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Chapter 1: What is the main topic discussed in this episode?
Welcome to This Is Money podcast sponsored by Trading 212. Download the Trading 212 app today and open a cash iser with promo code TIM to get the 12-month bonus promo rate of 4.51%. Terms apply. I'm Georgie Frost and joining me and Simon Lambert today is Helen Crane. And coming up, trillions of pounds are set to pass between generations in the coming decades.
But if your inheritance won't arrive until you're 60 plus... Is it time to ask for it now? And how on earth do you do that? Also today, the Bank of England holds rates for now. So what does that mean for your money? And after much speculation, where will they head next? Also, good news for sellers.
Prospective buyers could be fined if they pull out of a house purchase under a new labour property shake-up. And Simon and SpaceX. The short love affair is over. Why sell out so soon, Simon? Don't forget you stay up to date with all the latest breaking money news.
Chapter 2: How does inheritance tax impact family wealth transfers?
Just go to thisismoney.co.uk or download the app. But first, across much of the developed world, trillions of pounds, dollars and euros are set to be passed down from older, wealthier generations over the coming decades. It's been called the Great Wealth Transfer. In the UK alone, the estimate is put at 5.5 trillion over the next 20 years or so.
But due to longer life expectancy, many won't receive an inheritance until they're in their late 50s or 60s or even older. Giving money away earlier can help younger generations when they need it the most. Reduce inheritance tax and allow families to see the benefits during their lifetimes. But what is the best way to go about having that conversation?
Is it ever acceptable to ask for your inheritance early? Well, this is Monty. I've been speaking to the experts. Welcome, Helen. Welcome, Simon. The great wealth transfer, eh?
Chapter 3: Is it advisable to ask for an early inheritance?
The great wealth transfer involves the baby boom generation and those sort of either side of it, but largely the baby boom generation, which has been dubbed the wealthiest generation ever to live, particularly in the West and the developed world. And it will focus on the British generation because obviously we are a UK podcast, et cetera, et cetera.
Not everybody is sitting on large sums of money. Not everybody lives in an expensive house. And in fact, only one in 20 estates pay inheritance tax or incur an inheritance tax liability at the moment.
Chapter 4: What are the implications of the Bank of England's interest rate decisions?
That, however, is set to rise substantially because unfortunately, as time progresses, more of this generation will die. and also because pension pots, unspent pension pots, are going to be pulled into the inheritance tax net from next April.
We've talked about this in a great amount of detail in the past, but the Chancellor has decided that people are using their pension pots to pass on wealth free of inheritance tax, and that this must stop because people are gaming the system and they will now be pulled into the inheritance tax net.
Now, largely, I think quite a lot of the financial planning industry is to blame for this, for all the times that they've trotted out this line in newspaper articles, etc. Because actually, I think this is massively overcooked. For a start, you only actually pass on a pension pot tax-free, free of any tax whatsoever, if you die before the age of 75.
The median age of death in this country is above the age of 75, so most people die after the age of 75. And if you die after the age of 75, income tax is incurred on it. And if the pension pot is any form of meaningful amount, that will be 40% income tax. Because when the money is taken out, it will push even basic rate taxpayers into 40%. It will push some into 45%. So the money is being taxed.
Right. where those are included. And basically, all of the evidence is that people don't run their pension pots down to zero. And it's still not going to be everyone, but there will be a sizable chunk of people whose pension pot takes them over that million pound inheritance tax threshold.
So you've got this great wealth transfer, you've got houses that have gone up in value over the years, you've got pension pots, you've got savings, you've got investments, and they are being passed to the younger generation. Except as you pointed out, the younger generation they're being passed to by the time they get it isn't actually usually that young. They tend to come 50s, 60s.
So this is the great wealth transfer. And the reason why asking for an inheritance early benefits both the person who would get the inheritance and the person giving the inheritance is if there is going to be an inheritance tax liability, This means that you can try to avoid that 40% tax rate.
Whilst only a small number of estates pay inheritance tax, among those that do, the bills are really quite big. You're looking at bills that run into hundreds of thousands of pounds for families. So if you would like to avoid giving the taxman hundreds of thousands of pounds when you die, then you need to do something about it.
Unfortunately, however, a lot of people hate the idea of inheritance tax and then promptly bury their heads in the sand and don't really do anything to avoid it. And the two easiest ways to avoid it are either spending your money or giving your money away early.
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Chapter 5: What strategies can help reduce inheritance tax liabilities?
Just seems a little bit tasteless in my view. What I would just say is if you are giving money away, remember to keep the receipts, people. Make sure you keep notes of these just because it makes things so much easier when the I agree with you.
What I would say is that that is notoriously difficult to actually get them to do. There is an entire generation of people who are continuing to hoard cash and in their retirement and many of them who are in what's known in the financial planning industry as the decumulation phase where they should be running down their wealth are actually in the position of getting slightly richer every month.
They don't actually spend all of their income And then some of it goes into a savings account, quite often into a savings account rather than even into investments. So actually their wealth is continuing to grow rather than to reduce.
I've had this conversation with many people of that generation and try to encourage them to spend their money, but they don't want to do things they see as wasteful. And broadly speaking, that's true of people.
It's like if you have lived a life where you didn't buy business class flights and expensive things and live high on the hog and you watched what you spent and you didn't go out to dinner all the time, you didn't spend on... Oh, my God. If ever there was a generation that needs to spend money on taxis rather than gambling with the drink drive laws, it's the baby boom generation.
It's like just pay for a taxi. If your estate will incur inheritance tax, we're talking about people who know their estates will incur inheritance tax. So add the equity in your property to the money that you have in your pension or your savings and investments, and you can do a very rough calculation.
If you are going to be over the Ā£500,000, which is the total amount for an individual, Ā£325,000 and then Ā£175,000 extra if you pass your own home to a direct descendant. As a couple, you can double that up to a million. If you know you're going to be over that, then everything you spend is 40% off because otherwise the tax man is taking 40% of the money that's left.
So actually, the taxi is nowhere near as expensive as you think. But it's really difficult to get people to do that. And this goes back to Helen's point of the like, this sort of like, don't approach this conversation with an I'm owed it.
Because actually, whilst lots of people in the younger generations feel that they have been dealt hard hand, most people in those older generations are also like, I had to do all this myself. I had to do all this without any help. I didn't get a property deposit off my parents. I didn't get to move back in and live with them rent free. I had to go out to work. I had to save my money.
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Chapter 6: How do energy bills affect consumers and what should they do about errors?
You know, how are you going to feel if you pay off some of their mortgage and then all of a sudden they start going to the Caribbean every year when they never used to go to the Caribbean before? How are you going to feel if you give them some money and then all of a sudden the Porsche appears on the driveway?
I think talking about what you want to be done with the money and some ground rules and some... You know, I still want you to have to work hard and to earn the things that you get. And I'd like you to take this money and I'd like you to save it or invest it. Or I'd like you to use it for X, but not for Y is really important.
And from that perspective, also, you know, as the as the in the person in the younger generation, it's really important to respect those wishes.
and and have that conversation and enter into that conversation thinking putting yourself in the other person's shoes rather than doing the thing that most of us do when presented with a conversation with our parents where however old we are we immediately turn back into teenagers so don't stamp your feet don't slam the door don't run upstairs to your room that they've now turned into a home office
Making a plan, planning ahead. Don't be offended. Maybe open the conversation with her like, I think we should talk about this honestly. And I think we should both agree that whatever gets said, none of us are going to get offended. I'm not going to stamp my feet and run to my room.
And if you could try to avoid stamping your feet, slamming the door on me and telling me that you're never speaking to me again and I'm not getting an inheritance, that would be amazing. And, you know, thinking about it from the perspective of like how this can be a mutually enjoyable scenario. The older generation can enjoy helping the younger generation.
The younger generation can enjoy the older generation's money. The younger generation can enjoy the opportunity to then bring the older generation into their new home, have them over to stay. If we get a bigger house, you've got a spare bedroom, that kind of thing.
Yeah, but make sure you don't move them in or they have some benefit from that gift, etc., etc. The problem, Helen, though, with money and particularly with inheritance and wills is it isn't just money, is it? Well, it is, but it often confers some sort of love or favouritism. I've left you this money because I love you.
Which is why I think Warren Buffett always advises parents to show their will to their children while they're still alive, which I think is actually a really good thing to do, so that there are no horrible surprises when you're gone. I mean, you're gone, you don't care, but the kids might, and that's not very nice, is it? So,
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Chapter 7: What are the potential consequences of Labour's new housing proposals?
being open about it and actually having these conversations is the best way to do it. And, you know, maybe even get the whole family around and say, look, this is what I'm planning. This is what I would like to see. What do you think about this? Make it a conversation. I mean, again, look, we're British. It's going to be incredibly awkward conversation.
We all find talking about money awkward and talking about death awkward, obviously. But I think anything you can do to kind of get it out in the open...
early on would seem to me to be sort of mitigate things and stop causing a massive family argument I mean there might be a family argument at the time that you say that but I guess it's better to have the argument while you're still there to be a part of it than after you've gone and your wishes can't be respected
But, you know, seriously as well, though, you know, if this all happens when someone's already ill or someone's already kind of passed away and you get the will and it's a surprise, people are not in a good way. People are grieving, people are upset, people are stressed. Surely it's much better to do it before a big emergency happens and you can all kind of talk with a level head.
But of course, we all have families. This stuff is much easier said than done.
I guess also as well, Simon, on the flip side of that, how do you say no?
Well, that's a very, very good question. Because what you want to do is you want to be able to say no without triggering a huge argument. But I think what's important to do is just is to explain your reasons and to say, actually, no, this doesn't work for me. I don't have as much money as you think. I'm concerned that if I do this, this could happen or that could happen.
Or perhaps, actually, I'm not willing to do that, but I am willing to do this. It's basically about being open, about being honest and about not avoiding the topic of conversation and also being, you know, willing to listen to the other side of it. So, for example, if there is a scenario where you've drawn up a will in a certain way,
and one of your children or you know both your children say to you actually do you know have you thought about this this and this and actually that doesn't seem as fair as it could be going oh actually maybe you are right about that um but ultimately it is your money but as long as you're open and honest about it you don't have to be completely honest often people would like to not reveal all to their children and
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Chapter 8: How can younger generations approach the topic of inheritance with their parents?
This is a case close to my heart because long-term listeners to the show will remember that during sort of lockdown era, I was pursued by British Gas for a pretty sizable bill, a couple of grand, because basically they had me down as a business. The problem is the business department and the consumer department are totally separate departments and didn't talk to each other.
So I was going sort of, it was Kafkaesque nightmare. In the end, they actually wiped the whole bill. But it took me months and hours on the phone and a heck of a lot of stress. It is so stressful, especially when you get a call from a debt company and they're like, do you know what this is about? And I'm like, I don't know who you are for debt recovery. Like, it's really clandestine.
It was horrible. So tell me about this one.
I completely agree. I think this is actually much more common than people think, and especially people who rent. So I rented for years, and it's so easy to end up not quite landed with someone else's bill, to almost be accused of it being your bill. I've had debt collectors turn up my door, and you're right, they never quite tell you who they're looking for.
The onus is always on you to prove that it isn't your debt rather than on them to get the right person in the first place. Which, look, they're debt collectors. They can't be cuddly little teddy bears. They have to do their job. But in this case, I think it's just outrageous how... It was so obvious that this was the wrong person and they just didn't give up.
So this person has, I would say, a relatively common name. It's completely feasible that there's hundreds of people with this exact name across the country. So she gets a letter to her address. She lives in Northumberland. And this bill from EDF relates to a property in Camden in North London. That's 300 miles away. She tells me she's only ever been to London four times in her entire life.
And when you first get a letter like this, you kind of think, oh, this will be easy to sort out. It's so obvious that this isn't me. Surely there's some kind of record they can look up and, you know, they'll see who the tenants have been on that property. And that's because she didn't realise at first that it was the name that was the issue.
So she just thought, oh, this isn't me, I'll ring them up. And Edia kind of said, prove it's not you. So they asked her to send things like, this is the debt collection company, they asked her to send proof that she lived somewhere else at that time, which she could do. So this was over a four-year period, and she'd lived at a few different addresses during that time.
And she did send proof of some of the addresses, but then, and rightly, I think, she thought, hang on, so one of the places she'd lived was with her parents, right? And she was like, I don't really want to give this debt collection company my mum and dad's address, which I think is completely right. And that's one of the things that happens when I've had these letters through my door.
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