In this Meaningful Money Q&A episode, Pete Matthew and Roger Weeks answer real listener questions on UK retirement planning, pensions, tax and inheritance tax. They discuss tax planning after the death of a spouse, investment bonds, SIPP drawdown before State Pension age, Defined Benefit pension contributions, Fixed Protection 2016, inherited ISAs and lifetime gifting rules. If you are planning retirement, managing pensions, thinking about ISA transfers or trying to understand UK IHT, this episode offers practical guidance to help you make better financial decisions.
Shownotes: https://meaningfulmoney.tv/QA56
01:44 Question 1
Hello Pete & Rog,
Your content and chemistry are a unique combo that's helped me focus and engage in my own future properly at last. Thank you!
It occurred to me being well insured isn't necessarily enough…..planning mechanics is key too.
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 (surviving spouse).
Scenario:
Couple both in 40/50s earning ~£75k each with two dependent kids (15 and 11)
One spouse dies (let's assume today)
Immediate loss: £75k income, one personal allowance, one BRT band, future SP
Survivor receives ~£40k DB spouse/children's income initially falling to £15.5K when kids out of education
Total initial income of survivor £115k
Life cover + enforced cash lump sum from DC (no survivor pension option) all in trust pays off mortgage + ~£500K capital but all now in tax land
So despite being "well insured", the survivor is pushed into a much less efficient tax position.
Beyond salary sacrifice AVC to stay <£100k (no brainer), what are your thoughts on options to deploy the extra capital in a tax-efficiently manner to predominantly support the family spend rather than lining HMRCs pockets due to my death. The income of the spouse is already pushed 'falsely' high with DB survivor pensions
Would an investment bond look attractive in this situation? e.g. £400K of capital to buy an investment bond. Can you explain how this works and its pros/cons in this situation? I know these are tax deferral tools but seems to me deferring tax when income is £100K+ to a time when in retirement spouse will pay a lower rate of tax could be a good move.
Thanks, Duncan
08:29 Question 2
Hi Pete and Rog,
Huge fan of the show — everything I'm doing is thanks to you guys (and Damien)!
I'm 35, and have managed to get myself into a decent position. I've built up a six-month emergency fund, and also have a SIPP, S&S ISA, S&S LISA, as well as my workplace pension (RAS scheme, minimum 5% / 3% as no option to salary sacrifice or increase employer match) I claim back the additional 20% tax relief, which then funds my LISA for flexibility.
In total my long terms savings sit at around £65k currently. I'm married and a home owner (25% equity), no children. I have a military DB pension worth £6,800pa at SPA (index linked and 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's my hypothetical scenario: say I aim to retire at 60 and want to use my SIPP and ISA's to cover me until SPA at 68. Ignoring growth, inflation, any changes to SPA, and assuming current tax bands for simplicity, if I crystallise £134,080 of my DC pot:
I would get a tax-free lump sum of £33,520
£100,560 would go into a drawdown account
I could then withdraw £12,570 per year tax-free using my personal allowance to run this down to zero
The remainder of the SIPP would stay uncrystallised for future PCLS or UFPLS withdrawals
Question: Theoretically, does it make sense to crystallise a portion of my SIPP for a small tax free lump sum and then withdraw £12,570 per year without paying tax on the crystalised taxable portion until my State Pension starts? or would UFPLS withdrawals make more sense from the start or am I overcomplicating 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
12:57 Question 3
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 Rog.
He [my bro] argues that employee contributions into a DB pension scheme are entirely irrelevant.
Although I accept that those contributions aren't used for the 'AA test' — it's the PIA that matters — I believe that the value of the employee contributions are important, because they form part of the '100% of relevant U.K. earnings test'.
Therefore, if he's looking at contributing into a SIPP, in addition to his DB scheme, those employee contributions would be very relevant, would they not?
Much obliged … even if I'm wrong, James
16:41 Question 4
Hi Roger & Pete,
I have been bingeing your Q&A podcasts as well as following Pete's YouTube videos and 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 made the right decision to go it alone and move funds to a flat-fee platform without advisor overheads.
Some background, I am just 61, work in a job I enjoy with no plans to retire although I will reduce my hours over the coming years. Post-pandemic I have realigned my attitude to money and become more free and easy with spending having reached the point where I really don't expect to run out.
I have Fixed Protection 2016 of £1,250,000 vs the original LTA, this allows me an extra £44k tax free cash saving about £9k 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 still correct now LTA is a defunct concept or could I resume some contributions (may allow some finesse of my Q2)? Originally I believe that any withdrawals above the FP figure would be taxed at 55% (as per former LTA rules), is this still the case or is it now just at marginal rate?
My original drawdown strategy was to exhaust my TFLS allowance and then draw within the BRT thinking this would maximise my tax efficiency. However with the advent of IHT and some of your Q&As I have started to wonder whether I should be drawing my 'available' BRT balance via UFPLS in order to build up a fund (in S&S ISAs with investment profiles mirroring the drawn SIPP) in lieu of significant future spending (& gifting) instead of withdraw at the time and partially incurring HRT (or even more punitive IHT as my daughter and partner are HRTs). I am modelling this via spreadsheet but not yet formed a firm conclusion.
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 in trust for an estimate of the possible IHT and not make my drawdown overly complex?
I've been looking a little into the life assurance angle for potential IHT and spoke to a life assurance company they're 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 resultant funds simply being available early and then capable of growth to cover the eventual IHT (if any).
Part of this thinking is that I am 61, in excellent health with no adverse family history and longevity of my parents and grand-parents. Without going into detail my wife is 63, has had recent serious health issues and her family history does carry risk factors. Am 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.
Many thanks, Daryl
28:36 Question 5
Hi Roger and Pete,
I've recently discovered your Q&A podcasts and I'm currently enjoying going through your past episodes!
I have a question that is probably quite a simple one, but which I'm having trouble finding a straightforward answer on the usual Google route.
My wife passed away a couple of years ago, and 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, and so the value of her holdings was only around £25000.
Just for simplicity at a very difficult time, I used the APS by staying within 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 favourable account with a different provider?
Thanks both! Keep up the good work!
Gary
30:12 Question 6
Hi Pete and Rodger
Just want to start by saying that you guys are great and thanks for all 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 "the bank of dad" podcast – very timely as I want to help my 19 year old daughter understand finance more, but in a simple way, and you both deliver!
My question is regarding inheritance tax.
I understand that inheritance tax is due if the IHT threshold is exceeded. And I've learnt that roughly 4% of the UK population pays IHT. However, what I'm not clear on is, if an estate is well below the IHT threshold, eg: £1million 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?
As an example, my parent's have started to gift generously - gradually depleting their wealth whilst still alive. They use their annual £3,000 gift allowance as well as gifting from surplus income (pensions) but their estate is nowhere near the £1million IHT threshold. Along with further gifts can be made – we are aware of the 7 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 7 year timeline rule and us paying any IHT? Apologies if I've waffled on, I hope my question makes sense.
Keep up the great work!
Steve
