Listener Questions – Episode 44

Questions Asked

• Question 1
  Hi Pete and Roger,

  I have been really enjoying your podcast and have learned so much about finance, tax and investments that I did not know before. I enjoyed your episode on inheritance tax.

  I have a question regarding inheritance tax and what happens if beneficiaries are unable to afford to pay it. My parents are wealthy with three properties (mortgages all paid off) and a large private pension, my parents also had a limited company which they used to maximise their earnings by minimising tax. However, me and my brother are average in the financial sense, where we have “normal salaried jobs”, as my father would say. We earn far less than him and hence have much less assets. I own a house but have most of the mortgage left to pay because I only bought it last year. I am also single and live alone on my single income. My brother rents a flat and spends most of what he earns and has no concept of saving/future plans or investments, he does not even have a pension.

  I am under the assumption that the IHT has to paid first before the inherence is released, rather than IHT simply being deducted from the actual inherence itself before distribution?

  When I look at the total of my parents assets, me and my brother have no where near enough money to be able to pay it, due to the large gap in wealth between us and my parents. I tried to discuss this with them a few times but was fobbed off. They don’t have any plan in place, all they have is life insurance to cover each other should one party die, and a simple one page will including just each other and us, no extended family. My brother and mum have no clue about money, and my dad who is in charge of the finances has multiple health problems of late. I am anxious of the day when I will be asked to pay tons of IHT which I might not be able to able to afford, especially because I am single and have my own bills and mortgage, I can’t afford another loan.

  Is there a way to get around this or reduce the burden? If I cannot afford to pay the tax, can I simple “run away” from the situation and decline being a beneficiary, hence shoving the responsibility of IHT onto other family members? I don’t really understand the process of probate, and whether my parents life insurance would pay it, but it seems to be that it pays out to the spouse should the other die, so I assume this would be added to the total assets and hence increase the tax burden should the other die?

  My parents don’t seem to be bothered and are reluctant to discuss this so I am unsure what to do. How do “average/mediocre” kids like me and my brother usually deal with the tax from being born into a wealthy family?

  Sorry if this is a silly question, but I would appreciate any words of financial wisdom.
  Many thanks, Lava

• Question 2
  Hi Pete and Roger,

  I hope this message finds you well. As an avid listener of your podcast for the past couple of years, I want to express my gratitude for the way you break down financial and pension topics that can often seem overwhelming. Your insights have been invaluable to me.

  I wanted to share a personal experience and seek your views on it. After dedicating 42 years working at M&S, I am now approaching 60 and preparing to take my pension later this year. While I am proud of my long service, I’ve encountered an unexpected surprise in my pension arrangement.

  I have a Defined Benefit (DB) pension valued at around £9,000. Per year. However, upon receiving my pension quotation, I discovered that the scheme is structured to pay me this amount only until I reach 65 years of age, after which it reduces by approximately £2,200, a 24% reduction. This reduction is based on the assumption that the State Pension will compensate for the difference. However, with the State Pension age being pushed back, I will experience a reduction in my income before the State Pension begins when I turn 67.

  This situation feels particularly unfair, especially given that at M&S, there are a significant number of women who are lower-paid workers. The unfairness is further accentuated by the fact that the reduction is a fixed sum, irrespective of one's earnings. This fixed sum reduction impacts lower-paid and part-time workers disproportionately.
  I would greatly appreciate any insights or advice you might have on how to navigate this issue. Thank you once again for the fantastic work you do. Your podcast has been a tremendous help in making sense of pensions and finances.

  Best regards, Joan

• Question 3
  Hi Pete and Roger,

  Discovered the podcast and book a few months ago while trying to get more organised with life admin and planning for the future. Enjoying working through the back catalogue of the past seasons on the podcast and that's been very helpful – thank you.

  I do have a question about salary sacrifice/exchange in a workplace pension around tax brackets. As I got a promotion at work a few years ago I ended up moving into the higher 40% tax bracket so I adjusted my pension contributions – my workplace offers salary exchange for pension contributions – to bring my adjusted salary to below £50k and stay within the 20% income tax bracket and also saving on National Insurance contributions and tax relief. However, last year, another promotion led to another increase in salary and several things going on such as buying a house meant that I hadn't adjusted the pension contributions enough and my adjusted salary was above £50k and a portion of that was taxed at the 40% rate.

  Question I have is can I claim back the tax at the 40% rate from HMRC or does the salary exchange mean that I have already had the maximum tax relief applied?

  Thanks and keep up the good work, Simon

• Question 4
  Hi Pete and Rog,

  Only just discovered the pod and loving it!

  You advocate global trackers and I can see why, as they are cheap and simple and have the appearance of diversifying risk. But do you not worry about putting 60-70% of your money in one market (the US), which is what a global tracker does? I understand that you're letting the market determine how your capital is allocated, but what is ‘the market' when so many other people are also just investing in global trackers? It seems to me there is not enough price discovery and trackers may be chasing a bubble. Would love to get your views.

  Cheers guys. Will

• Question 5
  Dear Roger and Pete

  Huge fan of the show!

  I had a question about offshore investment bonds. I’m an additional rate taxpayer and after contributing to pension and ISA, am then looking at what could come next. I’ve seen offshore investment bonds as an option, however I’m struggling to see how they would deliver a better outcome (assuming the same underlying investments) than simply using a GIA, and selling down the investments once I stop work.

  Thanks again, Matt

• Question 6
  Hi Pete, Roger and Team,

  Firstly, thanks to you all for the amazing podcast, I have been listening for years and it has given me the confidence to manage my finances. I spread the word to all who will listen!

  My question is regarding tapering with relation to gifts and IHT. The scenario is this, a person is gifted a fairly substantial sum (say £100k) but less than the £325k personal allowance. The person who gifted the sum then dies at 6 years post gift. The persons estate is say £750k.

  In this case does tapering occur? Even though the gift is less than the £325k the whole estate is well over the personal allowance. Would IHT be paid on the sum over £325 with tapering on the gift? For example £325k IHT free due personal allowance, £100k at 6% taper relief with the remainder at normal IHT rates?

  Hopefully that’s a short enough question!
  Many thanks, Alastair

Send Us Your Listener Question

We’re going to spin out the listener questions into a separate Q&A show which we’ll drop into the feed every 2-3 weeks or so. These will be in addition to the main feed, most likely, but they’re easier for us to produce because they require less writing! Send your questions to hello@meaningfulmoney.tv Subject line: Podcast Question

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The post Listener Questions – Episode 44 appeared first on Meaningful Money – Making sense of Money with Pete Matthew | Financial FAQ.

* This article was originally published here

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Listener Questions – Episode 43

Questions Asked

• Question 1
  Hi Pete and Roger

  I’m late to investing but thanks to your informative and entertaining podcasts and books – I feel on track to at least a decent retirement.

  I’m on a £60K salary and currently manage to contribute around £25K annually via salary sacrifice – which keeps me happily and comfortably within the 20% Income Tax bracket.

  However, with the Salary Sacrifice Cap coming in April 2029, I will end up in the higher-rate tax bracket.

  I was thinking about using my employer’s Car Benefit Salary Sacrifice Scheme to help bring down my taxable income – whilst still maintaining the maximum salary sacrifice and utilising Relief at Source my AVC.

  I’m fully aware of the saying “don’t let the tax tail wag the investment dog” but I was planning on getting a car in 2029 – when my mortgage is completed – so this might be a good alignment.

  My question’s are: Can you confirm whether the Salary Sacrifice Cap applies to pensions only — and does using the car salary sacrifice scheme seem like a sensible idea in this context?

  Is there anyway that paying into my AVC via Relief at Source and claiming the higher-rate relief via Self-Assessment would result in HMRC issuing me a new tax code for the following tax year.

  Keep up the good work – and all the best to you and your families for the festive season.
  Thanks, Cris

• Question 2
  Hi, I recently came across your podcast and have not stopped listening to all the older episodes, and look forward to the new ones each week. Keep up the great work!

  I’m a 53 year old business owner looking to exit my business within the next 3 years via a sale and hope to receive around £1.5 – £1.8m from my share of the proceeds after tax.

  My wife is 8 yrs younger than me and will probably still be working doing some consultancy work. She has her own pension and savings in ISA’s (currently a combined pot of around £250k which will hopefully grow over the next 10+ years) but we wouldn’t need to access that till much later as required.

  My 2 questions are:
  1. What would be the best way to invest the lump sum from the sale of my business to provide an income to support my retirement without having to necessarily eat into the capital or touch too much of my savings / pension early on as it will need to provide for my wife and I for quite a few years if we retire / semi retire in our mid 50’s.
  Having looked at our living costs we would need around £60k p.a – albeit to live comfortably. Any holidays / large purchases etc could be funded through savings.

  2. How would you prioritise what pot of funds you use first to make it the most tax efficient, enable growth and ensure that the pots do not run out. Given the new IHT rules on pensions is it now wise to use those first including the 25% tax free lump sum or use the ISA’s / savings first leaving the pensions to continue growing in their tax wrapper.

  Thanks, Jeremy

• Question 3
  Hello Peter and Roger
  You answered a previous question for me on the podcast so thank you for that, and I hope you don't mind me asking another one!

  We're in the very fortunate position of being able to pay the full £60,000 annual allowance into my pension scheme this tax year and are considering making additional contributions using unused allowance from previous years.  I understand that the total contribution we could make would still be limited by my annual salary this tax year – my question relates to how that is defined.

  The contributions are made using a combination of salary sacrifice into my work scheme and lump sum contributions to my SIPP which is separate from the work scheme.  So, would my “salary” that would be the limit for total contributions be the salary before salary sacrifice or after?  And is the “salary” further reduced by the contributions to the SIPP, as I believe my adjusted net income for calculating tax bands is?

  Perhaps some hypothetical numbers would help.  Let's say my gross salary before salary sacrifice is £125,000 and I salary sacrifice £25,000, and my employers' contribution is £5,000.  Let's say I also pay £24,000 by bank transfer into my SIPP, so I'd receive £6,000 of tax relief into the SIPP.  If I've understood it correctly, my adjusted net income for tax purposes would be £70,000 (which is £100,00 salary after salary sacrifice minus £30,000 gross contribution to SIPP).  In total, £60,000 has been paid into my pensions which is the full annual allowance for this year.

  If I had £120,000 of unused pension allowance from the previous three tax years, what is the maximum additional amount I could pay into my SIPP this tax year?  Is it £65,000 gross (so £52,000 net), to bring the total paid into my pensions up to £125,000, my pre-sacrifice salary?  Or £40,000 gross (so £32,000 net), to bring the total paid into my pensions up to £100,000, my post-sacrifice salary?  Or some other amount, if the salary that counts for this year is limited to the adjusted net income?

  Thanks so much for your help – I know it's a bit technical but I can't seem to find the answer anywhere!
  All the best, Fran

• Question 4
  Dear Pete and Roger,

  I’ve been listening to the podcast for years now, and it always makes my Wednesday commute more enjoyable. Every time I hear your names together, I think of The Who, so thanks for all you do, helping people of My Generation become Finance Wizards and make smarter decisions so we don’t get Fooled Again.

  I’m 34, and after working in the small charity sector since university, I’ve accepted a role in a larger organisation which comes with a significant pay increase, taking my income over the Higher Rate threshold.

  As I step into this new tax band, what reliefs, allowances, or financial planning considerations should I be thinking about?

  In particular, I’m aware there are some reliefs (particularly for Gift Aid donations and pension contributions) that I will be able to claim through self assessment; do they ‘compete’ with each other in any way, or can I claim the full relief on both?

  Thanks for all you do, Tim

• Question 5
  Pete & Roger
  Great podcast – don’t ever retire!

  I’ve just started receiving my state pension (now you know how old I am) but I was wondering how I can check that the government are paying me the correct amount.

  I have more than a full set of NI class 1 contributions but I’ve also had some years contracted out and some years working abroad in a country with a reciprocal arrangement with the UK (which I’ve claimed for). The government just sent me a statement telling me how much I would get paid without any detail behind it.

  How can I check that they have made the correct deductions for contracting out and the correct additions for my time abroad?
  Call me cynical but I don’t always trust the government to get these calculations right.
  Many thanks, Glen

• Question 6
  Hi,  great show by the way, very informative, it has certainly helped me and I’m sure is great help to many others.

  My wife Michelle is planning to retire at the end of March, age 58.5.  She is self employed, a relatively low earner and finds the work tiring now. I myself am 56 soon and likely to work another 2 year (max), I am luckily enough to receive a decent salary and have above average pension provision.

  Michelle has the following pension savings –  £143k in bank savings (not isa), £130k S&S ISA, £118k SIPP – all combined £391k. I realise markets are high at the moment.

  Plan to use 4% rule and reduce when State Pension kicks in (have full NI Contributions).

  So assuming want £15k pa (and rise annually with inflation), my query (that many others may have) is it best to use the cash or the ISA or the SIPP first or mix it up?  Michelle is very unlikely to have to pay income tax, until State Pension triggers at 67.

  Any advice much appreciated, Jason

Send Us Your Listener Question

We’re going to spin out the listener questions into a separate Q&A show which we’ll drop into the feed every 2-3 weeks or so. These will be in addition to the main feed, most likely, but they’re easier for us to produce because they require less writing! Send your questions to hello@meaningfulmoney.tv Subject line: Podcast Question

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The post Listener Questions – Episode 43 appeared first on Meaningful Money – Making sense of Money with Pete Matthew | Financial FAQ.

* This article was originally published here

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