What next for interest rates and how bad will it get for mortgages?

0:02Lee Boyce: Welcome to This Is Money podcast sponsored by Trading212. Download the Trading212 app today and open a cashizer with promo code TIM to get the 12-month bonus promo rate of 4.69%. Terms apply. I'm Georgie Frost and joining me and Simon Lambert today is Lee Boyce. And coming up, interest rates are held, but how much longer? Mortgage rates are soaring, but how bad will it get? Good news for savers, though, as fixed rates climb, we reveal the best buys if you're happy to lock your money away, plus how to cash in on the bond market mayhem, even if you're a beginner. We talk inheritance tax allowances if your estate tops£2 million.

0:38Lee Boyce: And should you do a rock-off and move to Greece? From property prices to tax, we reveal what you need to know. Don't forget to stay up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. But first, interest rates haven't budged for nine months after the Bank of England kept them at 3.75 % this week. Unfortunately, though, mortgage rates have. Five-year fixes are now at their highest level since 2023, and lenders have been hiking rates across the board. So why are mortgages getting more expensive when the Bank of England hasn't done anything? Lee, welcome.

1:14Lee Boyce: Simon, welcome. The rate decision. Just keep us up to speed. What happened? and importantly, what was said in the minutes?

1:22Simon Lambert: Well, yesterday's rate decision came hot on the heels of the Fed rate decision the night before. And that is important to put it in context. And in the US, they voted to raise interest rates. And they didn't just vote to raise interest rates, they voted to raise interest rates 12-0, that was the vote. And also, I think probably you could go 12-1, really, because you've got the 12 members of the Fed committee, and then you've got one One very important person, certainly in his own eyes, Mr. Donald Trump, who is very much of the conviction that they should not be raising rates and they should actually be lowering rates.

1:59Simon Lambert: And there's a huge amount of pressure from Trump on the Fed being placed on the Fed and the Fed still raised rates. So the question is, why didn't the Bank of England? The Bank of England held. But the vote here was six to three. That was the split. The minority backing a hike did increase, though, and it included the Bank of England's chief economist, Hugh Pill. So this comes even as the bank is predicting inflation to go up to 4%. And the really scary number that was bandied around this week, other than mortgages, which we're going to talk about in a minute, was potentially the energy price cap surging 24 % in January.

2:41Simon Lambert: I mean, haven't we missed any surging energy bills? So much, Simon. Gosh, it's been so long since energy bills went through the roof. And Hugh Pill basically said an increase would send a clear signal of a commitment to hitting the inflation target amid the fog of geopolitical conflict and data noise. But Andrew Bailey said there was very limited evidence of the energy price shock spreading through the economy, causing second round inflation effects. so a rate rise is still on the table it could come before the end of the year it's probably quite likely to maybe come before the end of the year but we might be going on a bit of a

3:23Lee Boyce: divergent path to the us perhaps what people want to know mortgage rates why are they going up what's

3:30Georgie Frost: happening there well the way that banks uh price mortgages is linked slightly to the base rate but it's more linked to swap rates than Sonya swap rates in the way the banks borrow money, essentially. And that rate has been nudging higher. And actually this week, at the start of the week, we saw the five big banks all make big rises to their mortgage rates. Some of them now are not offering sub-5 % rates again, which is going to be a worry for anyone that's going to be remortgaging soon or trying to get onto the ladder. And there was then separate data this week suggesting that the average five-year fixed-rate mortgage is now at a high, not seen since November 2023.

4:11Georgie Frost: So we are seeing mortgage rates now going. We had it at the start of the year when the Iran conflict sort of first broke out and mortgage rates started to surge a bit higher. They've fallen back a little bit over the summer, and now they're going back up again, and they've surpassed where they were at when the Iran conflict first started. and i think that georgia it's adding to some of the economic gloom that feels like it's sort of spreading uh this week because as simon said energy price cap potentially going up by 25 in january just as the cold weather bites that's not great for households that could potentially be another few hundred quid a month you're going to have to find for energy but all petrol prices are going through the roof um you know there's some uh four quarts now charging two pound a litre of diesel that that is high unleaded isn't quite at those same highs there's three quarters of a million people who are coming off of five-year fixes uh from 2021 and 2022 in the next sort of time period six to nine months who some of whom are still on ultra low mortgage rates of 0.9 percent uh from five years ago there you know feels like a lot of life and a lot of stuff has happened in the last five years those people could be coming to face a seismic shock and how much they're going to have to be repaying on their mortgage now hopefully you'd like to think that they've chipped away at some of their you know some of their mortgage so they won't be remortgaging at as high amount as what they did five years ago and i'd also like to think that especially if you're in this boat if you're one of our listeners or readers that you would have made haywire the sunshine moved at that rate is probably not going to be that low forever and started tucking and tucking away money elsewhere overpaying mortgage all that kind of thing but that's going to be another few hundred pounds potentially uh that people are going to be having to find it's a lot of money it's all starting to build up georgie it's all starting to build up for for households and there's a kind of a blanket of gloom it feels like

6:12Simon Lambert: it's kind of arrived just to put that into a real world context i alluded to this last week when we But I actually know one of these people, my little sister. Her five-year fix rate is coming to an end. She has been on 0.99%. And she spoke to a broker this week. She spoke to LNC, who does This Is Money Mortgage Service. You know, it's fee-free. You can use it. You can find out what it's going to cost you. And 4.88 % is the rate that she has been offered.

6:43Lee Boyce: From 0.99?

6:44Simon Lambert: On a three-year fix, yeah. So she's going from 0.99 to 4.88. They are in the fortunate position where obviously thanks to a five-year mortgage. And they've got relatively high equity in the property. So it's quite a low loan to value. So they're getting some of the best rates that you can get. And I think I seem to remember that's probably going to push up their monthly payments by about 350 quid. 350 pounds is a hell of a lot of money to have to find extra each month. Most people do not have 350 pounds knocking around. I know for one when I faced a similar thing, probably this time last year, it was a seriously detrimental hit to the amount of monthly disposable income we had, i.e.

7:26Simon Lambert: it basically wiped out most of the monthly disposable income.

7:29Lee Boyce: Simon, just a quick one on where this is going to head. Lee's spoken about a blanket of doom or gloom, doom or gloom either way, both. In terms of interest rates, who knows it's so unpredictable at the moment?

7:42Simon Lambert: I mean, I don't think there needs to be a blanket of gloom. We've got the budget to look forward to.

7:48Simon Lambert: Silence. Listeners, you could have heard a penny drop. The absolute silence from Georgie there. You're like, yep, we're not talking about that. You can't predict what's going to happen. If you take the scenario where President Trump comes to his senses, somehow this sort of ongoing conflict with Iran that goes up, goes down, goes up, goes down, manages to get sorted out, then all of a sudden a lot of the things that people are worried starts to dissipate and to go away. Or you look at it and go, actually, I'm on Trump's side and I agree with him. We need to crack down on Iran and we need to do something about it.

8:33Simon Lambert: And it's not going away and it's going to get worse. Or we just keep bouncing around the middle somewhere, which is what we've been doing, you know, since the conflict started. And, you know, we just don't know. I mean, you know, how bad is the inflation shock going to be? At the moment, it's not that bad. But we do know from recent experience that it could get a lot worse. And the central banks are very, very keen to stress that, you know, they are going to see how things unfold and they're going to act accordingly. They don't, as Andrew Bailey said last week, have a secret plan and then they're just going to stick to their secret plan.

9:14Simon Lambert: But they are going to be quite serious about cracking down on inflation because they got their fingers burnt last time and they were seen as being behind the curve, which I think is something that has contributed to the Fed raising rates in the face of such weight not to do so. There's one other quite important thing that happened with the Bank of England this week, and that's to do with guilt, which we're going to talk about in a bit. So I won't go into too much detail, but this could actually have a bit of an impact on the budget and potentially even on the future path of interest rates. The bank has started to overhaul the way that it's unwinding quantitative easing, which was the process that involved it hoovering up loads of very, very low rate UK government bonds in order to inject money into the financial system first after the financial crisis and then during Covid.

10:00Simon Lambert: It's been doing something called quantitative tightening which basically involves selling those bonds back into the market. It's selling them at a big loss because the bonds that it's bought are very very low yielding. It's got bonds that yielded like less than half a percent whereas now you could buy bonds that yield more than five percent. So people don't want to buy them so people are buying them at knockdown prices. But what it's also doing is because they're selling bonds into a market that doesn't want to buy them. It's creating extra supply when demand is low. And that's been blamed for pushing up gilt yields even further.

10:33Simon Lambert: Now, the fact that it has decided to basically pause sales of gilts for six months and halt sales of longer dated gilts is quite a big thing. It's a boost for John Healy because it could bring down our borrowing costs. But it could also mean that we maybe see a slight shift in this path of future interest rates off the back of it.

10:56Lee Boyce: As you said, we'll talk about gilts. But before we get there, we're going to talk about savers, Lee, your favourite subject. Because it's better news, isn't it, for savers? Fixed savings rates have climbed above 5 % with the best now paying, at the time of recording, 5.2%. But is it worth locking your money away for many years in order to get it? Lee, what's going on out there?

11:17Georgie Frost: Oh, what's going on out there, Georgie? Savers are kind of getting a bit of a good deal again.

11:22Simon Lambert: That's what's happening.

11:23Georgie Frost: But you've got to remember, we've had the inflation rate this week, 3.1%. So whatever you do, you want your savings to be beating that rate to make sure that your wealth is growing in, you know, actually the power of your wealth is growing. The weird thing about it is that 5.2 % rate, as you say, you've got to lock away for quite a long time. That is a five-year fix. That's a West Brom Building Society cash rise of five years. if you want that guaranteed 5.2 % over five years that might be the home for you but you can get 5 % on easy access up to£5 ,000 might be a handy little home for you that's through spring and then you have one two three year fixes that are paying above 5 % as well so Investec for example have a one year fix at 5 % you've got a minimum deposit on that one of£5 ,000 you can get 5.03 % at GB Bank and 5.15 % at West Brom.

12:17Georgie Frost: Essentially, rates are improving. There's more competition in the market to hoover up savers cash. We saw it recently with the NS &I hikes because NS &I has been failing to keep up with money going elsewhere. There's lots of competition in the market and lots of homes in which we want to put our cash. Lots of people like to stay with their big banking names. And we talked about this recently on the podcast, didn't we? some of the best rates that have been hidden away under other names so for example nat west have this first active saver pays 4.05 percent um nat west is itself just under its own name 4.17 and 4.75 on one and two-year fixed ices nationwide has got three-year fixes at 4.65 and 4.7 so it big banks are also involved as well as all these challenges as well on building societies and you mix that all together and it's good news for savers because you are able to beat inflation by a considerable and comfortable distance without having to lock your money four or five years if you don't want to lock away for five years of course some people do like to lock away their money for that amount of time because they like the guaranteed rate of interest they're going to get but it is a bit of a risk because similar to mortgages it's not completely linked to base rate but it is a big part of the picture for savings.

13:34Georgie Frost: And there are talks of base rate rising potentially once this year and four rises next year. There could be five rises between now and the end of next year. That's what a lot of markets are pricing. That's what a lot of economists say. As Simon just mentioned, that's not completely nailed on because of movements that are happening behind the scenes with the bonds. So it's whether you think rates are going to continue to go up or whether now is a good time to guarantee one of these rates and do it. If you're someone who likes the stability, that five-year fix actually sounds like a pretty good deal, 5.2%.

14:08Georgie Frost: If you're someone who thinks actually rates might continue to go higher, you might want to get a one-year fix or a two-year fix, but there's no guarantee you're going to get as good a rate after one or two years. And if you're someone that's just in the market for an easy access, there's just a lot more better accounts out there now that are paying between 4.5 % and 5%, which is going to grow your money and the power of your money because it's beating inflation.

14:32Lee Boyce: Lee, some Bank of England data that 300 billion, an estimated 300 billion is just sitting around in UK current and savings accounts earning zero interest. And if you had instead put it in a 4 % account or a rate paying 4%, it would give UK savers 12 billion a year in interest.

14:56Georgie Frost: But that's what banks and building societies and financial institutions are banking on. They want you to be leaving money flowing around, not earning much interest. A big part of that will be people who like to put money in their current account. They like the feeling of having a big current account balance that's not earning any interest, but they just like it there. They just think it's like, you know, kind of a big safety net for them. If there's some sort of spending that needs to be emergency spending, that kind of thing. and that's you know at the very worst you should open an account a savings account with your bank even if it's not the best paying rate because it takes hardly any time they've got all of the information pretty much that they need about you a few steps few clicks of an app now and you can probably get a savings account that will you know do much better than nothing in a current account and you know i'm a big fan of regular savers you can get up to eight percent if you're someone that goes the thing is i haven't actually got that much to save and getting four percent five percent on a thousand pounds this isn't worth it they just can't be bothered it's not worth the hassle for a few quid of interest every month again that's what banks and building societies and challenging banks that's what they want you to do they want to make sure that there's a big tranche of money that's sitting around that's not earning any interest again you just get it in there and just start trying to snowball affect your savings and build a bit of a pot up rather than just letting it sit around because you go it's not really gonna hurt me that much interest as a how many people it's not even gonna cover a cup of coffee over the course of the month so what's the point but you have to start somewhere and grow from there and i think there's also to be honest i think there's a lot of older people as well that kind of have a mistrust of some of um you know the banking system and whatnot that just basically don't want to move their money around they don't trusting but we do have the financial services compensation scheme uh net up to 120 000 pounds of savings that's a big net for people per bank uh as well so you know your money is safe as long as you the the savings provider you're putting in has that fscs protection you know make sure that you're utilizing your isa and all that kind of thing and make that 300 billion pounds well i mean that is an extraordinary figure isn't it it's absolutely huge like how is it that we're at that point when there's so much information at our fingertips and things are so much easier um to do

17:22Lee Boyce: these days you know i don't get it things i don't get lee i never understand why people want all their money in their current account personally maybe i'm wrong here but i think because i use my current account so much the opportunities for scammers and things to go wrong is so much greater than if i parked it somewhere where i don't and i can't separate what would be like savings and what we'd be spending. I'd be like, well, spending money.

17:46Simon Lambert: I think that's right, Georgie. And I think it's for me personally, it's less scammers I'm worried about. It's more Simon Lambert. My monthly money management consists of basically taking money away from myself in my current account and putting it in other places so that I can't spend it.

18:02Lee Boyce: Touche, Simon. Talking about can't spend it, though, Lee was mentioning there about how long you need to fix for and what you need to consider. If you're looking at things like five years, should you really be looking at putting it into a savings account or should you be thinking about investing Simon?

18:18Simon Lambert: Arguably not. If you've got money that you can afford to lock away for five years then you should seriously be thinking about investing it. It's unlikely that if you can actually go that money's going there and I can't touch it for five years that you are in a scenario where you couldn't consider investing it. There might be reasons you might definitely need that money in five years time investments can obviously go down as well as up and they have a much better chance of beating inflation and the longer you go the less chance there is that you lose money but five years isn't that long investors are advised to think longer than five years but you should at least be thinking about it and i do think there are a lot of people particularly those with more money often in the older generations you know the kind of 50s and then boomers and stuff like that who've got huge amounts of cash sitting in savings that they could be investing and earning a better return on.

19:13Simon Lambert: The only thing I would say is 5.2 % is really quite a good return. A risk-free return of 5.2 % is really, really good. You know, that is a reasonable return to expect from the stock market averaged over time is 7%. So 5.2 % is not that far behind it.

19:36Lee Boyce: Talking of 7%, the state is willing to look beyond the banks could potentially get even more. Simon, you teed this up a little bit earlier. UK government bonds or gilts are offering yields not seen for years with some returns equivalent to, as I said, nearly 7 % for higher rate taxpayers. So could lending your money to the government actually be putting it in the bank? Before we

19:57Simon Lambert: start what exactly is a guilt just just 101 here how does it work a guilt is the name given to uk government bonds uk government bonds are debt issued by the government for investors to buy so basically it's like an iou so as an investor the government says we want to raise a thousand pounds and as an investor you say okay i'll lend you a thousand pounds and in return for that you're going to need to pay me some interest. And that is what's known as the coupon on it. The bonds are issued by the debt management office, which is the official body that's responsible for raising the money that the government needs to borrow in order to keep the economy afloat, keep things functioning and invest for the future.

20:43Simon Lambert: And the debt management office does exactly what it says on the tin. It manages that debt. It goes, right, we're going to raise a certain amount of money on long dated bonds like 30 years maybe once some on 15 years we'll raise some on 10 we'll raise some on five we'll raise some on two we'll go shorter term and there's a different interest rate on all of those things because the longer you lend money for the less certain you are about what's going to happen over that period of time and the enemy of your return on bonds because you know what you're going to get if you buy a bond when it's issued you know it will pay you five percent every single year until it matures.

21:22Simon Lambert: The enemy of that return is inflation. And the longer out you go, the more things that could happen to inflation. So the government can expect to have to pay higher rates on longer bonds and lower rates on shorter bonds. Now, you can buy bonds when they're issued, at which point you buy them at what's called par value. So the value of that bond, i.e. £100. and then you get the coupon which is say five percent okay and if you hold on to that bond all the way to the end to maturity you will get your money back at the end so you get your hundred pounds back at the end and over that time you've got five percent each year but bonds are also traded on the secondary market and on the secondary market the bond prices can change and that affects the yield so if bond prices go down so if people are willing to pay less than the face value of that bond, then the yield goes up and the other way around.

22:19Simon Lambert: So to give an example of that, if I decide that I'm going to raise some money with a Simon Lambert bond, and I say I'm going to raise£100, and I'm going to pay 4%, podcast listeners might go, do you know what? That guy, he's great. His credit is real good. Real good, great credit opportunity there. I'm very happy to lend Simon Lambert my£100, and he'll pay me 4%. So we do that. But then the bonds can be bought or sold in the secondary market and along comes Georgie Frost. And she says, I'm going to raise some money, but I'm going to do it at 5%. So I'll issue my£100 bonds and I'll pay you 5%. At which point, investors looking at the two things go, well, I like that Georgie Frost too.

23:06Simon Lambert: She is also a great credit opportunity. They go, do you know what? Actually, why would I buy Simon Lambert's bonds that pay 4 % when I could buy Georgie Frost bonds that pay 5%. So anybody in the secondary market who holds my bonds and wants to sell them for whatever reason is going to have to accept less money for them because the alternative is the person who could buy them could just go buy your bonds Georgie. So if your bonds pay 5 % and my bonds pay 4%, the way the maths works is for the yields to even out, someone would only be willing to pay£80 for a Simon Lambert bond. And if they buy that Simon Lambert bond secondhand for£80 and it pays them 4 % interest, because they're buying it for less than the face value, they're actually getting the equivalent of the 5 % interest.

23:54Simon Lambert: And then at the end, they can make themselves a nice gain because at the end of it, I have to pay them£100. And the way that works with gilts, one of the things that's very attractive to people other than the interest they can pick up, is that capital gains on gilts are tax-free. So if you buy a gilt for less than it's worth and then you hold it to the end the gain that you make in terms of like profit the capital gain when you get the face value back is tax-free yeah i know which bond i'd prefer to buy and it wouldn't be the georgie frost one why are they paying so much

24:26Lee Boyce: at the moment and how does it compare with a savings account why would you bother how would

24:31Simon Lambert: you even do it buy them i'm talking about it is easy to do and investment platforms have seen a big rise in interest in this over recent years and there are two things that are going on firstly there are people buying low rate bonds that were issued as i talked about earlier um during the financial crisis during covid when rates were on the floor and you know to put this in context okay joanne hart has written an excellent article uh for us about investing in in uh guilt if you want to find out more, go and read this article, okay? It's on the investing section of our website, right? But five years ago, the government only needed to pay 1 % to borrow for 30 years.

25:18Simon Lambert: Today, well, at the time of writing, this has gone down ever so slightly, it needs to pay 5.9%. That's an even bigger rise than we're talking about those people coming off five-year mortgages, OK, so that's how the environment has changed. And if you can go buy one of those 1 % bonds from five years ago, you can buy it at a real knockdown price and then you can hold it to the end and you can make a nice, chunky tax free profit. Obviously, on a 30 year bond, you've got to wait a very long time. But there's lots of bonds out there, shorter dated ones that people are going out and buying to make those capital gains tax free profits.

25:54Simon Lambert: So that's one thing investors are doing. The other thing like some investors are doing is they're looking at some of these longer dated bonds and going 5.9 % for 30 years. That is a really good return on something that is effectively considered to be risk free because basically the UK government has never defaulted on any of his bonds. and due to the fact that if we need to, we can actually print our own money, we don't need to default on our bonds. So you can pretty much rely on the fact that you're going to get the face value. You're going to get the value of that bond back. What you don't know is what's going to happen to inflation.

26:32Simon Lambert: But people are looking at that as those yields. And like I said with the savings account thing, they're going 5.9%. That's not that far off what I could reasonably expect from the stock market. I'm going to park a chunk of money there. And then if between now and 30 years time, for example, interest rates come down and bond yields come down, then the value of my 5.9 % bond will go up and I could maybe sell it secondhand and make myself a nice tax-free capital gain. So the investment platforms have seen a big, big rise in people buying deals. It's still pretty niche. This is not a mainstream thing, but there's a lot of this that's going on.

27:14Lee Boyce: Just quickly on the how to buy one. So I'm on my investing app here. There are an absolute ton of options available. How do you pick?

27:24Simon Lambert: OK, so there are all different types of bonds. There's different types of bonds with different issue dates. you get index linked bonds which are inflation linked if you just want to go down the simple route of buying a gilt you need to look at the coupon on that gilt so you know what the interest rate is that it pays you need to look at the price of that gilt so what are you paying for that gilt i.e if it's a got a hundred pound face value are you paying 93 pounds you're paying 85 pounds you're paying 60 pounds you need to look at the yield to maturity because that reflects those two things what interest that guilt pays and what you're paying for it and that's the really important number that you need to look at it can be a bit baffling if you don't know what you're doing and you get lost then maybe buying guilt direct isn't for you what you could do is you could invest in a in a bond fund.

28:19Simon Lambert: The problem with bond funds is generally the actively managed bond funds that you get, they're not doing the same thing as buying a guilt direct and then holding it to the end to just pick up that interest rate. They're trading bonds. They're buying in and out of bonds in order to try to deliver either a certain amount of income or a certain amount of growth. So it's constantly moving around. It's not the same as going, I'm just going to buy that guilt and I'm going to hold it. What I think is a middle ground potentially is something that I didn't know existed actually until the other week, which is quite interesting.

28:53Simon Lambert: So iShares has an ETF, the iShares Over 15 Years Gilt Index Fund. And what this does is it targets gilts of over 15 years, right? So the yield to maturity across the portfolio at the end of August was 5.71%. Now, this is an ETF, so it holds a bunch of gilts. It's got 27 different gilts in it. It does obviously come with some costs for holding it, but I think the charges are super low. They're like 0.1 % or something. Lots of people know how to buy ETFs through their platforms. And so that gives you an alternative option. Now, it's not the same as buying a single Gilt Direct, but you might think, actually, do you know what?

29:34Simon Lambert: If I were to buy this ETF right now, I think the yields are probably going to come down and then the value of that ETF is going to go up. But as ever, this is not advice to go out and do something. This is just explaining something. If you do want to buy guilt and you do think this is interesting, go do a lot more reading about it and start with Joanne's piece that we ran last weekend.

29:57Lee Boyce: Bules Simon, thank you very much. Right, moving on, read a question time. My husband sadly died in 2013 and left everything to me. Now, when I die, all my assets will pass to our children, which in theory gives us a combined inheritance tax-free allowance of 1 million. However, our home is now worth about 1.7 million and my savings investments and SIP would take me over the 2 million mark at which the residence's nil rate ban starts to be removed. Is it only my residence nil rate ban that is tapered away while my husband's remains intact from his death? Or will his unused residence nil rate ban be whittled away too and I risk ending up with an expensive inheritance tax trap?

30:41Lee Boyce: Lots to unpick here. Firstly, explain why you would get to one million. Then explain the two million threshold for me, if you would. Right.

30:52Simon Lambert: The standard inheritance tax allowance is£325 ,000. That is the amount that you can pass on free of inheritance tax when you die. And anything in your estate above that is liable for inheritance tax. but a married couple can get to one million pounds and that's because they can pass assets to each other free of inheritance tax and if the person who died first hasn't used any of their inheritance tax allowance the unused inheritance tax allowance passes that other person as well and on the second death it then goes to their estate and it's allowed up to that amount so if you take your 325 000 pounds that can be doubled to 650 000 pounds if you're a married couple or civil partners and you pass on your unused allowance to your spouse who then passes on on their death but there is an extra 175 000 pound inheritance tax allowance per person if you pass your own home onto a direct descendant so and that's called the residence nil rate band and that can also be doubled up.

31:58Simon Lambert: So if you double up the two£175 ,000 allowances and the two£325 ,000 allowances, you get£1 million, which is the maximum amount you can pass on tax-free as long as a£350 ,000 chunk of that is your own home being passed to a direct descendant and that's either a child or a grandchild.

32:24Lee Boyce: Super deeper. But at 2 million, the residence renewal rate ban starts to be removed and therefore you have this issue going on. We're going to have more of these problems, aren't we, Lee? We've already seen inheritance tax becoming a greater issue because of rising house prices. Now we've got the whole pension issue coming down the line next year. There are going to be more of these sort of questions, aren't there?

32:47Georgie Frost: There's going to be tons of these sorts of questions, Georgie, I suspect. And especially as more people cotton on because you've got to remember sometimes that we're in this industry and we kind of live and breathe it and we kind of know all of the changes that are happening and everything that's going on. Sometimes people do bury their head in the sand and don't really kind of fully grasp concepts of what's going on until it's really like on the date or afterwards. So from April 2027, in a nutshell, pensions are going to be included for inheritance tax purposes and it's going to likely double the amount of estates that are going to be in an inheritance tax scope.

33:24Georgie Frost: And as Henrietta Grimston here, the chartered financial planner, who is of wealth managed, talked to this to answer this. She said, in the case you were just talking about this, this is what is such a big concern around changes to the pension rules, because it's twofold. Essentially, not only does the pension now come into the estate for inheritance tax purposes, but many people could also find their residence. Nilban starts to taper as a result. There's lots of little nuances and things that are probably going to come up from this. and people we've been actively encouraged um to save into our private pensions to try and have a comfortable retirement and i think this is what the kind of mumblings and kind of within the industry the kind of issue with it is that you know we've been told this and then you're moving gold posts you know you look at this and you go well the estate's worth 2.7 million pounds i mean you know inheritance tax whatever camp you sit in you could argue that inheritance tax is fair is unfair until the cows come home but you start to put a pension into this whole mix and it starts to affect a whole lot more people and it's gonna i think it's gonna change behaviors in retirement again rightly or wrongly maybe people will spend more you know they will look at this and go i don't want the estate to be the tax massive chunk just go straight to the tax man um and you know it's not probably going to have anymore because you're dead but the forward planning you want your family to benefit as much as possible from what you have in your estate and also live a pretty good life uh i would say again though there are lots of other factors and things at play i've been thinking about this loads uh the last couple of weeks conversations i've had with extended family members and friends for example over the cost of care i mean i cannot believe that the cost of care in this country is absolutely astronomical some of the sums of money that i've been told about monthly are absolutely sickening i mean absolutely mad and i know it's a completely different topic but you know it's there's a there's a lot there's a lot going on there's a lot to unpick but i think pensions in in included in a state for mc 2027 you hit the now on the head right right at the start of the question to be there there's going to be so many people who are going to have questions about it are going to want to know what to do and we're seeing it we've been seeing it for the last year the last six months of a year people getting in touch with their questions because they're quite baffled by it uh to be

35:47Lee Boyce: quite frank i still think especially with the pensions one there's still a few things to iron out the double taxation over 75 i also think that you probably shouldn't include pensions for anyone

35:57Simon Lambert: under 65 but anyway that's just me simon so the answer to the question is basically bad news for our reader who has sent this in. The own home allowance, as you said, Georgie, earlier on, starts being removed if your estate breaches£2 million, and that's at a rate of£1 for every £2 above the threshold. Now, regular listeners may hear the starts being removed at a rate of £1 for every£2 above the threshold and hear alarm bells going off in their own heads. What does this sound like? £1 for every£2 above the threshold? Yes, this is the inheritance tax version of the 60 % income tax trap. And how well does that work?

36:39Simon Lambert: Well, it's not great. It's also another example of a tax where the allowance has been kept in a deep freeze for many years whilst things are going up. And actually, this is something that if you add all of the different elements and ingredients together is worse than the 60 % tax trap, which I'll go into in a minute. Now, I'm not going to try to make you all feel sorry for people whose estates are worth more than£2 million. However, the answer to the question is, unfortunately, the fact that the reader's husband died in 2013 and left everything to them does not mean his unused residence nil-ray band is protected from tapering when the reader in question eventually dies.

37:20Simon Lambert: If the first estate was less than£2 million, the full allowance can be transferred, giving potential combined residence nil-ray band of£350 ,000. however if the second estate is more than two million this will be subject to tapering for an estate worth 2.5 million for example this means a tapered residence nil-ray band of a hundred thousand pounds it's been reduced remember and then when you hit 2.7 million pounds it's gone altogether now 2.7 million pounds is a lot of money but the way that all of these different pieces fit together for people who are pushed over that two million pounds by a pension and die after the age of 75 means that they would face eye-watering effective tax rates on that pension when it is left to someone of up to 91 percent.

38:08Simon Lambert: And the way that works is basically you're seeing residents nil rate bans being removed at a rate of one pound for every two pounds. You're then seeing the pension being pulled into inheritance tax when previously it was inheritance tax free. But you're also seeing income tax being charged on withdrawals on that pension if someone dies after the age of 75. And this is something that I would have hoped that the government would have done something about. Because I think if you're going to pull in pensions into an inheritance tax, which some agree with, some don't, I personally don't think they should be.

38:39Simon Lambert: I think they're two separate things, right? But if you're going to do that, then what you should do is remove the income tax on them. You should not be double taxing people on them. The double tax alone delivers about a 62 % hit. But for those people caught in this, on the threshold of this£2 million thing, it creates a 91 % hit. And you might go, hey, you know what, if you've got an estate worth more than£2 million, well, bully for you, and you deserve to pay a load of tax. But the same effect doesn't apply to someone who leaves a£10 million estate or a£20 million estate. They're not facing those same effective marginal rates of tax.

39:17Simon Lambert: And I do disagree with these bits in the tax system where basically people with less are effectively paying way higher marginal tax rates than people with more.

39:28Lee Boyce: I think that wasn't really what it was meant to be for. Wasn't it supposed to be hitting hard? Those people with 10 million plus, the multi-millionaires and billionaires. But it seems not because you know what they're doing? I was about to say a swear word there. They're leaving the country. They're up sticks and offing to places like Greece. Because for Simon's stat of the week last week, he gave us£330 million. Now, that was the amount that hedge fund billionaire Chris Rockers reportedly paid in tax in 2025. But unfortunately for the Treasury and ultimately for us, Britain's third top taxpayer has, as I said, up sticks and gone to Greece.

40:10Lee Boyce: Why? Well, it's quite attractive. In June, Henley and partners placed Greece among the world's most competitive jurisdictions for the wealthy. So should you, particularly if you have deeper pockets, consider the move. What was the reason given for Chris Roccos to leave?

40:30Georgie Frost: I don't know if he's given a full reason for it. I don't think you can kind of really pinpoint it. But what you can sort of say in a broader way is that he doesn't believe it's an attractive place to run a business anymore. And that Greece has sort of loosened rules and it's more attractive to go and do business out there, just given the high tax kind of system that we have in this country and has decided that Greece is the place for him. Now, I should point out here that moving to Greece as a, let's say, middle class family is going to be completely different to someone who is making, who is a hedge fund billionaire.

41:09Georgie Frost: I think that you've got to make a big kind of leap to go from, you know, someone with assets of half a million to a million to someone who is a billionaire. But to do a Rokos, I think it's quite a good headlight. Should you do a Rokos? I mean, should you up sticks and go to Greece? love greece i think greece is a a wonderful country great climate lovely food friendly people um relatively cheap depending where about you are if you're in a tourist trap probably not so much but if there's lots of little islands it's a beautiful country lovely place greece and i would say if you are someone that's tempted to move anywhere abroad but let's stick with greece the first thing to do is to speak to vetted specialists legal experts who can really tell you your ass from your elbow basically what you need to know about moving to Greece because there's all sorts of complexities like there are in this country around buying a home the taxes that you need to be aware of the legalities all of that kind of thing but let's talk about it broadly the first thing is you've got to think about your residency you know we're not in the EU anymore so what you can do and where you can live has changed and you know financial barriers to entry you know have changed um and it depends from region to region um so you want to where whereabouts you've got to do research and know where it is that you want to buy then you want to go and find out what it's going to take to do that and what you can do as a as a kind of non-resident of Greece and whether you can apply for residency and all of that kind of thing um very different from just buying a holiday home and going out there from time to time and not breaching that 90-day rule of outstaying when you can't.

42:57Georgie Frost: So again, that makes Mr. Gorkos in a completely different sphere to us mere mortals. Some of the tax traps and benefits and things to think about with Greece. So one of the big reasons why it's become attractive to wealthy people is because of the tax benefits. The country does have generous tax rules for wealthy foreigners earning overseas income. And in June, it introduced new tax breaks, specifically targeting venture capital firms and hedge funds as a part of a drive to get more wealthy people from Britain, Switzerland and the UAE or again that's probably why Rocos has gone and done this and its tax or bonuses and dividends in the financial sector has been cut to 5 % from 15 % and the one condition of that is that the company has operating expenses of at least 3 million euros per year in the country so again you can see why if you were a business owner or someone with kind of making a lot of money why this is quite good but again if you're a mere mortal this is why you have to go and get the right financial and tax expert and residency make sure you're not going to outstay residencies and all that kind of thing and also golden visas is another thing that you can consider and think about whether you're going to be investing enough in the country to qualify for a golden visa.

44:09Georgie Frost: One of the things I did quite like about this as well is the climate. We obviously Brits on the whole, Greece is one of probably our top 10 right I would probably just put it in that top 10, just about for a holiday destination. And we tend to go June, July, August, September. It would be incredibly hot. I went last July to Crete and it was stifling. It was between 35 and 40. It was incredibly hot. But it does get cold. It's a very big country and it does get cold in the winter. But, you know, we kind of get tricked, don't we? because we think it's just hot all year round because it's what we're used to when we've gone there but you're going to get uh four to six hours of sunshine a day even in winter which is the big appeal um once you've thought about all of those things georgie um you've contemplated those things you've spoken to your experts you've done all your homework figuring out how much money you've got how much you would potentially um buy property for all that kind of thing is looking on what's for sale um and you could spend i mean i could spend weeks just looking at properties for sale in any overseas country but um greece does have some very beautiful places on the sea on the coast um pools the you know full kit and caboodle for your overseas lifestyle um and you're going shopping and having a look but it's a massive leap i think it's a massive leap for anyone to move abroad especially with a family or a young family and it takes a lot of research the more research the better and actually i think probably the best thing you can ever do in a situation like this is actually find a british family who have moved to greece and can give you the warts and all kind of experience of what to expect what they learned from it and what the good things the bad things all of that kind of thing the trouble is with that is that you can end up just talking yourself out of it like a lot of things in life um you know you can think about these things for months years and never do it and then live with regrets or you might just be someone that just takes the plunge does it and either loves it or hates it it's a big big big decision um and i think again i think a lot of our viewpoint is skewed from like television as well so you know those programs like homes in the sun all that thing you know make it look very sort of glossy and easy and all that kind of thing but in reality it's not and there's probably lots of i haven't really investigated this but i would kind of predict that there would be some books on the topic um and lots of forums and things that you can go and immerse yourself in to go and find out whether or not moving to greece is the right decision for you someone who's moved a few times

46:52Lee Boyce: in life abroad. I would just say be patient, give it time because there'll be things that come up that you don't expect and you can speak to people and prepare all you like and you can go on TikTok and watch lots of videos about it but nothing beats what it's actually like being in a country. And as a little insight into my brain while you were talking Lee, I was curious what is the lowest temperature ever recorded in Greece and it was minus 27.8 back in 1963. So yes Lee you were correct so let's start the week seven it is still possible to avoid the energy price cap hike

47:30Simon Lambert: on october the first but there are just seven fixed rate tariffs that do that the fact that there are still seven fixed rate tariffs that do that is good news however because it means that you could try to switch your energy bills now you could save yourself a bit of money from october but also more to the point there was this suggestion as we mentioned earlier in the show that the price cap could rock it up by 25 % come January. So if you can lock in below even October's rate, I would seriously consider doing that now.

48:02Lee Boyce: Simon, thank you. Lee, thank you. And thank you for listening. That is all for this week. You can keep up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. And if you have any comments or questions for the team or anything you'd like them to look into, Simon.

48:15Simon Lambert: Email us at podcast at thisismoney.co.uk. We had a really good email last week. off the back of us talking about early retirement something that we're going to dig into further talk about whether you should be clearing your mortgage early um some stuff for kind of like quite sophisticated uh you know financial management but the kind of thing that might interest some of our more geeky podcast readers um so email us your comments email us your questions tell us what you think podcast at thisismoney.co.uk and come to thisismoney.co.uk forward slash podcast to find all podcasts past, join the debate and read the comments.

48:54Simon Lambert: And also sign up to our newsletter as well. And you will get the important stories that you need to know about every single week straight to your inbox on a Thursday morning. This is money.co.uk forward slash newsletter. If you like the podcast, you should definitely get our newsletter. You should. If you like our podcast, why not rate us wherever you found us? It helps other people find us too.