What's Eating Away at Inheritance Money Re-Run

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2:36Bloomberg Audio Studios. Podcasts. Radio. News. Hey, Merrin Talks Money listeners. Last week we had our subscriber event at the Bloomberg offices in London. It was wonderful to see so many listeners and so many readers there. And thank you so much to those of you who did come, to those of you who couldn't. Good news. We spoke to Sebastian Lyon of Troy Asset Management, and that conversation is in the feed already. But we also did a Merrin Talks Your Money segment live. And we welcomed back veteran financial advisor Paula Steele. So here is that conversation.

3:19now we're going on to the meron talks your money section of the show and those of you who do listen to us will know of course you will listen to us but this is a weekly series where we talk more personal finance stuff we talk about how to make the most of your money

3:38So with me today, you all know, is John Steppek, senior reporter and author of the, do you want to say it yourself, John? Award winning money distilled newsletter. Thank you. Thank you, John. Also, we have Paula Steele, who you will have heard on the podcast as well. Simon introduced the directorate at John Lambhill Aldridge and very, very experienced. Now, what we want to talk about today, thank you, Paula, for coming on again. What we want to talk about today is the great wealth transfer, which I'm hoping to be a beneficiary of at some point. and I'm sure many of the rest of you are hoping to be a beneficiary of as well.

4:11And I spent some time looking today to see exactly how much money we can all expect. And it really does depend where you look. It could be four and a half trillion over the next 20 years, could be five, could be seven pounds in the UK. So proper money. And in the US, we're up into the hundreds of trillions, aren't we? Who knows? I found numbers ranging from 80 trillion to 124 trillion. So however you cut it, we're talking about a lot of money trickling down from the baby boomers to the next generations. So what we want to talk about is how that money should get transferred. How do you do it efficiently?

4:44How do you do it with the least possible tax implications? And how do you do it without destroying the lives of your children by giving them too much too soon or something that happened to me? Paula, let's say that you are a a baby boomer with quite a lot of money and a house and a couple of kids. Where do you even start with thinking about how you transfer it? You think about how much money you need to keep. Yes. Before you start to give it away. And I think that although the baby boomers, we're going to live longer and we're going to be very expensive. The last 10 years of our lives are going to be very, very expensive in terms of care.

5:27And you can't afford to give it away. You need to keep it in terms of that. And I think a lot of people do a lot of cash flow modelling to show that you can afford to give it away. My experience is that most of the clients are not prepared to give away that much. And I think that one of the big issues is going to be the change in the pensions legislation. Yes. Because when the pensions were inheritance tax-free, they were your third line of defence. you always knew that the pension fund was there. It was inheritance tax-free, so it could go to the kids. But if you needed it for care, it was there.

6:09It was that third line of defence because that care issue for the baby boomer is the big elephant in the room. Do you think that maybe the numbers are just wrong? Because when we talk about$4 trillion,$5 trillion,$6 trillion,$7 trillion, whoever correlates those numbers is not taking into account the fact that a lot of people are going to spend four or five years in a care home and it's going to cost them 120 grand a year and the rest oh okay so in a care home maybe if you have care at home probably more right uh if you have if you need 24-hour care that's three that's three shifts of staff you're looking at probably twice that okay so a lot of people who are thinking that they have money to hand down and people who are thinking they have money to inherit may well not I think you may well find you know it comes into the assisted dying which is in Canada where people are being pushed and whatever one's view on assisted dying and I personally think I would rather go if I was sort of half dead anyway but nevertheless but you wouldn't want your kids to make sure you went okay well you never know but I think that I think that the first thing for anybody to think about is are you going to have enough money for care um I was talking to somebody funnily enough the other day they were saying it's a great pity that we don't have a product that enables us to spend our pension but gives us an income if we are if we survive to a say age 90 because that's really what the pension was there for it was giving you that that longevity support so effectively a delayed annuity of some kind yeah it used to be called a contingent annuity doesn't exist in the market anymore sadly it would be an interesting thing interesting that feels like the kind of product that might be coming back in the same ways the annuity market might be coming back i think the annuity market is back is it yeah but it's back in terms of an investment proposition.

8:11It's a different way of buying a fixed interest investment. Getting a much better return, you're getting a fixed return, and you're playing the longevity. For the client or for the advisors, they're playing the longevity game. I remember a client doing an equity release on his parents who were very elderly, and him saying, I'm doing an equity release, I'm going to buy an annuity. because that handles my longevity risk on my parents' wealth. Which I thought was quite tough, actually. Has the annuity revival partly been helped by pensions and inheritance tax coming in? Is that something that's in people's minds?

8:58I think people are, given that the pension fund is now going to be, you know, I've had people saying before it was tax-free and now it's going to pay tax at 67%. It was never tax-free. It was tax-free from an inheritance tax perspective. But to get to 67%, you've got a 40 % and then a 45 % tax rate to get it out. The 45 % tax rate to get it out, if you died post-75, was always there. But it provided options to your heirs, right? And they could withdraw from it when they had a lower income and all those kind of things. There were lots of ways to make it a low-tax event. A lower. Well, no, because once you died, the pension fund had to go to somebody at that point.

9:43So you couldn't say, your dad dies, and you couldn't say, well, I'll have it. Actually, no, I think I want it to go down to the grandchildren. You had to make a decision at that point. It wasn't... But it stayed in the wrapper. It stayed in the wrapper. You could withdraw it at will. So you could choose to withdraw from it at a low-income period in your life. You could. Yeah, you could choose to withdraw at a lower... And you can still choose to withdraw it at a lower thing, so you won't be paying 67%. I've seen more angry people about this. You know, I tell the story, I've got a client and she's...

10:21I don't know how old they are. She's coming up to 80 and she's incandescent. She has£125 ,000 in her pension fund and that is her money for her grandchildren. the fact they're worth 25 million is neither here nor there people are very close she should spend it on herself definitely but nonetheless if you know that you're going to be paying that amount of tax your family's going to be paying that amount of tax you may as well buy an annuity and have the security of that income flow up front yeah yeah i think i think and i think people will start to spend their pension funds down which if they are going to do that, there are two things in terms of efficiency.

11:02First of all, if you're drawing income out of a pension fund, it is income. If it is surplus income, and I've got clients who are drawing it out, paying the tax, 45 % tax, better than 67 % tax, but it then gives them income which they can then give away. And because it is now surplus income, it's clearly surplus income because they didn't have it before and they were living perfectly comfortably, they can give it away and it's immediately inheritance tax free so you're splitting you're you're stripping it over say three or five years um and i think certainly we're seeing clients that are doing that kind of thing um but you need to do that you need to have enough other assets you're having to rethink your assets um so that you are then thinking about okay what i'm going to do is i'm going to spend this pot of money but that will then mean that I've got this pot here.

11:57Yeah so it's a general reshaping of the way you do it. It's reshaping. So let's go back to our couple worried about their care bills and they've decided how much they need to keep and they've got a pot that they want to give away. Obviously the best way to do that is just to give it away and not die for seven years. Yeah you'll buy an insurance policy to cover it. Can you buy an insurance policy to cover that? An expensive one, presumably, depending on your age. Depends how old you are. It's about 6 % if you're 80, about 1 % if you're 70. And you pay that over seven years, so it's 1 % over seven years if you're 70.

12:33I think that's cheap. Yeah, that does sound quite cheap. It's quite expensive if you're 80. Yes. More problematical is that you've got to pass a medical. Ah. Okay, so it's only 1 % if you're very healthy. You have to be healthy. The insurance companies didn't put the price of life insurance up post-COVID. What they did was they increased the bar. So where before we would have got standard rates for somebody, now they'll load the premium by 50%. So they've changed the pricing without looking as though they've changed the pricing. Good marketing. Okay, definitely. Okay, so give it away, buy an insurance policy.

13:13Give it away and buy an insurance policy. What about putting it in a trust? If you're going to put it in a trust, if it is agricultural land or business assets, business assets are trading businesses which are unquoted, which is not property assets. If you constitute yourself as a builder, that is a trade. If you are holding assets for rent, then it is not a trading asset. I would say that's the easiest way to remember because everybody knows what a builder is and they know what holding an asset is for rent. So if it's a trading asset and you give it away into a trust before the 5th of April...

13:55I haven't got long here. I haven't got long. Then you will not pay, you will be able to transfer it without any tax. Okay. Those assets... But the new rules after the 5th of April only allow you to do that£2 million? pounds? No, that's only on death. You will be paying a 10 % entry charge on those assets. You've got$325 ,000 of allowance, which you can reuse every seven years. But apart from that, you will pay the 10 % as a lifetime entry charge. And the allowance is only on death. It's not a lifetime. Is all this worth the bother? Depends how much you care. About what? The tax.

14:44I think you have some clients.

14:50I largely spend my life doing life insurance. And we look after a very large number of very large estates. And for them, inheritance tax and the transitioning of the wealth to the next generation is a key driver for them. and they know who's going to inherit it from the time that probably something is born. And they spend a great deal of time and they buy insurance to cover it and they are making huge gifts of transfer of assets now. And they care very much. I have other clients who maybe have made the wealth and they care very much about income tax and capital gains tax and they don't care about inheritance tax because from their perspective, what the children, they started with nothing and they don't tend to then care if their children really get 60 % of it, they'll be well off.

15:45That changes when they get grandchildren.

15:51When, staggeringly, they're not prepared to ruin their own children by giving them loads of money. They're delighted to ruin the grandchildren. Grandchildren. Yes. I've had lots of clients who, you know, you've talked to for years and said, well, you ought to be thinking about giving it away. And no, no. And particularly if it's business assets, there's much more of a problem because the giving away of the business assets is about succession in the business and transfer. And that's all about do you trust the children to do the transfer? Is that going to be appropriate? Are they appropriate for running the business?

16:26Are they interested in running the business? All those other things. so you may or may not want to give the asset away if it's a business asset um and you don't want to own them and they must get on with their lives and then these grandchildren arrive and boom boom off they go off they go it's all different it's all different yeah and is that is skipping a generation a good way to go i mean that surely caused some friction between parents and their next generation if the money skips a generation? I haven't really seen that because I think if it's going down a generation like that the generations are being skipped tend to be involved.

17:12I think as with all of these things it's all about communication. Yeah because I suspect as we were talking about this earlier that there's this missing generation when it comes to pensions which is people born born sort of late 60s to late 80s or middle 80s people who missed out on having a defined benefit pension and then had no pension provision at all until the introduction of auto enrollment and so have pretty much no pension provision at all and will generally be relying on inheritance to get through their last 20 years and pay for that care so it would make sense if the boomers left their money to that generation they might or might not realize that the boomers need the money well no because money has a you have a you have a reference point my father who's dead would be 100 almost now um but when he started working he earned 50 pounds a year working in lloyd's in london um and it's and then you know his first pay rise went to 200 £250 a year.

18:21But it's very difficult as you spend£3.50 buying a cup of coffee on the way to work for him to understand that he moved his reference point up. But I think that's in terms of the transfer of wealth, I think that reference point, the children have got£50 ,000 a year, so they're fine. Because in their reference point, there's a point at which people stick. Yeah. Interesting. There's probably an educational need on both sides, right? And one of the things you mentioned, the inheritance systems of big estates and families that have been rich for generations have a system for passing wealth down and an education system as well for the recipients.

19:06But most people don't. You know, it's relatively new, this idea that a lot of people will have money to pass down and a lot of people will inherit. And there's an education gap possibly on both sides. yes i i think so and i think i think that it was never talked about it so within the big estates it's talked about as a commercial thing it's part of the commercial planning for the estate they're very long-term investors and it's very long-term planning and people are involved in it and they also are quite good if they have a generation who aren't who aren't maybe very commercial they're quite good at finding a way around that so that then they just get an income and they're not going to impact on the estate not impact on the business um but it's a commercial it's it's a commercial thing they have a whole ramp of advisors who talk about it and you just join that conversation which has gone on for years i think what's much more difficult is if you've suddenly got what's really quite a lot of wealth and you don't have that sort of range of advisors and you don't have that forum yeah which is we discuss you know how we're investing for the long term we discuss and we do it at the annual at the annual meeting at least and there's almost always a trust so they're always external people they're called the trustees and they're probably outside the family.

20:38Yeah. So how do you educate a new generation of inherited? I mean, it's this fabulous opportunity for the wealth management community, right? I think they're trying. I think the wealth management community is trying, but I think they're trying more to get to the much younger ones. Certainly the wealth management industry is going to lose, as things stand, they keep about 25 % of the wealth when people die. And their population... So the children get the cash, they go around to the wealth manager and they say, well, you've been looking after that gorgeously for 40 years, but now I'll have it. Yeah, because they pay off the mortgage, they hand the money on to the next generation, they get the children on to, they pay off their student loans, they get the grandchildren on to, if they don't need it, and if they do need it they've got their own managers who swoop it up that seemed to me i was going to ask you that seems to me to be one of the best possible ways to pass down some inheritance is to pay for all your grandchildren to go to university and pay all their living expenses so they don't leave with one of these awful notes that john complains about all the time it's not tax deductible for an inheritance tax if you pay your children's education that is not considered a gift for the inheritance tax if you pay your grandchildren's education that is a gift so it goes on the clock even if it's out of surplus income that's the way to do it well if it's if you can create the surplus income yeah then you can do it yeah you used to give people you used to give grandchildren quite a bit of money under deed of covenant and then which was a way to make it very tax efficient but that was then shut down nothing left is there everything's been shut down no you buy insurance cover the just to pay the tax so you pay the premium every year rather than paying 40 percent as a bullet you do think about putting some of it into trust you fund an insurance policy by drawing money out of the pension fund that's very efficient and then you give it away okay ask your final question do you think it's a good tax, inheritance tax?

22:57I think that's from where you are on the political spectrum. If you believe in the redistribution of wealth, then I think it probably redistributes wealth. If you think that people have worked terribly hard and paid an awful lot of tax to have accumulated money, that's what makes people very cross. show of hands who'd like to see inheritance tax abolished for those who aren't here i'd say that's about 40 percent yeah yeah i'm surprised that the young aren't putting up their hands you'd inherit more you know if it was it was abolished not less it would be good i think we'll have to leave it there although i didn't ask john john should it be abolished oh bad tax good tax i think at the moment yes yes it's too it's too low and then think it worries too many people.

23:51It's too low. The threshold is too low. Yeah, sorry, threshold's too low. There are too many people panicking about inheritance tax that don't actually need to panic about it. You shouldn't panic. Exactly. There are an awful lot of people, and they will spend quite a lot of it. That's when people really get into a panic, is when you look at the care costs. Let's not talk about care anymore. I'm going to end one of these sessions on and up. Let's just end it with, you can all go out and buy insurance so you don't have to pay an heritage tax. Will that do? Well, brilliant. Paula, thank you so much.

24:25My pleasure. Thank you so much. Thank you very much.

24:36The last bit. So this is the question and answer session. John's going to stay here because I know you always have questions for him. And we've got Moenna coming up to join us. She is on our Markets Live team. and I think you've probably all heard Mwena speaking before because she's been on you've been quite a few of the Friday roundups haven't you? Yes I have. Yeah excellent so all things markets and you've given us some really brilliant contributions so let's just start with a question just for you about I mean markets we've talked about a bit with Sebastian but what I think we're really interested in is interest rates and where we might expect them to go next and we've got quite a lot of questions about mortgages and that kind of thing so let's start there.

25:12Expectations have changed quite a lot over the last few weeks haven't they? Yes they have particularly from the end of last month into March of course with the conflict escalating in the Middle East we had seen markets expecting two full quarter point cuts from Bank of England this year with quite a strong chance of that happening this week. Since the invasion that has quite dramatically reversed. At one point, we really had a full cut priced in, I'm sorry, a full hike priced in for the year. And that's pared back a little bit, but markets are still looking quite hawkish. At the moment, we've got about a 50 % chance of a hike priced in.

25:58So it's really quite a dramatic change. Although I think some people maybe feel that that's a little extreme. you know whether the bank of england actually feel that what's happening justifies a hike at this point yeah is certainly something that will be looking very closely to them on what they say on thursday they may be looking to temper some of those those fears they had for a very long time been expressing their desire to cut rates and the question was really just about the pace so whether their approach has completely changed or not I think we'll have to see but it's quite early days to be pricing that far ahead but I think we're looking for things to stay on hold for quite some time and as Sebastian says there's quite a lot of room here for policy mistake in both directions John?

26:54I mean yeah I think the fact that the problem with oil and an oil price rise is that it's both inflationary in terms of it drives up the Consumer Price Index, but it's also very disinflationary because it steals money from people's pockets. So not disinflationary so much as recessionary. So the longer it goes on for, the more likely we get some kind of stagflation. But equally, the problem is the Bank of England's only got one target and it's CPI at 2%, and they haven't had it for six years now. It's kind of changed that target, hasn't it? Well, I mean, I think they would quite like to. I mean, some people think that it's a daft idea.

27:31and to a great extent I kind of agree with that except that you need some kind of target and the problem is if you change it then they'll just make life easier for themselves so I can see almost a I can see a policy mistake and I do think it would be a mistake to put up interest rates I can see it almost happening as a result of embarrassment and a sort of commitment to this idea that there's an inflation expectations channel that you know because inflation is too high, we keep thinking it's going to keep being high even though I don't actually I kind of struggle with that, I don't think that's how people actually generally think about inflation.

28:08So long story short, yeah, it's not ideal. I think the bank will probably hold this week because they'll want to keep their options open. Yeah, difficult for people. We have one question came in earlier about buying houses. Is this a good time to buy a house? I think that's an incredibly difficult question to answer and I think what we would always say on the blog and John and I were just talking about this earlier and ultimately you know it's it's the right time when it's actually the right time for you to do it because it's not it's not a speculative asset for most people it's actually somewhere you live and there's a lot of other considerations that come into account but in terms of the actual mortgage rates I mean the way in which mortgages are priced we have been seeing that rising and we have also seen lenders actually increasing their rates but not not a huge amount some have actually reported to us that they've been encouraging people who are coming up to refinance to perhaps do it now and not in six months time so it is seen as actually a good time in the context of the uncertainty ahead but at the same time I think as we were discussing earlier, we're seeing some of those expectations for the Bank of England, you know, calming down a little bit.

29:27And, you know, you wouldn't want to jump the gun on a major decision, I think, purely based on a couple of weeks of very fraught uncertainty. Yeah. Okay, John, here's one for you. I think you probably agree with all that on houses. But here's something you write about all the time, which is UK equities, right? With the UK stuck between weak growth and fiscal constraints, do you think markets are still giving too much benefit of the doubt to UK assets? I mean, it's interesting. I'm a bit worried about looking at the FTSE 100 is one of the very few developed markets that's still up on the year, considerably up on the year.

29:59I mean, FTSE 100, I think, makes sense to be less vulnerable. I mean, it's still down since the war kicked off, despite the fact it's got oil and resources and all the rest of it. But the FTSE 100, I think, you know, if you're going to be in equities, that's not the worst place to be. The 250 in the kind of UK mid-caps and smaller caps, I know that we've kind of been broadly bullish on the UK assets and think that they've been possibly hit with the ugly stick too much. At the same time, there is, you know, they have come some way. we do have this problem that we are quite vulnerable I absolutely don't want to catastrophise but the GELTS market is quite sensitive to changes we still enforce stricken by political uncertainty people had hoped I was kind of willing to give the new government the benefit of the doubt I hoped that was going to go away but clearly it hasn't In May, obviously Keir Starmer's position has flipped off the front pages because we've got other things taken over.

31:11But come the May local elections, I think it's pretty clear that there's going to be a pretty nasty outcome for the incumbents. And that will again raise questions about whether have we got the right guy leading the party just now? Is it worth the risk of changing it? So I guess I can see there's a lot of pain points coming up for the UK. that I'd hoped weren't going to be an issue. There are so many questions on UK credibility coming in. Absolutely. I mean, at the same time, you know, companies are companies and companies just have to put up with stuff. Yeah. You know, we've been through plenty of kind of traumatic times before and the companies themselves are not hugely expensive relative to their own history.

31:57One issue with the 250, I guess, is a lot of things like house builders and all the rest that are quite cyclical. I'm not ready to give up on UK equities yet but I might be edging closer to that Edging closer to not being so bullish Yeah, and we did have probably all listened to the Edward Chancellor podcast earlier this week and one of the things that he said was if you're looking for a place to invest maybe don't choose the place with incredibly high electricity costs and no chance that they might be coming down because it's just a bad signal and that did make us go Oh, yeah, maybe we should be slightly less positive.

32:32Anyway, are there any questions in the room? Because we've got mics. I've got loads of questions here, but I'd much prefer to take them from the room if you have them. Really? Okay, one at the back here. Thank you. There is a mic coming to you. Hi. How do you view the strategy of treating a guaranteed pension from like a workplace pension as a proxy for a fixed income allocation, thereby justifying a 100 % equity strategy in a portfolio. Very young to have a DB pension. So like a workplace pension, so using that as like, if you had a 90-10 portfolio, your workplace pension is your bond. So it's not a DB pension, it's not a guaranteed public sex pension.

33:20I guess that's really just a question about your asset allocation. I mean if you're talking about yourself and I think without being too we're not giving personal financial advice we can't do that but the rule of thumb is the younger you are the more risk you can take so you know I mean even at my age you're like 50-ish 50-ish I'm so coy I'm kind of mostly in equities because I'm thinking it's going to be at least 20 odd years before I retire so I might as well take the maximum amount to risk the kind of you know it's so i can get the maximum growth um but nonetheless a workplace pension if it's not a guaranteed income is is also equity it's not a replacement for a yeah that's that's what it's the same thing it's just the same thing um it's still equity exposure in the main unless it's lifestyled into bonds as you age yeah i was treating it as a form of like lifetime capital so it's kind of guaranteed as long as you're still in a career so that would act as your safety net so then that allows someone young like me to be fully risk on i suppose what you mean is that you would have a higher risk equity portfolio out with your work pension yeah yeah yeah that makes some sense yeah that sounds pretty logical i think um but but just to be clear it's still an equity portfolio yeah slightly lower risk equity portfolio.

34:46You still don't have a bond-style balance around that. No, nothing. You'll be needing some gold. Thank you for that question. Listen, there's quite a few questions on does the UK need a crisis? Will the government change the income? Another one. Another one. How many do we need? Do you think that, maybe you can have a go at this one, Moana. Do you think the UK needs a crisis, something similar to the UK's IMF bailout in the late 70s for policymakers to confront the underlying issues with the economy, energy policy, taxes, etc. In other words, do things need to get worse before they get better?

35:20And there are a couple of others along the same zone, the same thing about the bond market and the extent which we might destroy it by cutting yields, etc. And we have had this conversation that things eventually they'll get so bad that they have to get better. I mean, things haven't been good for quite a long time. I think if you look at the longer dated guilt yields you know we saw them um hitting sort of 1998 levels um earlier in in the year and that suggests that we haven't really recovered actually from what we saw in 2022 um with the mini budget actually things have been getting a bit better this year um and until this um recent uh sort of turmoil which is a global global one but actually the longer data to gilts haven't been um you know too badly affected in context um so i wouldn't say that we've sort of reached a point where things have got much better um whether they could get worse i mean i think they always could um and i i don't know what what the answer is to that except i think to joanne's point um there is a lot of uncertainty um we've seen quite a lot of political risk priced in um and so i suppose something that would add to that and destabilise it further.

36:37Do we need it? John, do we need a crisis or can we muddle along? It feels to me like the bit where we can just keep muddling is nearly over. No, I think so. And I actually think where we make a crisis is in energy provision or infrastructure. Because we've already seen things. I live near Tunbridge Wells and thankfully didn't get caught up. But, you know, the water system was out in a major town, I'm sure some of you kind of live there or thereabouts, for the best part of like six weeks. And that was nothing to do with cyber attacks, it was nothing to do with warfare and everything like that. It was just degraded facilities, bad management, whatever it was.

37:22And, you know, we've got the highest industrial electricity prices kind of pretty much in the world. And you've got to turn around and think, well, what happens if we keep on going down the pathway that leads away from energy security and towards kind of like energy speculation, you know, kind of maybe overloading our grid with kind of renewable assets before it's ready. I'm not saying that's a bad thing, but, you know, we've got to kind of take, you know, baby steps towards this stuff. And then maybe we start seeing things like, you know, extensive blackouts or the sort of thing that gets people properly worried and makes us make some hard decisions about where we need to focus.

38:01I think something like that actually probably more than a gilts market crisis is actually more likely, where there really is a sense that things are falling apart. Okay, crisis then. Yeah, proper crisis. Question right here in the front. I'm going to answer some quickly. Do you think we will see a mass exodus from the UK of the high-earning individuals in light of the punitive Labour government tax policies? I think we already have, but we might see that decline because there's nowhere to go now. So people are coming back. Yeah. Coming back and going. Yeah. Thank you. My name's Brian Swint. I'm a mortgage advisor.

38:35So I wanted to bring it back to the housing market, if possible. It seems to me that there's a huge scope on Thursday for surprises from the Bank of England, not because of necessarily a policy move, but because of what they say. If it appears there's consensus that because of the energy crisis now, they're inclined to raise rates, that could push bond yields up much higher than we've gone so far. But they might also say they're still inclined to raise rates, which could push yields down. So I just want to know what your take is. What do you expect them to say? And what are the risks for the housing market the rest of the year as you see it?

39:08I mean, from my perspective, I can look at what the market are saying, and they have seemed quite actually uncertain. So whilst I said that they'd moved towards pricing in a hike, they've moved back again. And we've also seen that fluctuate in both directions just in the last few trading sessions. So I would say there's a huge amount of uncertainty. The only real indications we've heard from the bank last week, we had Alan Taylor speaking, and he said that if the oil price spike sort of stayed where it was for just a few weeks, then by the time we get to the end of the year, it wouldn't necessarily make any difference to overall CPI.

39:48But of course, we're already moving on and things maybe look like they're going to be a bit more protracted. So I think there's going to be a huge amount of uncertainty and the bank do tend to be quite cautious in that I don't think they're going to be looking to say anything that's going to trigger extreme market reactions. I think how they vote will be very important you know we're expecting it to be a hold but whether anybody feels like it's it's worth sort of stepping out of that consensus view will be interesting and now we get the commentary published as well and of course their guidance you know changing wording to the guidance and just really anything of their inflation you know predictions as well for the rest of the year I think really going to be incredibly closely watched but I'd probably had to say that we'll see no big surprises because I think they'll probably want to try and give a massive stability.

40:42Housing market John? Yeah I mean I think I agree with Marbena I don't think they're going to want to rattle the horses at this meeting I think the April one will be the scarier one because if it's still going on by that point, they're going to actually have to commit in some sort of direction. As far as the housing market goes, I mean, it really boils down to, again, if you're buying a house for yourself, then there are so many other factors that matter more. It is a buyer's market. Well, I think that's one thing I would say, you know, and this, if anything, makes it more of a buyer's market because, you know, you can turn around to people and say, well, you know, there's a war on, you know, you're not going to get many other buyers.

41:17So I sort of feel that From that point of view, if you are a buyer, you're probably in a decent position, as long as you've got all the usual stuff, you know, get your mortgage lined up, make sure you've got enough money, that kind of thing. And also, if you're buying in London, which I think is where the questioner came from, I mean, the London housing market is basically flat for about a decade now, and actually down in real terms. So, I mean, can it go lower? Yeah, of course it can go lower, but at the same time, You're not buying when it's at the peak, if you're worried about that kind of thing.

41:53Yeah, but the market across the board, I mean, it is interesting, isn't it? And we were talking to Sebastian about the turn in yields and interest rates starting to go up and interest rate normalising, and now we're moving into an environment where we can easily expect rates to stick around the 3 ,000-year historical normal 4 % to 5%. And only just now is it really beginning to turn up in all the asset classes that you would have expected it to turn up in a few years back. So housing being one of them. You know, house prices were ridiculously high on the basis of very free and easy capital. We don't have those things anymore.

42:25You begin to see the housing market crack. You start to see the private equity market crack. You start to see private credit crack. All these things are a function of this regime change in yields. And I find it so interesting that it's taken so long. You know, we started talking about all these things. Well, this will crack and that will crack and this will crack three, four years ago. But it's just it's much slower than you think. But, of course, it's slower than you think in the asset classes that are not particularly liquid and not particularly transparent. And housing, while obviously it's not the same kind of asset class as private credit and private equity, it has the same dynamics when it comes to liquidity and transparency.

43:02That was an attempt to answer another five questions in a while. Because there are quite a few about should you have private credit, should you have private equity, how should you hold infrastructure inside your portfolio. And the answer, I would say, from all of us is with extreme care. Sebastian, nodding, with extreme care. You know, we feel very strongly, John and I, well, I do anyway, that if you're going to hold pretty much any asset, you should hold it in the most transparent way possible, which is why we are so great fans of the listed markets over the private markets. You want to be able to trade something.

43:36You want to be able to understand it. You want to be able to talk to the directors, all these things. And you can do that in listed markets in a very different way. And, of course, listed markets react much more quickly. So that covers pretty much all of those. Anything else from the floor? There were a couple at the back there, I think. Thank you. Hi, Phil Job. Thank you for this. And just wanted to ask, if you assume a new investor, no equity exposure to begin with, very young, and they were looking at having a split of UK and American ETF, how would you think about framing the question of do you hedge the US ETF back into pound sterling or do you just leave it in American dollars to roll up in that US side of the investments?

44:27I think you're going to make your life far too complicated by even thinking about that when you invest in a country you take the currency risk at the same time there they come as a package, so I would never begin to start trying to, particularly in a small, young portfolio, to start trying to hedge that away. But maybe the others have a different view. I don't at all. No, I think the forex exposure is one of those things that goes into the Buffett too hard bucket. And if you are by, and also part of the benefit of investing overseas is you do get that diversity. So, you know, you get the dollar as well as the pound exposure.

45:05and, you know, often the dollar, or so often in recent years, you know, having dollar exposure has been a good thing for a sterling investor. At some point, it probably wouldn't be the best thing, but it's not something to worry about on top of all the other things that go into choosing that in the first place. We have run out of time, but I'm still going to take another question, honestly, because I don't feel we've done quite enough. On the back here. Thank you. There is a question, by the way, in here about, do you have any thoughts on the upcoming SpaceX IPO and will this lead to Tesla merging with SpaceX down the road?

45:36Now, I'm not going to answer that one because Cathy Ward has answered it for us. And you can listen to my podcast with her on Monday and you can hear the answer to that. I'm not going to tell you, so you all listen to the podcast. Your question? So prior to the events in the Middle East, obviously one of the dominant conversations in the markets was around cracks in private credit and elevated valuations in sort of AI boom equities. And in one of your recent podcasts, there was sort of a conversation about a potential catastrophic event pulling the rug under those valuations in AI equities and, you know, potential inflationary impact and downstream.

46:12Do you see a prolonged situation of conflict in the Middle East as one of those potential scenarios causing a crash in those, you know, and an adjustment in those equities? Yeah, I mean, it easily could be. I mean, that's the thing with any kind of bubble level of valuation is you don't know. You never know what it's going to be, but it's going to be something. So, yes, that could be it. But, again, I've got to listen to Cathy because we talk about that quite a lot in the podcast with her about what it might be. But, of course, she doesn't believe it will be anything. She believes that all those stocks will grow into their valuations over the next few years and this won't happen.

46:45But that very rarely happens. That's very rarely the answer to overpriced stocks. The answer is usually that they fall. Anything to add to that, John or Moana? No? I think you hit me now on that first. Yeah, yeah. The one thing is, see, the private trader thing, and this is something I'm curious about if anyone in the audience is an expert on this, then do please come up and chat to us after. But I still don't quite see, because some people have mentioned about it being kind of like 2008, 2007, and that always kind of, you know, raises alarm bells, because obviously 2008 was pretty catastrophic.

47:16But I don't quite see yet how we get from, sure, a lot of these things could go bad, but how do we get from that to infecting the entire financial system? I believe there is a sort of like insurance angle there, but even then I'm still struggling to see exactly how that goes to not be able to get cash out of your ATM on Friday morning. So anyway, sorry. If anyone thinks they've worked that one out, then please come up to me later. OK, I'm going to allow one more question, but please can it be something to which we can answer in an upbeat manner? Because I want to finish this on an up. We've finished every session on a low.

47:51You look like a happy person. Go for it. What one policy change could a UK government do that would turbocharge our economy? Cancel net zero. Cancel net zero. If you're talking about the housing market, I'm going to say get rid of stamp duty. Great one. I can't believe you both took my options. Net zero, stamp duty. Yeah, no, that is a really good one. I'd kill off all these marginal tax rates. That's the other irritating one. So when somebody earns over 100 grand, they immediately jump up to a 60 % tax rate. And that's the other side as well, because whenever you're on benefits, you get a job or you get a job going over a certain number of hours, you get a similarly insane marginal tax rate.

48:43And knowing that people say, oh, you're still getting 40p, you're still getting this, you're still getting a bit more money, it definitely holds people back. and I've spoken to people that are both ends of the spectrum who are put off extra hours by those marginal tax rates. So getting rid of them, I think, would be really helpful. OK. So cancel a lot of taxes, sort out the tax system, get rid of a net zero, make life cheaper. OK. Thank you for that question. I think those answers were quite positive. How very dare you, sir! None of these things are going to happen, of course, but, you know, there you go.

49:13Right. So do listen to the podcast. Do read John's newsletter, Money Distilled, award-winning. Do read my newsletter out on Saturdays. Do read the Markets Today blog, Moana, and enjoy them all, I hope. And thank you so much for coming this evening. You've been a really good audience. And we will be hanging around to answer more questions. And so will our other panel guests. So thank you all.

49:40Thanks for listening to this week's Merrin Talks Your Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter at MerrinSW and John underscore Stepek. This episode was produced by Sam Asadi and Moses Andam. Questions and comments on this show and all our shows are always welcome. Our show email is merrimoneyatbloomberg.net. Sound design by Aaron Kasper and special thanks, of course, to Paula Steele. If you're a business owner, you need a card that can keep up. With the Delta SkyMiles Reserve Business American Express card, Everyday purchases transform into miles you can use towards future travel.

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