A Tell-Us your to need knows special: Inheritance tax, Pension savings, debt pecking order, life insurance, compound interest.

0:01BBC Sounds. Music. Radio. Podcast. Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Now, usually, much of it comes from my BBC Radio 5 live show with Adrian Childs. But instead of being live with him on a Thursday, this week we met up on a Wednesday to do a podcast-only programme. Yes, I should, Coco, it's just for you. Because I wanted to do a Tellers special. Today's podcast is all about your questions. I asked you what money saving or financial questions would you like me to answer before Christmas? What's playing on your mind or don't you understand that you'd like a little bit of help with?

0:42And you got back in droves to ask about inheritance tax, how much to have in a pension, debt payoff pecking order, life insurance, how interest payments work, cash ISA rules, car finance in 20 words, even what are Father Christmas's tax arrangements and a whole lot more. It's a huge smelly potpourri of fiscal facts and fun Plus A back to basics on consumer rights So you're tooled up this Christmas And the money mastermind, the last of the year Is all about credit card interest And it's a good 'un Play the theme tune

1:39Martin, you want to talk about consumer rights? I would suggest that's because it's Christmas. You want to talk about Christmas consumer rights? Well, it is because it's Christmas, Adrian, but not for the reason that you're thinking. Now, many people will know that for years I've campaigned about unnecessary Christmas presents, tit-for-tat giving that fills landfill and means many people end up with tat. So thinking of ways that don't cost money and things that are going to be useful for people. One of them is, you know, make up a Christmas gift check where you might offer to babysit for a friend's children or cook someone dinner or give them a special massage they like, whatever it is.

2:12So I thought, what could I get you, my friend Adrian, for Christmas? Oh, go on. Tell me. And then I decided, because you're doing so atrociously at Mastermind, and there are so many consumer rights questions at Mastermind, I could give you a consumer rights briefing for Christmas that hopefully in 2025 means you'll get more answers right. Could I be more generous? You couldn't be any more generous. And if you could turn it into a book I could leave by my toilet to dip into once or twice. I don't want you dipping that book in your toilet. Okay, fine. Right, so where should we start on consumer rights?

2:48there's a lot to get through. There is, but the most important one for people to understand, especially at this time of year, is you do not have a legal right to return goods bought in store if you change your mind. And this is only in store, this is about your statutory rights. If goods are faulty, it's different. But if you go and buy something you don't try it on or it doesn't work, you get it home, you decide it doesn't match the colouring of the place that you're going to put it or whatever it is, you have no legal rights to return it. And you've never had legal rights to return it. Now, over 50 % of people, when I polled on this, don't know that.

3:18They think they can return items when they change their mind. You can't. Now, many shops will have a policy that allows you to return. So you should check that policy. And if that policy says to return, you need to hop on one leg and turn around and go, then you have to do it because they're being generous in allowing you to do it. If they say you need the receipt, then you need the receipt. If they say we'll only give you a credit note, then you get the credit note because they're being generous. And the really important thing at this time of year and in the January sales. It's some shops that normally have return rights to spend them in the sales and they are allowed to do that.

3:55So you may be expecting a shop you're used to that allows returns, but in the sales it has different rights. So it is a big warning. Do not automatically assume you can just take things back. Now that is different online. Online you have an absolute right to change your mind and you have 14 days to notify a firm that you'll be sending the item back and 14 days after that in order to actually send the item back so maximum 28 days there are some big store websites i'm dotting eyes crossing t so i'm not going to say it on air because of legal reasons some big store websites that give you the wrong date information until you have to do it more quickly they are wrong what i'm saying is your statutory your absolute legal rights 14 days to notify 14 days to send back so think about this if you want longer time and you know you're going to send it back don't notify them as long as you're within the 14 days until you're ready to start sending it back because otherwise the clock starts ticking on the second 14 day period but there are some exceptions to that online right which are perishable and personalised goods so you know if you buy something that's going to rot in a couple of days you can't send it back or a personalised tin of chocolates yeah if I get an I Love Adrian t-shirt that type of stuff made up specially then I couldn't send it back under the online rules.

5:13There'd be a lot of takers for that too. There would. I mean, I'd be able to resell it on the market probably on eBay for more than I paid for it, I suspect, so it wouldn't be a problem anyway. Now, the big one that everybody gets confused about is what counts as faulty? What is a faulty item? And I have a mnemonic which will help you understand these rules. Adrian, I strongly suggest for mastermind purposes, you remember this. He's writing it down. I'm writing it down. It is sad, fart. Sad thought. The sad is when you buy goods, they must be of satisfactory quality, as described, there's your sad, fit for purpose, and last a reasonable length of time.

6:00Satisfactory quality as described, fit for purpose, and last a reasonable length of time. If they do not, they are faulty, and then we take them back within the first month and you've got a right to a full refund. After that, it's repair or replacement. I look at the word reasonable with some doubt a lot of the time. One man's reasonable is another man's unreasonable. It is, and ultimately it's for a judge to decide in court because sadly we have no alternative dispute resolution process in retail rights, which is a big problem, and I gave evidence to the Consumer Rights Act about this, saying it's all very well when they strengthen the rights.

6:32But if you bang a 50 quid kettle, you're not really going to take someone to court if the shop and you disagree over what is faulty. So there is a problem, but it would be a judge to decide. But let's do the reasonableness test. Here is my easy way to understand this. Great. Okay. You have just bought a£6 ,000 LCD huge TV. How big? Oh, it's 90 inches. Really? Really big. Make sure you do it on low power setting because it's using a lot of energy. You've bought that. After 19 months, you've not done anything. The software starts working. it stops working and it can't be fixed and there's a patch on the screen that's not working.

7:11Has it lasted a reasonable length of time? I would feel very strongly it hadn't. Having paid six grand for something I would hope to get more than 18 and a half months out of it. Personally I would agree with you. I suspect if we polled everyone listening the majority of people would say if you paid six grand for a telly the text should not go after 18, 20 months. It is too quick. That is not reasonable. I think a judge would say that provided you haven't caused the fault. Now, let's take exactly the same question. You've been into a cheap store. You have bought a plastic whistle. That plastic whistle cost you 50 pence.

7:48You've been blowing it, and it's been making a sweet sound for 18... Let's just move on. It's been making a sweet sound for 18... Now, go on. I love it when you extemporise like this. You've been making a sweet sound for 18 months, and then something just stops working. It's not making the sweet sound. So 18 months, it costs 50p. Has it lasted a reasonable length of time? I mean, for 50p, 18 months of sweet whistling, I would have thought was reasonable. Any more than that, it'd be gilding the lily. And I would agree with you. And I've used extreme examples to show you that reasonable length of time is what, I mean, in the old test used to be what a group of people on the Clapham omnibus would say is reasonable.

8:29If you took a group of people together, they'd say, is that reasonable? So it depends on the cost. It depends on, you know, what you were buying it for and the usage level. It is a reasonable definition. What comes really important in this, though, is when we talk about expensive tech and phones are the classic one here. And a certain fruit based phone manufacturer I tend to think is particularly bad for this, but we won't name them. You know, it could be Blackberry. It wasn't. So you have a warranty. They give you a warranty for a year. Now, a warranty is a contractual agreement that you have been given voluntarily for a certain service levels.

9:05That does not affect the law. The statutory law is way more powerful than a warranty. The statutory law applies whether they like it or not. So what happens is people will take their mobile phone back, their 1 ,000, their 1 ,200 quid mobile phone. They'll say, look, it's not working properly anymore. And I'm so sorry, you're out of warranty. and as I always say, warranty, shmarranty. My rule is, is it of satisfactory quality as described, fit for purposes and last a reasonable length of time because the law says it should and that is all about was it in that position when you bought it so this gets slightly esoteric here but if it develops a fault after 18 months then what you're actually arguing is it was not built well enough when I bought it to last a reasonable length of time so the fault is an evidence that it wasn't made right originally rather than the fault is happening now so therefore i have said to many people when they've told me about this say to them that's totally irrelevant i have statutory rights and your rights by the way are always with the firm that you've bought from not with the manufacturer so you go to and i want it fixed because it was did not last a reasonable length of time the fact amount of volatility is irrelevant i'm looking at my statutory rights i'm not looking at my contractual rights you have voluntarily given me And it's really important that people start to understand that difference because these firms actually, in a way, we tend to think they're being generous by giving you these one-year warranties.

10:28What they tend to use them by is a sop to say to you, no, you're out of warranty, it can't be fixed. Well, warranty, schmorrante. But what are you going to do when you're standing there and they're saying, I'm sorry, you're out of warranty? OK, in the end, a judge might agree with you, but who's going to do that? Well, I would say, well, under the Consumer Rights Act, you as the store I've bought it from are legally liable not the manufacturer I do not believe that this product has lasted a reasonable length of time it is faulty and I would like to refund it and that is a formal complaint and I've always be very polite but I'd escalate it to someone senior and if you get to it certainly for a 1200 pound phone then I would start to say well I will be you know you write a formal letter to notify you of a pre-action that you will take them to money claims it doesn't get that far most of the time it doesn't get that far when they know you know what you're doing it really doesn't get that far and they tend to go negotiate and come up with some solution that works for the two of you assuming you're right and you're not lying i mean i'm not trying to tell people they should claim it's faulty when they put their elbow through it i'm saying when it doesn't work and that's what you need to do my favorite story on this yeah i shouldn't tell this story oh god mrs money saving expert bought me a very expensive watch when we got engaged.

11:43It was beautiful and I loved it, but it stopped working. And she took it back to the place and they said, sorry, I mean, we're going to have to send it to the manufacturer and be repaired and it's going to cost you. And I was like, absolutely no way. I said, no, I've got rights. It hasn't lasted a reasonable length of time. They need to fix it. We shouldn't be paying. So I got on the phone and I spoke to the person. You're taking the romance out of it a bit here, but I don't blame you for doing that. And I spoke to them and they said, well, no, no, it's up to them. I said, it's not. I'm very polite, very nicely said.

12:18Under the Consumer Rights Act, it is you as the people I have the contract with who are legally responsible for fixing the watch. And it's not satisfactory quality as described. I went through all the things and I did it formally. And I said, there's no buts here. It's your legal responsibility. They put me on to the manager. We had the same conversation. And then they agreed to repair it. and I spoke to Lara afterwards and she said, I can't believe they agreed to repair it, you know, for free. I'm like, yeah. And she said, and by the way, this was before, it wasn't me. I hadn't used my name. I'd used her name because she had bought it.

12:52I wasn't using the Martin Lewis factor. And she said, because, you know, I thought it was the place that you bought it from. She said, what do you mean? She said, I just took it to a repair shop.

13:03I totally got the wrong end of stick and I thought she'd take it back to where she bought it from. And I was so embarrassed and I called them up and I said, I'm so sorry, I was under the wrong... You are right to charge me and we'll pay. I was mortified by it. Oh, God, that's brilliant. So, look, and so that was wrong, what I did, clearly, but for the right reasons. So there you go. The only final thing I'll say on consumer rights before we get on to the tellers is section 75 is the other thing everyone needs to remember. If you buy something on a credit card that costs between£100 and£300, and I should note primarily you have to be the main cardholder.

13:42There are problems if you do it as a secondary cardholder when you do this. Then the credit card company is jointly liable with the retailer for the entire transaction. So even if you put a penny on the credit card and you're buying something that costs£10 ,000, the credit card company is liable for the entire£10 ,000 in exactly the same way the retailer, no matter where you bought it in the world. So you have the same consumer rights I've just discussed about sad fart rules with the credit card firm as you do with the retailer. So if the retailer goes bust or the retailer's difficult to contact or the retailer's playing hardball and you have to take it to court with a credit card, you can go to the financial ombudsman that's easier than you can go to the credit card firm.

14:19So if you're making any significant purchase over 100 quid, pay a little bit on a credit card, but of course pay the credit card off in full at the end of the month. On warranties, I'm assuming that extended warranties. Yeah, that you're paying. Which they always attempt to sell you on, whatever you're buying. I mean, I was offered a three-year extended warranty on a£25 electric blanket. Yeah, pointless. Actually, it might be worth considering on something that cheap because it's expected time. Yeah, and depending on the cost of the warranty, but also a reasonable amount of time might not be very long for a£25 electric blanket.

14:58No. So what I would suggest on that is, first of all, are you actually going to bother with the warranty if you had the electric bank and it wasn't faulty or would you just buy a new one? Yeah, but yes. So it probably isn't worth it in a practical sense. Most warranties that you're asked to buy when they come direct from the product provider are expensive. And actually, for many of the things that people buy warranties on, such as washing machines or drying machines, they tend not to break down very much. which once did some great research on this that looked at you know the very small percentage and then if you if you defer the cost and you look at it and you combine it it isn't worth buying what i would suggest is if you want the extended warranty there are multi warranty policies where you can buy warranties for a whole host of your home electricals all in one go that cost you a fraction of the price of buying the manufacturer's extended warranty so if you're going to do it and it can be worthwhile if it would be a struggle for you to be able to deal with the replacement cost when it came to get a multi-extended warranty rather than an individual one.

15:57So the tellers, what money-saving or financial questions would you like me to answer before Christmas? What's playing on your mind or you don't understand that you'd like a little bit of help with? And I believe podcast producer Simon has separated these into big questions and we've got rapid fire to come later on. I'm looking forward to that. He's been a busy little elf. He's got the ears as well, you know. Literally, he's like sport. coming. He's not really. Fantastic. The most common question asked, and I think we've got a notional questioner representing all the people who've asked this. And we're going for Zoe.

16:28I'd like to know exactly about inheritance tax please, Martin. There are so many differences just for a normal family. Well, I'll be honest, most normal families won't pay inheritance tax. Right, inheritance tax is only paid by about 6 % of estates. It is disproportionately worried about by far more people than it actually affects. I've done polls on this. And I can't remember. I'm making up this percentage. But it was somewhere in the realms of 30 to 40 percent of people worry about inheritance tax, even though it's only affecting 6 percent of estates. So there's a disproportionate worry. So here are the first things you need to know.

17:01The first thing is anything left to a married or civil partner is exempt. This is my first point of five. So if you leave something to your spouse, there's no inheritance tax to pay on it. Now, it's very important. It's married or civil partners. If you are just cohabiting, you don't get this. And this inheritance tax boon is one of the big benefits of marriage. Number two, you don't pay any inheritance tax on the first£325 ,000 that you leave to someone else. So if your total assets, including your house, are under£325 ,000, then inheritance tax is just not an issue for you. You will not pay it or your estate will not pay it.

17:43So if your house, let's say it's mostly about the house and it will be. Let's say the house is worth£425 ,000. So you're£100 ,000 over the threshold. There's an exemption coming in. Well, let me do the third point first before I answer that. That£325 ,000 is boosted to£500 ,000. So there's£325 ,000 plus a£175 ,000 special allowance if your main residence is left to your offspring. So offspring is defined as biological foster step, adopted children and grandchildren. And this is provided your total estate isn't over£2 million. So on your£425 ,000 question, there wouldn't be inheritance tax as long as your other assets aren't over£75 ,000 because you're within, as long as it's going to your offspring.

18:33OK, so if you're£100 ,000 above either of the two thresholds, 40 % tax. 40 % on the amount above the threshold. But, number four, you can pass on your unused allowance to your spouse. This is really important to understand. It's the other big inheritance tax boon of being married. So let's get ourselves married again, Adrian. We've done it many times before. We'll do it again. We are a couple. Sadly, you're passing away first. You've left everything to me. Right. Now, because you've left everything to me, all of your allowances are unused. So you have your 325 ,000 and your 175 ,000 making 500 ,000.

19:14I have my 325 ,000 and my 175 ,000 making another 500 ,000. So between us, because you've passed it on to me, when I leave, I've not got, including my main property, a million pounds that I can leave to other people as long as I'm leaving the main house to offspring. There is no inheritance tax to pay. That's why many people are excluded. So we actually, between us as a married couple, we can leave a million pounds, including the main house, to offspring without paying inheritance tax on it. So can the lucky offspring, unlucky offspring, because they've lost somebody dear to them, but lucky in the sense that they've got a house, can they live in it for six months and then just sell it?

19:54Well, they don't have to live in it at all. There's no inheritance. The house is, I'm passing my house to my offspring. It's not within inheritance tax. I'm just not paying inheritance tax on it. They can sell it whenever they want. Listen, there are practical issues of probate and all that type of stuff, but we're talking inheritance tax here. So, yes, you have a million pounds as a couple of assets, including the main house, that you can pass on without inheritance tax. Now, if you are going to be above the threshold, so clearly there are some people out there going, we're not married, this isn't fair, or I'm single, I only get£325 ,000 because I've got no offspring and I'll be leaving it to my cousin, so I've only got£325 ,000.

20:30Yes, absolutely right. The system is biased towards married or civil partnership couples who can leave a lot more. And I have had people get in touch with me. A friend of a friend did it quite recently and they got in touch to say, we've just we've been together 20 years. We heard you talking about inheritance tax. We just got married. Thank you. Right. Because they suddenly realised that they were going to be paying a lot more inheritance tax unless they got married. So they got married. If it's likely rule number five, you'll be taxed. Gifting rules can help. so you can do any gifts from annual income so as long as it's from your income it's quite tricky to prove that that it's money you wouldn't miss from your annual income you can give that and it doesn't count towards inheritance tax or if you live long enough seven years afterwards then there's no inheritance tax as long as you give it has can't be a gift with reservation though so you can't say i'm giving my kids my house but i'm still going to live in it rent free that that doesn't work right that's a gift with reservation and there are a whole load of other allowances, so annual allowances to individual people and allowances for all types of things that you should look up.

21:29But in the big picture, the question was inheritance tax for a normal family? Well, for a normal family, you probably won't pay it. Second most common question asked is from hypothetical Karen. What's a good amount to have? No, it's real Karen. Oh, this is real Karen. All these questions are real, yes. They're real, but they're an example of the... Karen speaks for many. Karen is a representative of the most common question. Okay. Karen, I'm sorry I called you hypothetical Karen you are real Karen and the real Karen Karen, you can call him pathetical Adrian yeah, pathetical what's a good amount to have in a pension for a decent standard of retirement ok, I'm going to do the horrible equation here now, which just gives you an example, so you take the age that you start putting money in your pension, so Adrian a man of your age, 30 am I right yeah, we'll go for 30, halve it 15 That is the percent of your income you want to be putting in for the rest of your life.

22:25So if you start at age 30, 15 % for the rest of your life. You start at age 20, 10 % for the rest of your life. You start at age 40, 20 % for the rest of your life. Now, the most important message to take from this is the earlier you start, the better. Because most people will not get anywhere near that. That is meant to give you roughly two-thirds of your final income, of your final main income in your retirement. You won't touch that. But it does include your employer's contribution if you're an employee. So if you're putting 4 % in and your employer's putting 4 % in, or you're putting 5 % in and they're matching at 5%, slightly above the minimum they have to do, then you would have 10%.

23:00So the answer is put as much in as you can and put it in as early as possible, especially if you get a pay rise. I would always suggest whatever you get in a pay rise, before you feel that money, before you get used to that new amount of money, then give a quarter of it towards your pension in your first pay packet and never get used to getting the full amount so that it costs you more. I'm just trying to think why people wouldn't do that. they might think the rules will change by the time you're 30 years old, the rules might change on annuities or something. Well, annuities are gone. I mean, you don't have to have an annuity.

23:29Now you have pension freedom that you have to be very careful on the tax. The most important rule in financial life of everything I talk about is before you withdraw money out of your pension, call pension-wise free guidance because there are really big tax implications for taking money out the wrong way that could cost you for the rest of your life. I'm not going to go through it now, but call pension-wise. it's one of the few areas where free guidance is offered to you that you can get one-on-one help and i would absolutely do that but look there are lots of reasons the big reason people won't do it is they can't afford to spend that much out of their income i mean that's the problem in saying to pay 15 of your income is impossible for most people but interestingly the people who can tend to be those people in decent jobs when they're young before they have children and that's the people who don't put money in the pension at the one time before you're going to have much bigger costs being thrown on you once you've got kids and you're buying a house that's when you really because if you're putting this in when you're 20, if putting money in when you're 20, it's got 45 years, hopefully, to compound and to grow.

24:27And that's why the earlier you put it in, the better. You know, a pound in your 20s is probably worth putting it six, seven, eight, nine, 10 pounds in in your 50s because it has that growth. So there is no right answer here. But the answer is start as early as possible and put as much in as you can afford to. What about if the worst happens and you die relatively young, you die in your 40s? What happens to the pension part? What you must do is you do a nomination form. Pensions don't go in the will. So you do an expression of wishes or a nomination form, and that says who you want the trustees to pass the money on to.

24:59It's not binding. Trustees could choose to do something else, and many people have not updated theirs and are at risk of leaving it to their ex. So be very careful, because people fill it in them when they first get a pension, then they forget about it. It's not a new will. It's an expression of wishes. But if you die, the money will go on to somebody else. Yeah. Right, but you won't benefit from it. But hey, most people in this country who get to pension age will live another 19 years afterwards, roughly. So we must assume and protect ourselves from our old age. Assuming we'll die early is not good planning.

25:30Hamish wants to know, is there a pecking order in which to pay off debt, credit card overdraft, mobile phone contract, bank loan, etc., which, if any, should be paid off first to restore your credit rating sooner? Okay, so it was all an easy question until you added in the credit rating thing, so I'm going to split it into two. The pecking order to pay off your debt, in my view, is very simple. List all of your debts in order of the rate of interest and then throw all of your spare cash of paying off the one with the highest interest rate for the very simple reason that that is growing most quickly.

26:06Assuming you're allowed to pay more on that, pay more on the one that costs you the most. Many people pay them evenly or they pay the biggest ones. Just pay the most expensive one. It's the one that's growing most quickly. And then when that disappears, pay the next most expensive one off. It's called snowballing. It'll get rid of your debts quicker. You asked me which will restore your credit rating soon as well. Assuming that you don't have certain debts they don't like, like high cost credit, like payday loans, then actually it's all done on credit utilisation and debt use type equations in there.

26:34So it doesn't make that much difference. And in my view, you having greater disposable income because you've paid off more expensive debts in the long run will be better for your credit rating anyway. So I'm going to stick with my answer of pay off the highest interest rate debts first. Pay the minimums on everything else and pay the maximum on your highest interest rate. Because if you've got a debt at 30 % and all your others are at 10%, well, if you don't pay that one off, it's going to grow and grow and grow and grow. So get rid of that one and then move on to the next ones. Lisa says, do I still have to pay life insurance if I've now paid my mortgage off?

27:06So it depends what life insurance you've got. I'm going to presume you've definitely probably got one of two types, either mortgage life insurance, which was known as mortgage-decreasing term assurance, or level term assurance. Now, with term assurance policies, the crucial bit is term. That life insurance policy pays out if you die within a set term. So you might get it for 20, 25 years. You might have got it to cover the length of your mortgage. With level term, with the mortgage term policy, it roughly covers the amount you have left on your mortgage when you got it. With a level term policy, it pays a fixed amount out.