QA56 - Listener Questions, Episode 56

0:00Pete Matthew: I mean, what is the point of that? Yeah. What? Hi, and welcome to another Meaningful Money Q &A show with me, Pete Matthew. And me, Roger Weeks. Very important question for you this week. Would you survive a zombie apocalypse? It's funny, actually, because I saw this on the Jackson's website. Oh, yeah, we did. There's a whiteboard in there. Yeah. And I'd like to think I'd be savvy enough to outwit the zombies. as they appear to be more reactionary to situations around them than, you know, thinking deeply, aren't they? Yeah, I'm just saying there's not a lot of wit in zombies to outwit, is there?

0:34I guess there'd be an element of luck if I just stumbled in the wrong place, but the difficulty would be finding sufficient food and water to survive, wouldn't it? And just keeping going. But I think, you know, I'm not going to go in any dark... These films you see, it's like, I'm going to walk in this dark building and see if there's any food in there, yeah.

0:52Pete Matthew: Yeah, exactly. Don't go in there. Don't take the dog. Oh, nighttime's coming. I'll still go in that building a minute before I go back home. No, go home now. Exactly. Lock the doors. They'll find you easily in that shirt. Yeah, well, I thought the weather's been so nice. I thought, oh, let's do something outrageous. A nice summer shirt for those of you only listening. You're missing out on Roger's sartorial choice today. Yeah, it'll soon just know, I'm sure. Where should people send their questions? Roger? If they want to send their questions to hello at meaningfulmoney.tv and put the subject line podcast question, and Nick will pull them out and drop them in the feeds for future.

1:26Pete Matthew: Yep, he will. And if you're watching this on the YouTube channel, then help us out by liking the video and subscribing to the channel if you're not already. And any links that we talk about will be at the show notes, which is meaningfulmoney.tv slash QA56. Right, I'm apparently going first this week. So this is from Duncan. Hello, Pete and Rog. Your content and chemistry are a unique combo that's helped me focus and engage on my future properly at last. so thank you. Our daughters have often talked about our chemistry. Yeah, they have. Yeah, not so much in going terms. Okay. It occurred to me that being well insured isn't necessarily enough.

2:04Pete Matthew: Planning mechanics is key too. So I'm interested in your views on planning for the tax shock if one spouse dies pre-retirement and all income is consolidated into a single taxpayer. Yeah, this isn't talked about enough actually. So the scenario, a couple both in their 40s or 50s earning, say, 75 grand each with two dependent kids, 15 and 11. It was all sounding vague, and then we got very specific. Two kids, 15 and 11. One spouse dies. Let's assume that's today. So the immediate loss is 75 ,000 pounds worth of income. One personal allowance, yes. One basic tax band, future state pension. Survivor receives, say, 40 grand of DB spouse's income, initially falling to 15 and a half grand when kids are out of education.

2:49Pete Matthew: This is definitely not just a theoretical thing. Total income of the survivor is$115 ,000 now because they kept their own income and they've got a DB pension income now as well. Life cover plus enforced cash lump sum from the DC, no survivor pension option, all in trust, pays off the mortgage, and there's still about$500 ,000 of capital left, but now it's all in tax land. So despite being well insured, the survivor is pushed into a much less tax efficient, tax position. So the question is, beyond salary sacrifice, AVC, to stay below 100 grand, no brainer, what are your thoughts on options to deploy the extra capital in a tax efficient manner to predominantly support the family's spend rather than lining HMRC's pockets due to my death?

3:37Pete Matthew: Okay, so it's about you. The income of the spouse is already pushed falsely high with DB survivor pensions. Would an investment bond look attractive in this situation? For example, $400 ,000 of capital to buy an investment bond. Can you explain how this works and its pros and cons in this situation? I know these are tax deferral tools, but it seems to me that deferring tax when income is above$100 ,000 to a time when in retirement a spouse will pay a lower rate of tax could be a good move. Yeah, I mean, it could be. No doubt about that. I mean, it's obviously, you know, I don't like the tax tail by the dog, blah, blah, blah, but, you know.

4:17It's, yeah, until I read this question, it's like, actually, I've never really thought of that.

4:23Pete Matthew: You get this double income, you know, and double allowances and stuff like that, and then one disappears. I suppose with the mortgage out of the way, I know it's more taxable income, but with the mortgage out of the way from the lump sum and the life assurance, I suppose your widow, Duncan, could put more money back into her pension from the lump sum. Assuming this headroom. Exactly. As if there's a headroom. Which we have presumed there is. Well, it's£75 ,000. Yeah, yeah. So from the lump sum, she might be able to load the pension for the next two or three years using carry forward to take some of that up to get tax relief.

5:03Yep. So you should pay the tax, but claim some of it back through the pension perhaps?

5:08Pete Matthew: Yes, but it would definitely lend itself to a problem, wouldn't it? The fact is, if they're still earning$75 ,000 and then there's$40 ,000 a year worth of survivors DB added on, it's going to present a problem. They're going to be in the sort of 60 % notional tax bracket at the top there. So I guess, I mean, investment bonds, they're not going to do anything about the incomes. No, not at all. So you could invest along some so as not to make your income tax situation or your widow's income tax situation worse in the present, you know, by being taxed on income or interest or whatever or capital gains.

5:47Pete Matthew: So you're right that bonds only defer tax, though. But that's kind of the point in this case, because, you know, when they retire and their income is a lot lower and maybe now they're basic rate taxpayers, then yes, you could start drawing off the bond and there wouldn't be, you know, the tax implications would likely be much more benign than if you just left the money uninvested at this point. It's actually a pretty good idea, potentially at least. You know, investment bonds are not the sort of things you can DIY. They generally still have to be arranged by an advisor. there are two flavours of investment bonds, onshore and offshore.

6:26Pete Matthew: This is why they generally are the purview of advisors. So onshore bonds aren't so tax efficient while the money is in there. They're pretty good if you're a high rate taxpayer though, because essentially within an onshore bond, income tax is deemed to have been paid at 20%, right? So the company pays corporation tax, the bond provider, and that is kind of sort of credited to you. It's like it assumes that it pays for your basic rate tax, right, rather than it being kind of double taxed. So that means that down the line, it assumes that basic rate tax has already been paid on any gains and stuff.

7:05Pete Matthew: So it means it's even better. It's certainly very good if you're a high rate taxpayer when you invest and you're a basic rate taxpayer when you surrender or take money out of a bond. There's the 5 % rolling allowances, which are really good. So whatever you put in, you can take 5 % out a year with no tax implications at all, no immediate tax implications. It would be factored in when you subsequently down the line do a full surrender. You've got top slicing relief, which is a way of essentially dividing any gains across the years that you've held the thing. All these calculations interplay. It's actually not a bad idea.

7:43Pete Matthew: This would be a scenario where investment bond might make sense. definitely but then you could then say well okay why not just drop it into a GIA and ice the money bed and ice every year that much half million quid that he was talking about yeah so I mean yes there's still an element of that in there there is and again it doesn't have to be one or the other it could be a bit of both no but yeah this is exactly the area where an investment bond historically has been sold to higher taxpayers throw the money while you're a higher taxpayer but actually when I retire then I'll be a base of a taxpayer and then you can take your capital out So you can have your 5 % a year, and if you haven't used them, you can cumulatively take them out as well.

8:20Pete Matthew: Yeah, that's true. So basically, Duncan. You're thinking right. Yeah, thinking like a financial planner. Good shout. Question two, Rog. This is from Owen. Says, hi, Pete and Rog. Huge fan of the show. Everything I'm doing is thanks to you guys and Damien. Good old Damien. So Owen says, I'm 35, and I managed to get myself into a decent position. I built up a six-month emergency fund. Also, I have a SIP, Stocks and Shares ISA, Stocks and Shares Lifetime ISA, as well as my workplace pension, an RAS scheme, a minimum 5 % and 3 % or an employer 3 % as no option to salary sacrifice or increase the employer match.

8:57I claim back the additional 20 % tax relief, which then funds my Lifetime ISA for flexibility. In total, my long-term savings sit at around£65 ,000 currently. I'm married and have a homeowner with about 25 % equity, no children. I have a military DB pension worth£6 ,800 a year at state pension age and it's index linked and I don't want to take this early. I expect to receive the full state pension when I retire. My wife is ahead of me regarding DC pensions though she doesn't have a DB pension. Here is my hypothetical scenario. Say I aim to retire at 60 and want to use my SIP and ISIS to cover me until state pension age at 68.

9:34Ignoring growth, inflation and any changes to the state pension age and assuming current tax plans for simplicity, if I crystallise£134 ,000 in my pot, I would get£33 ,500 tax-free, £100 ,000 would then go into a drawdown pot roughly, and I could then withdraw£12 ,570 per year using my personal allowance to run this down to zero. The remainder of the SIP would stay uncrystallised for future PCS, pension commencement lump sum, or UF plus withdrawals. So my question is, theoretically, does it make sense to crystallise a portion of my SIP for a small tax-free lump sum, and then withdraw$12 ,570 per year without paying tax on the crystallised taxable portion until my state pension starts?

10:14Or would off-plus withdrawals make more sense from the start or am I over-complicating things? I know it's a long way off, so my main focus is building the pots and enjoying life. Thanks for all the fantastic work you do, Owen.

10:24Pete Matthew: Glad you said that at the end, Owen, because we would have said that to you. You're 35 and you're thinking about what's happening at 60. I mean, it's good to plan, right? Yeah, it really is. That's 25 years hence, so a lot can change between then. I mean, off-plus might not be a thing. You know, tax-free cash might have changed form. We just don't know. So we can only plan based on what we know. So would you then do a big crystallization, bank the tax-free cash, and then draw the rest as, you know, as 12 ,570 for a few years until it gets to state pension age? Or would you off plus as you go? I think that's broadly the crux of the question.

10:57Yeah, it comes down to whether you need the£33 ,500 at the start. Sure. because if you don't need the 33 on top of the 12 so you can say actually in the first year I get 33 plus the 12 I get 45 ,000 pounds worth of tax free money the problem is then the following year do you then do the same thing so I'm of the bent that I wouldn't crystallize more tax free cash than I need at the time of doing it because the less you take out of your Unless you crystallize, the more your pot can grow to give you more tax-free cash in the future.

11:37Pete Matthew: Exactly. Right. Yeah, I agree with that. So in this case, I would probably look to Off Plus if you don't need the tax-free cash lump sum up front. Yeah. You've got to start with need as well. My only kind of concern is it's like, well, I don't want to pay any tax, so I'm going to limit my withdrawals to$12 ,570 per year, which is fine, you know, as long as you've got other places to draw from. But you've got to start with your need, right? So start with what's going out and then work out how you're going to meet that need as tax efficiently as possible. And it may be that you've already done that and you just sort of haven't included that in the question.

12:13Pete Matthew: But don't start with, I can only take$12 ,570 out of my taxable bit of my pension because other than that, I'll pay tax. It might be that, you know, your needs or your wants at the time require that you actually do pay some income tax. So, but yeah, you think it is right, but I think I would off plus in this case. Yeah, because you can take, what, 16, just over 16 ,500 pounds. 16 ,760, yeah. So that will all be tax-free technically. Yeah, as long as there's no other income, but then everything else remains uncrystallized and you can, you know, that means your latent sort of tax-free cash is continuing to grow with your pot.

12:52Pete Matthew: Yeah. Yeah, for sure. Right, question three. Is this me again? I thought I did the last one. No, you did the last one. Right, question three. James, with Friday night beers at stake, my insufferable know-all brother and I are looking to settle a DB pension argument by seeking a definitive answer from the most trusted of sources, Pete and Roch. He, my brother, argues that employee contributions into a DB pension scheme are entirely irrelevant. Although I accept that those contributions aren't used for the annual allowance test, it's the pension input amount that matters. I believe that the value of the employee contributions are important because they form part of the 100 % of relevant UK earnings test.

13:35Pete Matthew: Therefore, if he's looking at contributing to a SIP, in addition to his DB scheme, those employee contributions would be very relevant, would they not? Much obliged, even if I'm wrong. James, over to you, Roger. All right. I'm sorry to say, James, I think your brother's right. Whether it's£8 ,000 you pay into your DB scheme or£18 ,000 or£4 ,000, it doesn't make a jot of difference if you are then putting money into a SIP. It's the pension input amount that's the big crux of the whole thing. Because your employer puts money in, you put money in, nothing of that matters in the calculation of those figures.

14:15it's the pension input amount, how much your pension benefits have changed from last year to this year.

14:23So, in theory then, if I were to take this back to brass tacks, I could say to you, okay, say you had a salary of£80 ,000 and you paid£8 ,000 in, and the DB pension input was£25 ,000.

14:37Pete Matthew: So they paid£8 ,000 for employee contributions. Employee contributions in. Right, but the pension input amount is£25 ,000. £25 ,000. Okay, yeah, got it. Yeah, so if the allowance is 60, then you can only pay another 35 ,000 pounds. Yes. Okay. So if I said, okay, let's take this back to a horrible situation whereby you've paid 8 ,000 pounds into the pension, but because you've taken a pay cut, your pension input is zero. Ha! For whatever reason. So you've taken a pay cut and your pension benefits haven't increased and your pension input is zero. You've paid 8 ,000 pounds into your DB scheme. If you've got earnings of 80 ,000 pounds, you could still put 80 ,000, £60 ,000.

15:13Pete Matthew: Yeah, or£80 ,000 if you've got carried forward. Into a pension, ignoring the£8 ,000 you've already paid. Yeah, because there's no input amount. Because the pension input amount has a bearing on what you can then put in to a pension, which is based upon 100 % of your net-relevant earnings. I tried to work out how I could say that in a way. So you could actually pay£88 ,000 into pensions, even if you only earned£80 ,000. And I stand to be corrected by somebody else. But I mean, that would be the crux of it. if you didn't have any pension input for whatever reason. Yeah, a bit weird set of circumstances, but it is theoretically possible to have a zero or even a negative pension input amount.

15:50Yes, you could do.

15:51Pete Matthew: Under a DB scheme, but it doesn't happen often. Yeah, that'd be very difficult to come by. But in this circumstance, so you had a salary of 80, you paid an 8 ,000 pounds as a personal contribution into the DB scheme. It's the pension input that affects what you can put in. You ignore the 8 ,000 pounds. It could be 18, could be four. makes not a lot of difference I'm afraid you're paying for the beers yeah so useful rule of thumb don't deduct DB employee contributions when you're working out the maximum personal SIP contribution for tax no not at all but do include the DB pension input amount when working out remaining annual allowance that's your rule really good question yeah good question sorry that you're paying for the beers I'm sure you'd probably pay for the second one because he'd be a bit smug about the whole thing yeah I'm sure definitely charge him a smug tax right It's question four, Daryl says, Hi, Rog and Pete.

16:44I've been binging your Q &A podcast as well as following Pete's YouTube videos and I can't thank you enough. I had IFAs up until last year and always felt that I didn't really get much from them for the fees they charged. Your wealth of information has only sought to reinforce that I've made the right decision to go it alone and move funds to a flat rate pension platform without advisor overheads. Good job. Some background. I am just 61, work at a job I enjoy with no plans to retire, although I will reduce my hours over the coming years. Post-pandemic, I have real realigned my attitude to money and become more free and easy with spending, having reached a point where I really don't expect to run out.

17:23I have sips of just over a million pounds. The main part of this is I have fixed protection 2016 of 1.25 million versus the original lifetime allowance. This allows me an extra£44 ,000 of tax-free cash saving, about£9 ,000 a year in tax. I believe making further contributions invalidates the protection and so I haven't paid into a pension since I left the bank in 2011. Is this correct now that LTA, lifetime allowance, is a defunct concept or could I resume some contributions may allow for some finesse of my second question here. Originally, I believe that any withdrawals above the fixed protection figure would be taxed at 55 % as per former LTA rules.

18:06Is this still the case or is it now just at marginal rate?

18:08Pete Matthew: Is that a niche question? It's a really good question. But so whether or not your fixed protection is invalidated if you contribute depends on when it was granted. Yeah. Which I had to look this up. This is niche, right? So if you were granted fixed protection 16 before the 15th of March, 2023, which I assume was the budget date that year. Yes. Then you can contribute to your pension and keep the protection. That never used to be allowed. No. Right. But if it was granted after that, you will lose the protection if you contribute. I mean, what is the point of that? Yeah. What? So in other words, if you applied for it before they changed the rules, then you get to keep the protection, but you can contribute.

18:51Pete Matthew: But if you applied for it after they changed the rules, you will lose the protection if you contribute to your pension. That makes zero sense to me. I suppose the government's thinking that fixed protection in 2016 was a long time ago. and if you did it for the right reasons, you would have done it at the time. And if you're doing it now, it's just so you carry on paying in. That's a bit naughty. The other bit there is, would any withdrawals over the fixed protection figure be taxed at 55 %? That's not the case now. No, it's just marginal right now. Okay, good. Right, carry on. My original drawdown strategy was to exhaust my tax-free lump sum allowance and then draw within the base rate tax, thinking this would maximise my tax efficiency.

19:30However, with the advent of IHT and some of your Q &As, I've started to wonder whether I should be drawing my available base rate tax balance via UFPLUS in order to build up a fund in Stocks and Shares ISAs with investment profiles mirroring the drawn SIP in lieu of significant future spending and gifting. Instead of withdraw at the time and partially incurring HRT or even more punitive IHT as my daughter and partner are high rate taxpayers.

19:57Pete Matthew: A tortured sentence. Yeah. Okay. I am modelling this via spreadsheet but not yet formed a firm conclusion. I feel like I've got to sort of take stock here. So does he draw within the basic rate tax balance earlier rather than leaving his pension to build up and potentially paying higher rate tax later? Yes. Okay, thank you. Carry on. My question is, does incurring basic rate tax early to reduce future higher rate tax through gifting make sense or might I be better just taking out a whole-of-life policy in trust for an estimate of the possible IHT and not make my drawdown overly complex. Okay, we're going to stop there as well.

20:34Pete Matthew: Yeah. Okay, so yes, it can make sense. Yeah, it does. I've advised clients to do this quite a bit because surely better to incur income tax at 20 % on a pension rather than inheritance tax at 40%. If we take it right to the far end, inheritance tax at 40 % and income tax at the nominal rate of the beneficiaries. Which could be another 40%. Yeah, if it's after age 75 when they die, which could be another 40 % or even 45 % or whatever, higher in Scotland. So, I mean, yes, I mean, that's just math. You would pay 20 % and give it, you know, gifts from income exemption, because then you're only paying 20 % on it as opposed to waiting and then they get it after you've died.

21:14Pete Matthew: It's even better to pay 40 % income tax later in life, say, because you've got state pensions kicked in or whatever. And so you draw and pay 40 % because even that's better than 40 % inheritance tax and 40 % income tax in the hands of the beneficiary. So it's a question of how much tax do you want to pay, really. In a sense, the earlier the better. So I would definitely, in fact, we're doing this for pretty much all clients. As a very brief aside, our job, I kind of, James Shatt did a brilliant video on this, is to essentially balance three things. Lifetime income and tax, your legacy goals, and then diversity of withdrawal sources.

21:52So in other words, having pensions and not, yeah, ISIS and stuff like that.

21:56Pete Matthew: But this is a classic sort of balancing lifetime tax versus your legacy question. You know, incur some basic rate tax and give it away now. Incur some high rate tax later on and give it away later on, you know, which will probably mean you'd be able to give away slightly less because you'll have paid more tax. Or, you know, sack it until the end and then they pay a ton of tax at the end. You've got to balance those for yourselves. Right, back to you, Rog, because he's also saying should he take out a whole of life and trust? So, carry on, but we'll be higher. Right, so Daryl then says, I've been looking a little into the life insurance angle for potential IHT and spoke to a life insurance company.

22:33Their default position is that any policy should be joint life, second death. This seemed like a scripted response to me. I envisage£200 ,000 will be ample. I feel that just insuring myself would be more cost efficient and would work perfectly well, even if I pass away first. The result of funds would simply be available earlier and then capable of growth to cover the eventual IHT, if there's any. Part of this thinking is that I'm 61 in excellent health with no adverse family history and longevity of my parents and grandparents. Without going into detail, my wife is 63, has had recent serious health issues, and her family history does carry some risk factors.

23:10Am I missing something obvious, as I can't see any logic as to why delaying the payment of funds for a future IHT bill should be a bad thing?

23:18Pete Matthew: Delaying it by having it in second life rather than first death. Well, I mean, obviously... It adds to the problem. It would add to the IHT bill unless it's in trust. Does he mention about trusts? No. Yes, he does. It might be better just taking out a whole of life in trust for an estimate of the possible inheritance tax and not make my drawdown. So, I mean, these are two very different things. So either draw down incur income tax but make gifts for income and hence reduce your inheritance tax or not worry too much about that, not make the drawdown thing overly complex. take out life insurance, put it in trust, and make a guess at what the IHT will be.

23:57Pete Matthew: So the odds are here, given ages and given wife's health issues, I mean, we're talking the odds here, certainly not a certainty, is that you, Daryl, will be the second to pass away. The odds are. So wife is 63. So your wife's a little older. She's had health issues. Family history is against her. so the odds are probably that she will pass away first. So we hope you both live long and happy lives, right? But, I mean, in which case, probably any life insurance policy would broadly be on Daryl's life anyway. The chances are that she wouldn't get it if she's had recent serious health issues. It does depend on what they are, and there are specialist advisors who can help get cover, even if there have been recent health issues.

24:46Pete Matthew: Our good friends at Cura, we need to put a link in the notes for them that's cura c-u-r-a so those guys are brilliant at placing insurance where there's been health issues I I do wonder if we're not sort of slightly over it, I mean trusts so Darrell is saying what, he takes out whole life insurance for an estimate of what the IHT might be it pays out on the first death into trust but it then grows hopefully to cover the eventual ICT. Okay, but I mean, trusts are really tax disadvantageous. Yeah. You know, depends on the kind of trust. Yeah. And the premiums would be classed as gifts out of income anyway.

25:34Yes. Because you'd be paying the amount of income to go into your life policy. So that's the problem. It'd just be an expense. Yeah.

25:43Pete Matthew: I don't know. Well, yeah, it sort of makes sense. I'm not sure if this is an either-or thing. No, no. I mean, by providing a life insurance policy, you're not mitigating the inheritance tax. You're just paying it on the drip, and you're paying hopefully a much smaller amount because the premiums. But, I mean, whole-of-life policies, depending on the kind of policy, the premiums will be high, or they could start a bit lower, but then they get very, very high later on. If you end up living until 95, five, you could be paying thousands. Well, that's the other thing, is even on a balance plan, or on a fixed plan, if, and Daryl looks like he's going to be living a long, long, long, long time, you could end up paying more in premiums than the actual policy would pay out anyway.

26:28Pete Matthew: Potentially, particularly with the rising, you know, if the policy of premiums rise. As Pete quite rightly said, is that what you're saying is, you'll still pay or your children will pay the inheritance tax for you off your estate, but if you took the mitigating factors by gifting now you'll reduce the tax liability so you'll see your beneficiaries getting the use of the money during your lifetime and the joy that will bring you in doing that knowing that actually you've saved the tax as well as giving them the money early rather than say okay I'd rather just put some money into a life insurance policy to pay the tax that will still be there yeah yeah honestly this is definitely not an either or thing I think probably the biggest win would be these regular gifts it's funny it's slightly difficult to identify an actual sort of single question in there but you know I think simplicity is good don't overthink your drawdown yeah I feel like I've done a good job answering that really but you could model all these things in Voyant so you could compare.

27:40Pete Matthew: You know, what if I do take a life insurance policy and how might that grow? You know, you can model that stuff in Voyant. So if you're a Meaningful Academy member, then that will help you do that. Meaningfulacademy.com slash retirement planning. Use the coupon code podcast for a discount if you sign up, Daryl. So you can model this stuff. So you could compare like for like and you could compare the impact of regular gifts as well and reducing your eventual estate accordingly. You could pick a strike date of say age 90. let's say you die age 90 and your wife passes away before that what might be your legacy at that point what would be the value of your estate based on those two different scenarios i would be looking to reduce your estate by gifts personally do real good work there i think i used the example before we incurred a client recently on their plan they were about 65 we incurred them half a million quid worth of extra income tax between 65 and 90 but in so doing save them two million quid in IHT.

28:33Pete Matthew: Big numbers. Right, this is question five from Gary. Hi Roger and Pete, recently discovered your Q &A podcast and I'm currently enjoying going through your past episodes. I have a question that's probably quite a simple one. I kind of hope so. But I'm having trouble finding a straightforward answer on the usual Google route. My wife passed away a couple of years ago. Sorry Gary, that's crap news. It was only then that I discovered the APS, whereby an additional ISA allowance can be passed on to the surviving spouse up to the value of any ISA held by the deceased at the time of their death. My wife had only recently started saving into an ISA, so the value of her holdings was only about$25 ,000.

29:12Pete Matthew: Just for simplicity, at a very difficult time, I used the APS by staying with the same building society, Skipton, and opening what they call a legacy ISA for that amount. A couple of years later, and the rate on that ISA is now pretty rubbish at 2.4%. My question is, is this account now just a normal cash ISA in my name, and can I just transfer it into a more favorable account with a different provider? Thanks both. Keep up the good work, Gary. Simple answer to this one. Yes. It's just an ISA now. Yeah, just an ISA now. It's weird because, I mean, a lot of providers say, oh, right, it's an APS subscription, and because of the way they've written their platform software or whatever, it simply can't cope with putting more than 20 grand into an ISA in a given year.

29:53Pete Matthew: so they have to create a kind of dedicated account called an APS ISA or a legacy ISA or whatever but basically now once that money's in the APS as you rightly say Gary is a subscription allowance a one off extra allowance but once it's in the ISA it's just an IC you can transfer it where you want yep nice easy question nice easy one well fly into number 6 then yeah this is from Steve says hi Pete and Roger just want to start by saying that you guys are great and thanks for all that you do helping us with our financial questions we bring to you also a separate shout out to you, Pete, and your daughter for launching Bank of Dad podcast.

30:26Producer Kate. Yeah, well done, Kate. Very timely, as I want to help my 19-year-old daughter understand finance more, but in a simple way, and you both deliver. Ah, good to hear. Thank you, Steve. Nice to have that feedback, Steve. Thank you. My question is regarding inheritance tax. Oh, again. I understand that inheritance tax is due if the IHT threshold is exceeded, and I've learned that roughly 4 % of the UK population pays inheritance tax. However, what I'm not clear on is if an estate is well below the IHT threshold, e.g. £1 million for a couple, can unlimited gifts of any amount be given knowing that the estate will never exceed the IHT threshold, thus no IHT will need to be paid?

31:03As an example, my parents have started to gift generously, gradually depleting their wealth while still alive. They use their annual£3 ,000 gift allowance, as well as gifting from surplus income from their pensions. But their estate is nowhere near the£1 million IHT threshold. Along with further gifts can be made, we are aware that the seven-year timeline rule, but again, if their estate is nowhere near the IHT threshold, is this a concern? As an example, can my parents gift myself and my sister large sums randomly over the forthcoming years without needing to worry about the IHT seven-year timeline rule and us paying any IHT?

31:39Apologies if I've waffled on. I hope my question makes sense. Keep up the great work, Steve.

31:44Pete Matthew: Well, gifts make up the nil rate ban first. So the million pound thing is obviously two lots of 325 nil rate ban and two lots of 175 ,000 pounds residence nil rate ban. Add all that together, you get a million quid. And so if the estate is nowhere near that, you need to just be careful of property value. So if the property is less than the combined residence nil rate ban, if it's worth less than that, then you wouldn't get the full residence nil rate band. So your combined nil rate bands is what? 175 times 2? Thank you. 350? That was weird. 350 ,000. If the house is only worth 250, you'd only get a residence nil rate band of 250.

32:25Pete Matthew: So that's a factor, right? So you wouldn't get, it wouldn't be a million pound threshold, then it'd be a 900 grand threshold. So be careful. Yeah. Right. Important. Gifts, so not gifts using the 3 ,000 pound allowance and not gifts from income, those are exempt. But any other gifts or the sort of large gifts that you selflessly talk about here, Steve, they would take up the nil rate ban first. Now, it shouldn't be an issue. If the gifts plus the estate on death, if that all comes to less than your total nil rate bans, then it's not an issue. But if, let's say, parents give you a nice gift and then they maybe have a significant premium bond win so that their estate is back up to somewhere near the million quid, say, right?

33:16Pete Matthew: Then the gifts they've given you in the seven years prior to their death, they take up the nil rate band first, essentially, leaving less nil rate band left for your estate on death or their estate on death. So tread carefully. Broadly right, though. Yeah, and the worry would be, you know, if the property prices go up as well and then suddenly find actually I give these gifts and I'm at 950. Oh, I'm well below, actually. But if you add the gifts back in, hold on a minute. Yeah, it might be over. But it's always one of those great things than the pub. I never go to the pub. But you talk to your mates in the pub saying, well, look, you need to be given half your property away because it's your inheritance tax and all that sort of stuff.

33:51It's like, well, I'm only worth 600 ,000 pounds. Yeah, it doesn't really matter.

33:55Pete Matthew: No. It's that voice again, isn't it? It is. Old people link pubs to it like that. And then that one with a vaguely Cockney accent. All right. You've got to give your ass away, mate. I don't know why. The other thing to think about, just with gifts, IHT is one thing. Care fees planning is another. Now, if their estate is more than 28 grand, they're going to be paying care fees anyway. But obviously, gifts made within a reasonable timescale of local authority help being needed for long-term care could be deemed to be deliberate deprivation of assets and would be factored in for local authority calculation when it comes to contribution towards care fees.

34:33Pete Matthew: probably not an issue because it sounds like mum and dad's estate is well over any you know maximum threshold they're going to be paying for their own care anyway so it's probably moot but just be aware large gifts in later life could be factored in for a local authority care fees calculation but other than that that is about it so that was also a fairly simple one yeah a couple of simple ones a couple of long ones in there yeah nice one to end yeah it's lunchtime isn't it yeah I think it probably is yeah it is and I need to get rid of the shirt so I hope those answers were helpful please do keep them coming in to hello at meaningfulmoney.tv with a subject line podcast question and we will try to include them at some point in the future as we can I think we're now on April April not quite into May's questions so we're recording at the end of June so we're not doing but this won't be going out until the end of July so yeah keep them coming though we've still got loads in hand so do keep them coming we are enjoying doing these and obviously we're 56 episodes of Q &A so far but that's it for this one notes and links are at the show notes meaningfulmoney.tv slash QA56 hope you enjoyed it thank you so much for listening and watching thank you Mr.

35:37Pete Matthew: Roger Weeks we'll see you next time cheers