pensions and moved
3:47
Speaker 5: pensions from being something that broadly speaking, either you pay
3:50
Speaker 5: inheritance tax on your defined contribution pension pot or you
3:54
Speaker 5: lose all the money from your defined benefit pots. So
3:58
Speaker 5: what he did was to remove this concept of compulsory
4:01
Speaker 5: and utization at the age of seventy five, so that
4:04
Speaker 5: people could have an asset in terms of the money
4:07
Speaker 5: that had accumulated for their pensures that they could then
4:10
Speaker 5: transfer on to their beneficiaries without inheritance sax. It became
4:16
Speaker 5: an anomaly within the assets that somebody has when and
4:19
Speaker 5: they eventually die. The oragial reeves change reverses all of that, and,
4:24
Speaker 5: as you say, puts the onus on those people left behind,
4:28
Speaker 5: the grieving families at a time when really nobody's equipped
4:32
Speaker 5: to think about the complexities of probate and all of
4:36
Speaker 5: the dreadful administration that comes particularly with unexpected death. And
4:43
Speaker 5: these changes hit hardest for those that die before the
4:46
Speaker 5: age of seventy five, which these days is dying young.
4:49
Speaker 2: That's true, Mark, Can I just take you back a
4:51
Speaker 2: little bit to how it was before. So there was
4:53
Speaker 2: a stage pre Osborne, as you say, whereas you had
4:56
Speaker 2: your pension pop built up and your defined contribution pot,
4:58
Speaker 2: your set whatever whatever it was, and then when you
5:01
Speaker 2: came to retirement age, the only way you could draw
5:03
Speaker 2: that money unless you could prefer There was quite a
5:06
Speaker 2: strict group of conditions that meant that you could do
5:08
Speaker 2: it differently, but in the main you had to take
5:11
Speaker 2: that large parle of money and pay for an annuity
5:15
Speaker 2: which gave you a regular stream of income forever. And
5:17
Speaker 2: the innuity market was a mess. Older people might remember
5:20
Speaker 2: that it was a massive exploitation and conflict of interest
5:24
Speaker 2: and all sorts of things, wasn't it. And so when
5:26
Speaker 2: George osbyne Osborne did this, it was an absolute revolution
5:30
Speaker 2: for pensions. And it effectively made the pension pot into
5:34
Speaker 2: a family trust because you could pass it down generationally
5:38
Speaker 2: without paying any inheritance tax at all, and you could
5:41
Speaker 2: hold it inside the trust and simply draw income from
5:44
Speaker 2: it as and when. So if you had a low income,
5:47
Speaker 2: you could draw money from it and then you would
5:48
Speaker 2: be paying either no or a very low level of
5:50
Speaker 2: income tax on it. If you had a higher rate
5:52
Speaker 2: of income tax, maybe you you'd hold off on drawing
5:54
Speaker 2: money from it. So it effectively, after all these years
5:58
Speaker 2: of climping down on trusts and ways for people to
6:01
Speaker 2: avoid taxation via the trust system, this produced a whole
6:05
Speaker 2: new system for allowing people to pass large amounts of
6:08
Speaker 2: money down for the generations. Right, And we kept looking
6:10
Speaker 2: at it and saying that's nuts. At some point, at
6:13
Speaker 2: some point someone's going to go, well, hang on a
6:15
Speaker 2: tech here that's got to be liable for inheritance tax,
6:18
Speaker 2: and oh, here we are right.
6:20
Speaker 5: And it was even more dramatic than that because the
6:22
Speaker 5: focus previously had been on age seventy five. What happened
6:26
Speaker 5: under this change was that from the age of fifty
6:29
Speaker 5: five you could start drawing on your pensions so you
6:32
Speaker 5: could carry on working. You had accumulated your pension pop.
6:35
Speaker 5: You could then begin to take money out of your
6:37
Speaker 5: pension book and maybe pass it to the next generation,
6:40
Speaker 5: taking advantage of what was the seven year rule for
6:43
Speaker 5: inheritance tax. So it gave huge personal financial flexibility over
6:49
Speaker 5: what is you know, for the vast majority of people,
6:52
Speaker 5: their largest or their second, you know, with the family
6:54
Speaker 5: home their largest or their second largest asset.
6:57
Speaker 3: And this then.
6:58
Speaker 2: Created the incentive for people to pour it as much
7:00
Speaker 2: money into pensions as possible. And when we were giving
7:03
Speaker 2: people ideas about how to manage their money, we would
7:05
Speaker 2: say to them, do you know what, spend everything else? First,
7:08
Speaker 2: spend the ives, spend everything you have outside of it,
7:10
Speaker 2: and protect that pension at all costs because that is
7:14
Speaker 2: going to your heirs HT three hooray.
7:17
Speaker 5: Yeah. And of course we had the growth of the
7:18
Speaker 5: equity release market as a consequence, with people taking money
7:21
Speaker 5: out of their residential property and as you say, keeping
7:25
Speaker 5: the pension pot protected what they drew money from elsewhere.
7:29
Speaker 3: Yeah.
7:30
Speaker 2: And now what we're saying is that I've just been
7:31
Speaker 2: looking at some chance is we are seeing exactly the opposite.
7:34
Speaker 2: We are seeing a rush to get money as quickly
7:37
Speaker 2: as you can out of pension. So the number of
7:39
Speaker 2: people drawing, the amount of money that you're allowed to
7:41
Speaker 2: take out of your pension tax free, which used to
7:43
Speaker 2: be twenty five percent of your pot you could take
7:45
Speaker 2: out tax free when you hit retirement age, and now
7:48
Speaker 2: it's a maximum of two hundred and sixty eight thousand,
7:51
Speaker 2: two hundred and seventy five pounds is a maximum you
7:54
Speaker 2: can take out now and less, by the way, and
7:56
Speaker 2: you will know more about this than I do, MRK.
7:58
Speaker 2: Unless you have one of them any many fixed protections
8:02
Speaker 2: for our rich older people who always seem to have
8:04
Speaker 2: some kind of protection or the other. If you have
8:06
Speaker 2: there's one particularly good protection. If you have it, you
8:09
Speaker 2: can take out over six hundred thousand pounds tax free.
8:13
Speaker 2: Well done those of you who have that exemption. We
8:16
Speaker 2: don't really like you, but you know there it is.
8:18
Speaker 5: There's another wrinkle that's coming here, which is the looming
8:22
Speaker 5: threat that that tax free withdrawal that you've just been
8:26
Speaker 5: talking about also gets taken away.
8:29
Speaker 2: Oh just why everyone is rushing to do it now?
8:31
Speaker 2: And if you look at the charts of this amount
8:33
Speaker 2: of money being withdrawn, you can see this exponential rise
8:37
Speaker 2: over the last eighteen months or so of people just going,
8:40
Speaker 2: do you know what? I want it out of that
8:41
Speaker 2: wrapper and in my control. I'm no longer interested in
8:45
Speaker 2: the tax benefits of holding money inside a pension. I
8:48
Speaker 2: just want it under my control, although of course they'll
8:50
Speaker 2: be sorry if it turns out one of the things
8:52
Speaker 2: I'm produced in the next budget is a wealth tax
8:54
Speaker 2: that excludes pensions to another conversation, indeed.
8:57
Speaker 5: But I think and also we've just got to I mean,
9:01
Speaker 5: you were taking people back to a previous period. And
9:04
Speaker 5: of course, in the previous period, many, many, many people
9:07
Speaker 5: relied on their occupational pension schemes. They're so called define
9:11
Speaker 5: benefit pension schemes. And another of the consequences of the
9:14
Speaker 5: Osborne budgets pension changes is that people took what were
9:20
Speaker 5: described as enhanced transfer values, taking money out of their
9:23
Speaker 5: occupational pension scheme and putting it into a SIP. And
9:27
Speaker 5: of course the logic for doing that was that the
9:30
Speaker 5: defined benefit pension plan is a little bit like the
9:33
Speaker 5: annuity that you were previously forced to purchase. It expired
9:37
Speaker 5: with you, whereas if you held money in the defined
9:41
Speaker 5: contribution pot, that was an asset as you say, that
9:43
Speaker 5: you can then take and use with your family, your
9:46
Speaker 5: family can inherit, etc. Etc. All of that now, so
9:49
Speaker 5: all of the considerations around the tax planning that people
9:52
Speaker 5: had been so careful about over the last decade now
9:55
Speaker 5: needs completely rewriting.
9:57
Speaker 2: Yeah, so this comes in, So let's talk about what
10:00
Speaker 2: planned now By Rachel Reeves who may or may not
10:03
Speaker 2: still be in post when these changes come in, which
10:06
Speaker 2: is at the moment moved to be April twenty twenty seven, right,
10:10
Speaker 2: And so from from that date, if you die older
10:14
Speaker 2: than seventy five, it's different for under seventy five, isn't it.
10:17
Speaker 2: So we'll come back to that. Over seventy five, that
10:21
Speaker 2: pension pot is then liable for inheritance tax. And then
10:25
Speaker 2: once you start to draw from that pension pot, the
10:28
Speaker 2: money that you draw out as the air will also
10:32
Speaker 2: be liable for income tax. So when we talk about
10:35
Speaker 2: a possible rate of sixty seven percent, we're talking about
10:38
Speaker 2: forty percent inheritance tax paid first, followed by paying the
10:42
Speaker 2: higher rate of income tax.
10:44
Speaker 5: Is that right correct?
10:45
Speaker 2: Okay, doesn't seem to be much you can do about that.
10:48
Speaker 5: I guess it's kind of the reverse of what you
10:50
Speaker 5: were just describing, you know, rather than leave all the
10:53
Speaker 5: money in the pension pot, you know, maybe we're going
10:55
Speaker 5: to see advisers now talking about taking all the money
10:58
Speaker 5: out of the pension pod. But the difficut is, how
11:00
Speaker 5: do you create a tax free income stream from the
11:05
Speaker 5: pot that somebody has bequeathed over the age of seventy
11:07
Speaker 5: five So I guess you know SIPs would be ices
11:12
Speaker 5: rather would be an option where you could build up
11:16
Speaker 5: an amount. But you know, it's that there are caps
11:18
Speaker 5: to the amount that you can put in for most
11:20
Speaker 5: pension pots of any size, that would be insufficient. But
11:24
Speaker 5: looking at a way to shelter that money otherwise is tricky.
11:29
Speaker 5: That I mean, some advisers are talking about putting insurance
11:33
Speaker 5: in place to cover the inheritance tax obligations of shifting
11:36
Speaker 5: the pot early, so now have to look at a
11:39
Speaker 5: ten year runway in terms of making gifts to beneficiaries.
11:44
Speaker 5: But that element of inheritance tax planning, how do you
11:47
Speaker 5: give money away so that it doesn't get into probate
11:51
Speaker 5: and doesn't become acid and the family don't have to
11:53
Speaker 5: worry about the inheritance tax. That's gaining huge traction with
11:57
Speaker 5: financial advisors and pretty much annual review now is having
12:01
Speaker 5: to take account of age, wealth, beneficiaries and the current
12:07
Speaker 5: arrangements that are put in place by the will and
12:09
Speaker 5: how them modifying.
12:12
Speaker 2: Yeah, I mean, the obvious immediate thing to do is
12:14
Speaker 2: to take that twenty five percent up to the highest
12:16
Speaker 2: amount that you can and to give it straight to
12:18
Speaker 2: your kids, assuming you can afford to do that.
12:20
Speaker 5: Yeah, it's such an unusual benefit. It's I mean, it's
12:24
Speaker 5: it's politically very difficult to do. I mean, along with
12:27
Speaker 5: the triple lock. It's been a statement of faith the
12:29
Speaker 5: governments for a long period of time. But it is
12:32
Speaker 5: an anomaly in the tax regime in that you get
12:34
Speaker 5: tax really on the way in, and for this amount
12:37
Speaker 5: of money, you get tax really from the way out.
12:40
Speaker 2: Whereas I says, of course, so the opposite, you get
12:42
Speaker 2: no tax relief on the way in, but you get
12:44
Speaker 2: it all on the way out.
12:45
Speaker 3: And that makes sense.
12:46
Speaker 2: And when we look at pensions, we think of it
12:48
Speaker 2: as being tax relief on the way in and nothing
12:49
Speaker 2: on the way out.
12:50
Speaker 3: But of course there is hidden away.
12:52
Speaker 2: There's twenty five percent or two hundred and sixty two
12:55
Speaker 2: hundred and seventy five pounds, which is tax relief on
12:57
Speaker 2: the way in and the way out. That's great, that's
13:00
Speaker 2: the great incentive of pensions. Without that, and without ageterially,
13:04
Speaker 2: if it's hard to see how anyone would be incentivized
13:07
Speaker 2: to save anything beyond the minimum of their auto enrollment
13:11
Speaker 2: contributions into a pension, Yes.
13:13
Speaker 5: I mean they were. I think we've seen quite a
13:14
Speaker 5: lot of research recently. I think we have Pension be
13:16
Speaker 5: just published on research showing just how small people's pension
13:19
Speaker 5: pots are. So there's a delicate balance there. There is
13:22
Speaker 5: a trap, of course that people have got to be
13:24
Speaker 5: aware of with the tax free s, the current rules
13:28
Speaker 5: allowing you to take the tax free some from the
13:30
Speaker 5: age of fifty five. So yeah, it's quite tempting, you know,
13:33
Speaker 5: if you're fifty six, fifty seven to fifty eight and
13:36
Speaker 5: you see this looming change, it's quite tempting to take
13:38
Speaker 5: that money out straight away. But if you do that,
13:41
Speaker 5: from a text point of view, you have retired and
13:44
Speaker 5: therefore you can't put any further money into the basket
13:49
Speaker 5: that you'll get tax relief on as the money goes in.
13:52
Speaker 5: So it's it requires a careful calculation. You need to
13:56
Speaker 5: be confident that the pot, the residual pot, is sufficient
13:59
Speaker 5: for what you're requs are likely to be when you
14:01
Speaker 5: eventually cease early.
14:04
Speaker 2: Right, Okay, good, good point, good trap information. Can I
14:09
Speaker 2: just ask you to explain what's different when you're under
14:11
Speaker 2: seventy five.
14:16
Speaker 3: But I'll tell you what I think it is.
14:18
Speaker 2: I think under seventy five, I think it would still
14:20
Speaker 2: be liable for HT, but it is not liable for
14:23
Speaker 2: income tax because under the old rules, under the old rules,
14:26
Speaker 2: if you died before seventy five, that that pension could
14:30
Speaker 2: then simply break and you would receive the entire amount
14:33
Speaker 2: tax free, or you could withdraw from it tax free,
14:35
Speaker 2: which was really fairly extraordinary. I mean, that really is
14:38
Speaker 2: no tax on the way and no tax on the
14:39
Speaker 2: way out, whereas if you were over seventy five previously
14:42
Speaker 2: you were, you did have to pay the income tax
14:44
Speaker 2: on it. So that that's the difference. That's I just
14:49
Speaker 2: wonder why you didn't know the answer to that one.
14:51
Speaker 3: Fascinating? Do I get that right?
14:53
Speaker 5: Then? Yeah?
14:53
Speaker 3: Yeah, okay, good, okay.
14:56
Speaker 2: And then the other thing that I wanted to ask
14:57
Speaker 2: a little more detail on is this idea of taking
15:00
Speaker 2: out insurance.
15:01
Speaker 1: How does that work?
15:02
Speaker 5: So the tricky decision is knowing when you're going to die.
15:06
Speaker 5: So death is certain, but the date of your death
15:09
Speaker 5: is not certain, and so looking forward and planning, you
15:15
Speaker 5: know the cashloads are required to keep you in whatever
15:18
Speaker 5: style of life you want to be kept in for
15:20
Speaker 5: your life. How much of the pot is then left
15:23
Speaker 5: over and how much can you afford to gift away.
15:27
Speaker 5: So there are a bunch of different thresholds for gifts.
15:31
Speaker 5: You know, if you've got a child or a grandchild,
15:33
Speaker 5: getting married, you get the five thousand pounds allowance for
15:36
Speaker 5: a wedding gift. On the birth of a child or grandchild,
15:41
Speaker 5: there's a three thousand pounds allowance, says the annual occasional
15:45
Speaker 5: gifts of two hundred and fifty pounds. A whole labyrinth
15:48
Speaker 5: and there's a very good government website that covers all
15:51
Speaker 5: that stuff. But the big one is how do you
15:54
Speaker 5: make gifts that will not impact your lifestyle? Very important
16:00
Speaker 5: to write a letter to the beneficiary saying, dear beneficiary,
16:05
Speaker 5: I'm giving you five pounds, please rest and sure this
16:08
Speaker 5: is going to have no impact on my standard of
16:10
Speaker 5: living because that's the tax trigger. Yes, so you make
16:14
Speaker 5: that clarification in the letter that accompanies the check or
16:18
Speaker 5: the bank transfer. But then once that money has gone across,
16:22
Speaker 5: you've got to survive for a period of time. So
16:24
Speaker 5: there's a graduated declining tax liability. Currently over seven years.
16:30
Speaker 5: It seemed to be over ten years where there's residual tax.
16:34
Speaker 5: So in order to avoid so let's imagine that somebody
16:38
Speaker 5: pays off their mortgage, or they know, they pay school fees,
16:41
Speaker 5: or they buy a car or whatever, you know, some
16:44
Speaker 5: capital amount. They then don't have the cash to pay
16:47
Speaker 5: the tax that would happen if the person giving the
16:51
Speaker 5: money dies in three years or four years. So the
16:54
Speaker 5: prudent thing that many financial advisors would suggest that the
16:58
Speaker 5: person giving the gift is to take it at declining
17:02
Speaker 5: value of insurance out over the residual period, so that
17:05
Speaker 5: when the you know, in the unlikely of then something
17:08
Speaker 5: horrible happens and you've got the tax liability, crystallize the
17:11
Speaker 5: insurance policy. Phase it wrong. You have to find the.
17:13
Speaker 3: Cash, okay.
17:15
Speaker 2: So basically you're taking insurance on money that you have
17:20
Speaker 2: handed over early. There isn't really a way to take
17:23
Speaker 2: out insurance if you haven't gifted money.
17:25
Speaker 3: That would make no sense.
17:26
Speaker 5: That's right, okay?
17:28
Speaker 2: And can I just take you back to gifts out
17:29
Speaker 2: of gifts.
17:30
Speaker 3: Out of income.
17:31
Speaker 2: I thought that there was not a tax liability on
17:33
Speaker 2: regular gifts out of income that did not affect your
17:35
Speaker 2: standard of living.
17:36
Speaker 5: No, there isn't, there is it?
17:38
Speaker 3: Okay? Yeah, I just wanted to clarify that.
17:40
Speaker 5: I mean, the reason I make the point about the
17:43
Speaker 5: the clarification is that if you're making a gift of
17:49
Speaker 5: some substance and your estate is opened up, it's very
17:54
Speaker 5: helpful for the person to receive the money to have
17:56
Speaker 5: that the letter.
17:57
Speaker 2: Yeah, but those gifts have to be regular, don't they.
18:01
Speaker 2: Isn't that the idea. You can't just give a lump salmon.
18:04
Speaker 2: Call it a gift out of income.
18:05
Speaker 5: The classic way in which the So let's imagine that
18:09
Speaker 5: somebody's got five grandchildren and they're helping with the school fees.
18:13
Speaker 5: That's going to amount to quite a big amount of money, yes,
18:17
Speaker 5: for that individual, but it can be affordable and it
18:20
Speaker 5: can be regular. But it's worth just jotting down in
18:23
Speaker 5: a note. You know, I'm paying this, but it's not
18:26
Speaker 5: having an impact.
18:27
Speaker 3: Okay, understood, thank you. Okay. Now let's say that I'm.
18:32
Speaker 2: Looking at all this and I'm looking at Rachel Reeves
18:34
Speaker 2: and I'm looking at Kirstarma, and I'm thinking for myself, gosh,
18:37
Speaker 2: you know, maybe he would go, maybe she would go.
18:39
Speaker 2: Maybe there might be something even more left wing put
18:42
Speaker 2: in place. Maybe my tax is going to go up
18:43
Speaker 2: more and more and more. And I'm kind of over
18:46
Speaker 2: this whole thing. So I am going to move to
18:49
Speaker 2: Milan with all the other rich people, and I'm going
18:51
Speaker 2: to go there and carry on with a bidding up
18:54
Speaker 2: of house prices so that local people can't afford to buy.
18:56
Speaker 2: You know, the usual dynamic, right, the usual dynamic. As
18:58
Speaker 2: someone puts in place something to attract rich people, rich
19:01
Speaker 2: people come, they price out ordinary people, and then ten
19:04
Speaker 2: years later they reverse the rules on the rich people.
19:06
Speaker 2: But here we are, We're going to Milan where their
19:08
Speaker 2: rules are still in plaze. I only have to pay
19:10
Speaker 2: I think it's two hundred thousand dollars a undred thousand
19:12
Speaker 2: years two hundred thousand years a year flat rate, however
19:15
Speaker 2: high my income.
19:16
Speaker 3: So I'm all over.
19:17
Speaker 2: That I had to Milana buy myself a nice penthouse
19:20
Speaker 2: flat and maybe a nice townhouse.
19:21
Speaker 3: I don't know. I think i'd prefer townhouse personally, but
19:23
Speaker 3: you may prefer flat.
19:25
Speaker 2: How long How long do I have to worry that
19:29
Speaker 2: they're still gonna come after my pension?
19:31
Speaker 5: Well quite quite a long time. And I think he's
19:34
Speaker 5: the answer. We do, of course, have the reverse situation,
19:38
Speaker 5: which is that Nigel Farne gets into power and, as
19:41
Speaker 5: he announced a couple of days ago, alleviates the whole
19:44
Speaker 5: burden of inheritance tax, which means that you've paid for
19:46
Speaker 5: your international removal firm and you've brought your ferrari out
19:50
Speaker 5: of me mistakenly because actually actually it makes a lot
19:54
Speaker 5: more sense now to be paying five percent on assets
19:57
Speaker 5: over three million pounds or whatever it is, and suddenly
20:01
Speaker 5: your farm may be tax free rather than taxed without
20:05
Speaker 5: business roll over relief and inaccessible a million pounds. So
20:09
Speaker 5: it's the planning right now in this period of incredible
20:15
Speaker 5: turbulence politically, I think is incredibly difficult, and of course
20:20
Speaker 5: the upheaval of you know, I mean, there are people
20:23
Speaker 5: clearly who are mobile internationally, and London has been a
20:28
Speaker 5: relatively safe and that maybe people's judgment, so that's changing
20:32
Speaker 5: after the weekend, a relatively safe place to live. Traditionally
20:36
Speaker 5: we've been regarded as having a relatively stable government. Again,
20:39
Speaker 5: that few baby changing. So there are mobile people who
20:43
Speaker 5: will move. As you suggest that Dubai as a particularly
20:47
Speaker 5: attractive offer of at the moment, I think as well.
20:49
Speaker 5: And of course you can go to Spain as many
20:50
Speaker 5: people have for many years, and agree a cap on
20:54
Speaker 5: your liabilities.
20:56
Speaker 2: Okay, well let's say I head off, I head off
20:58
Speaker 2: to Spain or Italy or whatever. Before I go, Before
21:01
Speaker 2: I go, I give each of these grandchildren of mine,
21:04
Speaker 2: not a gift out of income, but a lump sum
21:06
Speaker 2: of a quarter of a million quid each, and then
21:07
Speaker 2: I'm off.
21:08
Speaker 3: They're on their own. I've given them the money. We're
21:10
Speaker 3: all done here.
21:11
Speaker 2: Amas six months later, you know, while gloating about something
21:14
Speaker 2: or the other, I have a heart attack.
21:16
Speaker 3: I'm off, I'm gone.
21:18
Speaker 2: Will those heirs be here with inheritance attack?
21:22
Speaker 5: Yeah, and they will. And the whole process of probat
21:25
Speaker 5: And as you said right at the beginning of this conversation,
21:28
Speaker 5: the obligation to pay the tax falls on the beneficiaries,
21:33
Speaker 5: and they're accounting for those receipts will be as if
21:37
Speaker 5: the move never took place. So the excess re offer
21:39
Speaker 5: that's caused the cardiac arrest will create a new burden
21:42
Speaker 5: on people that thought that their life was run throughly simple.
21:46
Speaker 2: Okay, all right, so here we are. I think we've
21:48
Speaker 2: been through all of it. So let me ask you
21:50
Speaker 2: one last question, mark, have you taken your lump freysome?
21:53
Speaker 5: Oh? Definitely, long ago, long ago. I took my tax
21:59
Speaker 5: free lumps off on my fifty fifth birthday at the maximum.
22:04
Speaker 2: Interesting, But what do you do with it then, because
22:07
Speaker 2: then you've got you take it out of the investment
22:11
Speaker 2: portfolio that it's in. Suddenly you've got money that is
22:14
Speaker 2: now subject to income tax in capital gains tax, which
22:17
Speaker 2: might require this is probably a longer podcast, but possibly
22:20
Speaker 2: requires a slightly different type of portfolio to one where
22:22
Speaker 2: everything at cruise tax free.
22:23
Speaker 5: Right, yeah, I mean it depends entirely on an individual's
22:27
Speaker 5: asset mix and the opportunities that an individual has got to.
22:32
Speaker 5: In my case, I was setting up a new business,
22:35
Speaker 5: opening up a new insurance company, so it was an
22:37
Speaker 5: obvious thing to create an amount of capital that was available.
22:43
Speaker 5: But you know, everybody's circumstances are different, particularly as they
22:47
Speaker 5: reached that stage in their careers.
22:49
Speaker 2: All right, brilliant Mark, Thank you. I strongly suspect this
22:51
Speaker 2: is a topic we are going to come back to
22:53
Speaker 2: again and again and again, but thank you for explaining it.
22:56
Speaker 3: Also clearly we appreciate it.
22:57
Speaker 5: Well, what if I've passed the test to do, feel
23:00
Speaker 5: free to come back to me.
23:01
Speaker 2: Thank you, thanks for listening to this week's Maren Talk
23:09
Speaker 2: to Your Money. If you like our show, rate review
23:11
Speaker 2: and subscribe wherever you listen to. Podcasts also be shored.
23:14
Speaker 2: Follow me and John on ex or Twitter at marinasw
23:17
Speaker 2: and John Underscore STEPIC. This episode was produced by Samasadi
23:20
Speaker 2: and Moses and production support and sound designed by Blake
23:23
Speaker 2: Mabels and Kelly Gary.
23:25
Speaker 3: Questions and comments on.
23:26
Speaker 2: This show and all our shows always welcome. Our show
23:28
Speaker 2: email is Merrin Money at Bloomberg dot net