Inheritance tax masterclass: how much is due & smart ways to reduce it! Energy price spike – what it really means

The big topic for Martin this week is inheritance tax, he explains how inheritance tax works and goes through all the practicals on how much you can leave before its taxed.... Why marriage is the biggest way to reduce inheritance tax... The change that means pensions will soon have inheritance tax on them... all the gift rules you can utilise and far more. The podcast features key updates on car finance mis-selling, and what the spike in energy prices due to the conflict in the middle east really means for what you’ll pay. And then of course there’s Mastermind, if a shop misprices an item, can you force them to sell it to you at that amount? If you want to ask Martin a question, you now can! His Question Time podcast lets you ask Martin absolutely anything and everything (within reason!) – so if you’ve always wanted to know what colour his eyes are, what he's planning to do in his eventual retirement, or have a very complicated question about your personal finances, email it to [email protected] mailto:[email protected].

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 1:47Martin Lewis?

  That is the risk averse move to do. Lock in on that now. Who should be considering this and who shouldn't? That's not a bad rule of thumb, is it? Has this totally shaken up all the type of inheritance tax planning that you do with clients and thrown it all up in the air? Then you have to make sure you take the money out or the rate won't be that good. We have underregulated home heating oil in this country for far too long. Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about? Now, usually much of it comes from my BBC Radio 5 live show with Adrian Charles, but there's also bonus money-saving tips just for you lucky, lucky podcast listeners. In today's pod, our big topic: inheritance tax. Loathed by many in Middle Britain, lauded by others as a crucial way to stop perpetuated

• 2:32Martin Lewis?

  wealth, but we're not doing any of that. This is about the practicals: how much can you leave before it's taxed? Why marriage is the biggest way to reduce the tax? The change coming that means pensions will soon have inheritance tax on them too? And all the gift rules you can utilise to reduce the amount your estate will need to pay, and far more. I've also got key updates on car finance misselling and what the spike in energy prices due to the conflict in the Middle East really means for what you'll pay. And then, of course, there's mastermind: if a shop misprices an item, can you force them to sell it to you at that amount? Let's get on with it. Lots to do. Play the theme tune.

• 3:33Speaker 04

  Car finance, ears will be pricking up all over the country. What have you got for us on that?

• 3:38Martin Lewis?

  So, we know there are supposedly 15, 16 million car finance agreements that have been missold in three categories, the biggest one being discretionary commission arrangements, which is where, when you got your car finance, the dealer charged you more interest because the lender therefore gave it higher commission and you weren't told about this. The regulator has been consulting on a redress scheme. We learnt this week, don't get overexcited, folks. We learnt this week that it is confirming it will announce the scheme outside of stock market hours at some point in late March. So, that really means five That's what it does when it does this in the past. It means a 5pm announcement and I

• 4:19Martin Lewis?

  think you're talking about in the last few days of March, it's going to come. It's also sad because one of the really innovative things about the suggested scheme that it's planning is it wants to be automatic payout. So there's two categories of people. There's the category of people who have already complained and they will get their payouts quicker if you've had a complaint in before this period starts. And then there's the category of people who haven't been complained, who will work on an opt-in system where they'll be sent a letter from their car finance company telling them, actually, we think we owe you money. Do you want to opt into a claim? And that's going to take longer because that has to be tracked down. The other news that came out of the regulator this week is if the opt-out cases, so those are the cases of people who have already complained or will

• 5:01Martin Lewis?

  have complained by the time we get there. And remember, you don't need to use a claims firm for this. You can do it. There's DIY tools available online to do this for free. There was this process where you'd have to, you'd have to opt out and you'd have to then they would tell you how much you'd get and it would move on. What they're saying is, within, there'll be a three-month implementation period, five months for older agreements. And for those who have already complained, you, when you're contacted, you'll be told your compensation within three months of that and asked simply, do you want that compensation or not? So they've sort of condensed, the initial bit takes longer, but the final bit is just one contact rather than two contact. And they are saying that those payouts for those people who've already complained and who have put a complaint in already should

• 5:45Martin Lewis?

  happen by the end of 2026. For those people who haven't complained and are being contacted to be told they've got a complaint, I suspect, they're not saying this, I'm saying this, I suspect it will be 2027. But we're going to hear way more about this in the end of March. And of course, we'll do a special podcast just on this then, when we know exactly what the details of the new scheme are. It's worth noting, some people have been frustrated. They think that the regulator is going to pay out less than it should do. That is a big debate. I certainly have questions over the amount of interest that's being added. We don't know the details until this consultation result comes out at the end of March. But it is still, to do it any other way, you would probably, if you won in court, and there's an if there, you would probably get paid more than the regulator is promising

• 6:27Martin Lewis?

  to give you in its mass redress scheme. But most people would need to pay someone to go to court and would therefore be losing 30% anyway of what they get back. So my suspicion is it probably all balances out the amount that you're going to get either way. But it is, I think, just for my... Feeling that I need to give the full story, it is worth me mentioning that at the end, but we'll do this in far more detail when we've got all the proper news. This is just the when it's happening news.

• 6:55Speaker 04

  Today's main topic is inheritance tax. Talk us through the basics then.

• 7:01Martin Lewis?

  Okay. Many fear inheritance tax. When I do polls on this, you know, it's 40, 50% of people are petrified by inheritance tax, but it is worth stating only 5 to 6% of estates pay it. And even once pensions are included in inheritance tax from April 2027, the estimates I've seen is that I'll be pushing that up to still less than double figures percents of estates pay it. Now, it is worth noting that's probably slightly underestimating its impact, because as we'll talk about later, if you're married, you can leave everything to your spouse. So one of the couple's estates probably wouldn't have any inheritance tax to pay and the other would. So but even if you doubled the numbers, then you're talking, you know, 10 to 12% of estates pay it and with the pensions up to 20% pay it. It is still a minority and that's where starting.

• 7:46Martin Lewis?

  One of the key factors in inheritance tax is whether you are married or not. Now, for marriage, I also include civil partnership. If you're single or just cohabiting, even if you've lived with someone for 30 years and don't have any kids, there are very different rules. So let's start off with the rules for those people who aren't married. Now, single could mean cohabiting with someone and a long-term partner. Single, all my definition of single is, is you are not currently married or in a civil partnership. So the classic rule, if your estate, which is all the assets that you have, property, business, shares, savings, everything that you own, is under £325,000 as a single person, there is no

• 8:29Martin Lewis?

  inheritance tax to pay. So if that's you, inheritance tax isn't an issue. It is worth me stating that that £325,000 limit has been frozen since 2009, 10, and is expected to stay frozen until 2031. So in real terms, that has reduced quite substantially over the years. But one thing that was added is The amount you can leave without paying inheritance tax is boosted by up to £175,000 if you pass on your main residence to your direct descendants. Now, we're talking your primary residence, but if your primary residence was only worth £100,000, you wouldn't get the extra 75 on top. It's up to £175,000 for your primary residence.

• 9:13Martin Lewis?

  Direct descendants include biological step, adopted and some foster children or the same grandchildren. So if your house is using that allowance up and it's passed on to your descendants, then your total amount, the maximum total amount that you can be leaving under the very simple rules, your estate is £500,000. So then inheritance tax isn't an issue. It is worth noting, if your estate is over £2 million, you do start to lose that £175,000 property allowance and it's gone by the time your estate is worth 2.35 million. So that's the sort of the single person's basic inheritance tax. Now, remember those rules because they do apply within marriage too,

• 9:56Martin Lewis?

  but there are a couple of big allowances for those people who are married or within civil partnerships that can really boost the amount your estate can leave without paying inheritance tax. Let's get to that. There are two really big rules that people need to understand here. First is anything you leave to your spouse is exempt,

• 10:19Martin Lewis?

  provided your spouse is usually UK domiciled. So that means there is no inheritance tax on anything you leave to your spouse. You know, if you are Bruce Wayne, leaving £100 billion to Mrs. Batman or Mr. Batman, there's no inheritance tax on it because it's to your spouse. So as long as you're married or in a civil partnership, there is no inheritance tax. Now, that one is big. But when combined with the next one, it is huge. All your unused allowances are passed to your spouse. So remember that the maximum unused allowance a single person has in simple terms is half a million quid. So if they were to leave everything to their spouse, they haven't used up their half a million pounds allowance.

• 11:03Martin Lewis?

  Therefore, their spouse now has a one million pound allowance, made up of three hundred and fifty thousand pounds maximum left to, in the terms of a property, left to direct descendants, and six hundred and fifty thousand pounds of other assets that they can leave inheritance tax free. So for married couples, you have up to a million pounds that you can leave without inheritance tax of your assets that you have when you die. Now, if we were just to contrast that for a second, and this is one of the huge financial benefits of marriage. So let's take our couple. We've got our first couple. I tend to use them as Helen Lou, Hallelujah, Hallelujah. So Hal, they're married. Hal leaves everything to his spouse,

• 11:46Martin Lewis?

  and then she leaves everything to the children, including the main property, that's a million pounds. But if they were unmarried, even if they'd been living together, and even if they had children together, here's what would happen. Hal, because he wants to leave the primary residence to his spouse anyway, he leaves her everything, they're not married. So because they're not married, he uses up his three hundred and twenty five thousand pounds standard allowance, and he doesn't get the hundred and seventy five thousand pound property allowance, because he's not leaving it to his kids, he's leaving it to this unmarried partner that he has. So instantly, he's having to pay forty percent tax on the property element of that, the hundred and seventy five thousand pounds. So he's now left, it's nine hundred and thirty grand

• 12:30Martin Lewis?

  that he's left to his spouse after the inheritance tax. She's now leaving that all to the children, and because she's only got a five hundred thousand pounds allowance, she's paying forty percent inheritance tax on the remaining four hundred and thirty thousand pounds. And in total, the inheritance tax that would be paid is two hundred and forty two thousand pounds. So the married couple doing exactly the same thing, if they had exactly a million pounds of assets and it was split equally, I know it's a, you know, it's a bit of a hypothetical, but just to prove the point, the married couple doing exactly the same thing would pay no inheritance tax, the unmarried couple would pay £242,000 of inheritance tax.

• 13:11Martin Lewis?

  And having been explaining this for a few years, I reckon I've now married more people than priests, because I get many couples who've been together 30 years and who aren't married, who've either gone through a marriage ceremony or a civil partnership ceremony after they've heard this inheritance tax explanation, because it is just so substantial. And if you don't do it, and you, you know, if you've been together, this is not about you've been together six months, you should get married to do this, this is about, you've been together 30, 40 years, you're life partners, you're not going to be splitting up, you've just never got around to marriage, you might not like it for the patriarchy, you might not like it for the religiosity, in which case, get yourself a civil partnership which confers the same rights. But one of the biggest ways you can reduce your inheritance tax bill is by being married or in a civil partnership. I don't make the rules, by the way, everybody, I'm just explaining them.

• 13:53Speaker 04

  Okay, we've got a couple of, you've got a couple of wing women behind you, a couple of experts to help you.

• 14:00Martin Lewis?

  I think they're probably in front of me.

• 14:01Speaker 04

  In front of you.

• 14:02Martin Lewis?

  I think they're probably the pilots and I'm the wing walker, to be honest.

• 14:05Speaker 04

  So that's Harriet Brown, tax barrister, Chartered Institute of Taxation fellow, presenter of the International Tax Bites podcast. Harriet, how you doing?

• 14:13Speaker 05

  Hi there, all good thanks.

• 14:15Speaker 04

  Good, good. And Lucy Spencer, financial planning partner at the wealth manager Evelyn Partners, how are you Lucy?

• 14:22Speaker 06

  I'm good, thank you.

• 14:24Speaker 04

  Right.

• 14:25Martin Lewis?

  How did I do on my explanation, Harriet and Lucy?

• 14:28Speaker 04

  Oh, I'd love it if you told, I'd love it if you said he got something wrong here, but I know he hasn't, because he never does.

• 14:34Speaker 05

  Well, there's only one thing, which is you mentioned domicile, and domicile is no longer the metric used, it's now long-term residence, but it has the same effect. So I think it was, you know, it was pretty good, pretty good.

• 14:49Speaker 04

  That doesn't count as a red pen.

• 14:51Martin Lewis?

  I'll take it. I mean, look, there's lots of other little things I didn't mention. I mean, one that's worth just saying at the start, because I don't think we've got any questions on it. If you're going to be paying inheritance tax, and of course, one of the things we're going to be talking about in a moment is all the ways that you can reduce inheritance tax out of, you know, surplus income or your gift allowances that you have. But it is also worth me saying, if you give over 10% of your estate... To charity, then that reduces the inheritance tax rate you pay from forty percent to thirty six percent. So those with bigger estates who have a charitable bent, it reduces the net cost of giving to charity to about two point four percent, you know, far, far less than you would actually give. So you can give quite a lot to charity and it won't cost your estate as much as you think. But I just wanted to note that in as a bit of

• 15:35Martin Lewis?

  a charitable note. Let's go on to the questions for the major.

• 15:37Speaker 04

  Colin says, I don't have children, but I brought up my niece, although we did not formally adopt her. Can I pass on my property to her when I die without it being included in my estate for inheritance tax? Or does the rule just apply to children? This is the grey area you rather pointed up earlier.

• 15:58Martin Lewis?

  This is the one hundred and seventy five thousand pounds extra property allowance that is only for direct descendants. So Harriet, on a legal basis, I presume there is no way to morph that to your niece unless you adopted them or something.

• 16:12Speaker 05

  That's right, yes. So it's referred to as lineal descendants in the legislation. And then in addition to lineal descendants, you can give it to children's spouses, adopted children, foster children and stepchildren, but sadly not to a niece. Now, whether or not one could adopt now, in order to put that right, what he may like to look to do instead is to make lifetime gifts, which may become exempt if he survives them by seven years and gifts out of income. But unfortunately, no, it's only lineal descendants.

• 16:45Martin Lewis?

  We've got lots of questions on the gifts. Just Lucy, quickly, let's take it as a broader question because we've had others similar. Somebody wants to leave everything to their niece or nephew as opposed to their child. There's nothing else, no other route they could use other than gifting early or using those gift allowances. Is there in the tax planning form?

• 17:02Speaker 06

  So what they can do is, like Harriet suggested, is make lifetime gifts. And after seven years, they're outside of their estates. They do always have their nil rate bands, which they can leave, obviously not the residential one, but they have the three hundred and twenty five thousand that they can use as well. Gifts out of natural income to use. They can also think of other. Planning options, so things like taking out a whole of life policy to cover the tax when they pass away.

• 17:30Martin Lewis?

  So that's insurance policy that will pay out when you die to cover the tax that you would effectively cover the inheritance tax that you would pay.

• 17:36Speaker 06

  Yes, and if those premiums are paid out of excess income, then that's a really good way, providing some money to pay the tax when you pass away.

• 17:45Martin Lewis?

  Okay, I can see, and we've got lots of questions on this, but I actually think it's worth just delving into this in a little bit more detail. So this is the, because everybody asked me about this. This is the issue of surplus income. You are allowed, if you have surplus income, excess income, you can give that with no inheritance tax on it. But what counts as surplus income? How do you define it? How do you make sure people understand it is surplus income? What are the practicals? Shall we start with Harry and we'll come to Lucy on what you should do afterwards. Harry, what is surplus income?

• 18:17Speaker 05

  This is a really interesting question, and it's one where people do get picked up quite a lot by HMRC. So it's an exemption called normal expenditure out of income. And what this means is you have to look at whether it's a number of things, one of which is whether or not you have the income to cover it, i.e. that it's not, so the income is otherwise surplus to your needs. But there are other factors that you need to consider as well, like being able to evidence a pattern of giving, which would sort of make it normal, in inverted commas. So what's surplus income and what's normal will very much depend on the individual. It's a very practical assessment. One way to look at it might be to look at what your, say, monthly income is, what you

• 19:01Speaker 05

  spend of that, what the difference is, and then make gifts that still leave you something over for emergencies, but they could be quite substantial. And I've seen substantial normal expenditure out of income being ultimately granted by HMRC. So it is a very powerful, or potentially very powerful exemption.

• 19:22Martin Lewis?

  But we have to be plain here, this is out of income. So if you've got a lot of capital, you've got a lot of money saved up, but you are a low earner, you're not going to be able to do this, unless you get your capital to generate income, I presume.

• 19:34Speaker 05

  That's absolutely right. So in those circumstances, what you might want to do would be to invest the capital that you have, and then you can say, well, look, I've been living on this low income for 10 years, I'm now getting this additional income, I don't need it. So I'm going to make gifts to whoever.

• 19:54Martin Lewis?

  So you'd need to structure your investment so they generate income rather than generating a capital gain in order to be able to justify it. And Lucy, let's move to you if that's all right on this one. So take us through, I'm sure you've guided people on this on the path. If you had someone who came to you and said, I want to give money out of income. What is the best way I should be giving money out of income to prove that it is surplus income and therefore won't be subject to inheritance tax? What would you suggest they did?

• 20:19Speaker 06

  So first of all, exactly as Harriet said, we need to establish a pattern and we have advised clients to move from that capital generation to that income generation. We also.

• 20:31Martin Lewis?

  So how would you establish a pattern? What are we talking? We're saying you're going to give four times a year a set figure that's going to be recorded. You're always going to give it. Is that what you mean by a pattern?

• 20:40Speaker 06

  No, they need to give at least annually. And because like Harriet said, it does need to be out of income. We need to evidence that actually this is surplus for them. So it doesn't need to be if they always pay for their holidays in August. It could be the September's payment is slightly less than the April's payment because that income needs to be surplus for them.

• 21:01Martin Lewis?

  And are you evidencing, sorry, are you evidencing this as you go? Or is this retrospective evidence? Does this mean if you're planning to do this, you need to be so proactive that you need to be saying right now, this is a gift out of income so that it doesn't count for inheritance tax and I'm putting all the documents together as I'm doing it rather than relying on it later?

• 21:19Speaker 06

  Yes, we always recommend clients do it as they go because it makes it so much easier for your estate to be able to complete the paperwork. One thing which I think is really important though is you, it can't impact your normal standard of living. So you can't like not turn the heating on so you can make gifts out of income.

• 21:39Martin Lewis?

  Yeah.

• 21:39Speaker 04

  But how is that provable?

• 21:41Speaker 06

  I think if HMRC looked back over bank statements and saw you weren't spending as much on energy, for example, for your house, I guess they'd question it. I would probably hand over to Harriet for that one because she may have actual examples.

• 21:55Speaker 05

  So I think. It's a difficult one, and again, what will be acceptable in different circumstances will colour what you're looking at. I think if you suddenly had a significant dip in your living expenses, and at the same time, at the start of this pattern of giving, those expenses went down and the gifts started going out, but your overall income didn't change, that would be a very significant issue. I had a situation once where I had a little old lady living very frugally, but she had a shareholding which had never generated any income,

• 22:36Speaker 05

  and then suddenly started generating really truly significant amounts.

• 22:41Martin Lewis?

  Good for her.

• 22:43Speaker 05

  Yes, it was incredible. It'd been an investment, I think it'd been through at least three generations. But she wanted to give it all away to nieces and nephews, she didn't have children. And we had some difficulty with HMRC on that because they were concerned that she was giving so much away and living on so little. And what we did was we went back and showed that she had been living on so little for years prior. We were actually successful on that one. So it's sort of the reverse of that. And indeed, if you'd been making gifts of, I don't know, £10,000 every three months for five years, and then after that, you continued making those gifts, but your living expenses dipped.

• 23:25Speaker 05

  For example, maybe you'd paid off your mortgage, you would be able to explain that. It's always making sure that it's explicable.

• 23:31Martin Lewis?

  I mean, there's an obvious intuitive test, isn't there? I mean, this this type of giving is primarily for the people who have been, before their giving, were living and probably putting money away in savings or investing because they had surplus income and they didn't need it for their living expenditures. If you're on the brink at the moment, it's going to be quite tough to prove that you've got surplus income. I mean, if we boil it down, not to your legal standard, Harriet, but to a nutshell of who should be considering this and who shouldn't, that's not a bad rule of thumb, is it?

• 23:57Speaker 05

  Absolutely, I think that's a really good practical way to look at it. If you can afford to make the gifts easily, you may well come within this.

• 24:06Martin Lewis?

  Yeah, now we want to do the lifetime giveaway stuff in a moment, but let's do a question more or two, Adrian, if you have.

• 24:11Speaker 04

  Newman, I had a question in regards to the main residence inheritance tax relief. Should I buy a family home with my parents 50 50 split? Would the family home still be eligible for the main residence tax relief if passed down by my parents to myself?

• 24:30Martin Lewis?

  So, Harriet, you can actually nominate what your main residence is, can't you, in this structure, as long as it's provable? Is that how it works?

• 24:37Speaker 05

  You can, yes. So crucially on Newman's question, it would only, obviously only be the parents 50% that would be eligible for an RNRB.

• 24:47Martin Lewis?

  So this is the 175,000 extra property.

• 24:51Speaker 05

  Sorry, yes, it is, yes.

• 24:52Martin Lewis?

  Sorry.

• 24:53Speaker 05

  Yes, sorry, legal jargon. It would only be that and they would need to be able to evidence that it was the parents' residence. It wouldn't matter if it was also his residence, provided that it was their residence, I don't think.

• 25:05Martin Lewis?

  So just further on that, because I know, let's say someone has sold their residence because they needed it to pay for care home and it had been a year or two ago, or they'd recently sold a... Is there any sort of backdating of this what counts as a main residence? Could you still get that allowance? How's it defined exactly?

• 25:23Speaker 05

  So you can still get the allowance. The best of things in tax law are, it's quite, it's not very clearly defined. What you can do is you can sell your home under certain circumstances and then an amount equivalent to that last home is relevant for this 175,000 pounds additional nil rate band.

• 25:49Martin Lewis?

  Fine, so and selling it to pay for care home would count as one of those circumstances, would it?

• 25:53Speaker 05

  It would, yes. If you could no longer live in it, you don't have to hang on to it to be eligible for the additional nil rate band. You can sell it and then that sort of amount will still be entitled to a residential nil rate band, even though it's not a residence anymore.

• 26:10Martin Lewis?

  Is there any time limit on that?

• 26:12Speaker 05

  I don't believe that there is. It's more predicated on why you have left, effectively.

• 26:19Speaker 06

  Martin, can I just quickly add something?

• 26:21Martin Lewis?

  Of course Lucy.

• 26:21Speaker 06

  You can also downsize, but it needs to have happened after July 2015. So if you sold your property to go into care prior to July 2015, then I'd recommend you talk to a solicitor about that one.

• 26:36Martin Lewis?

  Well, I mean, and I'll be honest, talking to a solicitor or talking to a tax advisor is always useful. Now, if this podcast were a book, inheritance tax will be its spine. We're going to be talking about it throughout and doing more in the pod extras. For now, though, let's switch to energy.

• 26:57Martin Lewis?

  I have something I have to tell you.

• 26:58Speaker 04

  Yeah, go on.

• 26:59Martin Lewis?

  It's a bit of a personal admittance. During the break, studio manager Olivia said to me, Martin, can you speak more into the side of your mic rather than the top? She said, can you lift your mic up? Adrian, I've got a droop problem.

• 27:14Speaker 04

  Oh, no.

• 27:15Martin Lewis?

  Every time I lift my mic up, the mic droops back down. I don't know.

• 27:19Speaker 04

  I've got some cream for that, actually.

• 27:21Martin Lewis?

  I don't know what's going on. If anybody knows how to fix it, that would be very helpful. So if I'm talking into the side of the top of my mic too much, it's just a thing that happens to some of us.

• 27:31Speaker 04

  Okay. And first of all, we should talk about energy prices, Martin. Obviously, we mentioned it last week, just after the latest energy price cap details had been released.

• 27:41Martin Lewis?

  That seems a long time ago, Adrian.

• 27:43Speaker 04

  The world's changed, everyone's sort of getting jumpy. What's your take on it?

• 27:49Martin Lewis?

  Well, I think they're right to the wholesale rate of gas, and there are lots of different wholesale rates of gas. But the main one that's looked at for setting the price cap anyway is nearly double what it was at this time last week. And the reason the gas price is so important is gas is such a big factor in our electricity prices. That feeds into the price we pay on electricity. So doubling in a week is huge. I need to put it in perspective. I mean, it was about 70p per therm last week. It's currently, as I'm talking, although I checked half an hour ago and it moved that quickly, it might not be about £1.35. That would still have been relatively low during the peak of the Ukraine gas crisis, the Ukraine war gas crisis that we had. And that went over 600 pence at one time.

• 28:30Martin Lewis?

  So we're not in that scale, but the big question here is how long this will last. I think it's probably worth me talking you through the impact of this spike in energy prices on the different types of energy bill that you have. So if we start with the one that most people are on, which is the energy price cap, which affects those in England, Scotland and Wales who are on their firm standard variable tariff, their do nothing tariff, that I'm not fixed or my fix ended and I did nothing tariff. If you're on that, we heard last week that the April price cap will be dropping by 6.7%. That is locked in. So nothing is going to change apart from that in the price cap until the end of June.

• 29:15Martin Lewis?

  The impact of this spike will hit the July to October price cap. So that price cap is assessed over an average wholesale rates on a three month period. And this is why you can start to understand why I say it's not the height of the spike, it's the length of the spike that really matters. You know, the price goes up to an extreme level for three or four days. Yes, it will push the July price cap up a bit, but if it were then to come back down and everything go back to as it was, it wouldn't have that much of an effect. But if this spike lasts four, five, six, seven, eight weeks, then that's a substantial portion of the three month assessment period. So then we're expecting to see the July price hike go up a lot. Now, based on current predictions, and these will change very rapidly

• 30:00Martin Lewis?

  because we are in an incredibly changeable global political situation with the Middle East conflict. They're now talking about seeing the energy price cap go up by 10% in July. Now, I'll just go into this in a bit more detail because it's interesting, then I'll come on to the other tariffs. The interesting point here is, I think from a governmental perspective, in May is when they will announce the July price cap, the end of May. If at that point, then this is all over and energy prices have come back down. I suspect the government will just say, look, you've had time lag protection, your price is going to go up and hey, there are lots of cheap fixes now available, which they would be if the price had come back down. So what we would suggest most people do is they get off the price cap,

• 30:44Martin Lewis?

  which most people should have got off the price cap before anyway, and you get onto a cheap fix. So there won't be any intervention. That price will go up 10 or 15% from July to October, and then which is the least use period of the year, and then in October it will come back down. I think for the government, the real hope is this is all over by that May announcement. And I think that's the crucial node period in all this is what happens by that point. If it's continuing beyond that, then I think they may have to look at some form of targeted intervention, especially if the spike gets even higher than where it is right now. Let me move on. Sorry, I digressed on myself there, but let me move on to the other tariffs. If you're on an existing fixed tariff, then your price is by definition fixed.

• 31:25Martin Lewis?

  Although, on the 1st of April, as we discussed last week, because of underlying policy changes to energy bills, existing fixes will get cheaper on the 1st of April. The unit rate for gas and the unit rate for electricity will be reduced. The unit rate for electricity by about 3.5 pence per kilowatt hour, for gas by about 0.33 pence per kilowatt hour. And that will happen on the 1st of April, which is an equivalent to, for most people, a 7% to 9% reduction. So if you're on an existing fix, everything's good until the moment your fix ends. And then the question is, what other tariffs are going to be available? And that's the big consternation for those people. If you're on a time of use tariff, so the octopus has the main ones of those, the agile

• 32:08Martin Lewis?

  and tracker tariffs, you're already paying for the spike. So it's those on time of use tariffs, which I always define as sophisticated user tariffs, they tend to be much more related to the existing wholesale rate. So if you're on one of those, you'll know this already, your price will have already gone up on the back of the spike that we've seen in wholesale gas prices. And then the final category is new fixes. Now, hopefully, most of you were listening last week when I was telling you to get off the price cap and fix then. If you'd done that then, you would be sitting very, very pretty right now because you'd have locked in a 14% reduction on your cheapest fix and it was going to get even cheaper on the 1st of April and you would forestalled all this and you wouldn't need to worry.

• 32:49Martin Lewis?

  The problem I have now is, over the last two days, pretty much all of the cheapest fixes have been pulled from the market or repriced substantially upwards. This time last week, the cheapest fix available was 14% cheaper than the price cap. Right now, it's 6.7% cheaper than the price cap. That's the very cheapest. And there's only one or two about there. There are a couple of comparison sites exclusive that are a bit cheaper. So. If you are risk averse, if you are very concerned about energy bills going up and this being a prolonged crisis and you are on a price cap tariff, a standard tariff, there is still time to get a fix that is materially cheaper than the price cap. It won't be anywhere near as good as last week. And of course, there's a risk that if things go back to normal, you would have fixed at

• 33:34Martin Lewis?

  too expensive a rate compared to the other fixes that will be available. But if you're worried, try and get yourself a fix. Go to a whole of market comparison site. Make sure you're looking at all the tariffs that are available. Find the cheapest fix you can and lock in on that now, as long as it's materially cheaper than the current price cap. That is the risk averse move to do. And if you're on the price cap, the comparison should tell you that. And again, if you do get a fix now, it will drop on the 1st of April. One final thought on this, some people say, well, hold on, what if I get a fix now and they go bust because prices all go too high? If you get a fix now and your firm goes bust, I have to say the financial credence checks that are now done on energy firms since the last crisis have improved. Your credit is protected and you would be moved to a new provider, probably onto the price cap.

• 34:17Martin Lewis?

  So you would be in no worse a situation, because you'd still be on a price cap, than you are right now, but you may have saved in the meantime. I think I may have covered it, Adrian. That was a bit of a monologue, sorry. Just an important reminder, that information was correct at the time of recording the podcast. More of those cheap fixes may well have been pulled if you're listening to this later.

• 34:37Speaker 04

  If somebody's worried about heating oil prices, on Sunday we paid an order for a thousand litres, £645. Checked with the same supplier this morning, £1,480. Price per litre from 61p to 239p. We did okay, but feel for others who only have oil heaters from Peter in Lincolnshire.

• 34:59Martin Lewis?

  I've heard of it going up. 239p does sound extremely excessive. Remember, you've got to go and do a comparison on heating oil. It's worth, if you're in a rural area, I know it's common in Northern Ireland, I know it's common in rural parts of Great Britain, then it's worth talking to neighbours and other people in your area. Often, collective buying can cut the cost, so you know, you all negotiate a cheaper price by going with the same oil firm. But yeah, absolutely, home heating oil, because it's Directly linked to the price of oil and gas has gone up and it goes up immediately. And if you're not lucky unlucky enough to be coming to the end of your tank right now and having to refill it, it is going to be extremely costly. And sadly barring, you know, doing a comparison and collective buying, I don't have many solutions on that.

• 35:41Martin Lewis?

  We have under regulated home heating oil in this country for far too long and left people in rural communities in the lurch on it. I've given evidence at energy committees of the House of Commons trying to say we should bring this into proper and better regulation. Like we've now brought heat networks into proper and better regulation. And as far as I know, nothing has changed.

• 35:58Speaker 04

  Another question that's come in by text here. We're literally about to move house. Can we fix and take the fix with us?

• 36:06Martin Lewis?

  So if I get this the right way round, most firms will allow you to port your fix. So if you get a fix now, you can port it. I think the two that don't are OVO and Scottish Power. With them, you won't pay any early exit penalties if you've got a fix and you move house, but you won't be able to port it with you. There's a, I just need to say, and we know we're doing this live on air. I always, I know OVO and Scottish Power are the outliers from the rest of the main providers. I hope I've got it the right way around. There's a tiny chance I've just convoluted the two. I don't think I have, but I just need to warn you, there's a tiny chance I'm doing this off the top of my head. But yeah, you can generally port, it's called portability. And you need to be looking at that in the terms of the fix before you fix. And then you should be able to port it with you to your new home.

• 36:51Martin Lewis?

  And by the magic of podcasts, I was able to check that afterwards and I was right. With all of the major energy firms, you are able to port a fix with the exception of OVO and Scottish Power, who let you leave exit penalty free if you move house. Though of course, it's always worth checking on an individual tariff when you sign up. And especially with smaller firms, they can have their own rules.

• 37:15Speaker 04

  We get back on to inheritance tax now. We've got a caller, Sarah in Weybridge. Sarah, what can we do for you?

• 37:23Speaker 07

  Oh, hello. Yes, I wondered if you could give me some advice. So my father is, has been widowed twice, once with my mother and another, uh, my step mum. Um, he seems to think he can have three inheritance tax nil rate bands, two because he, and he owned, he owned a house both times, uh, his partner, his wife's died. So he thinks he can have two 500s and one 325. So a total of 1.325 million. He's gotten state over 1.5 million and he's concerned about having to pay any inheritance tax at all. So we've told him to give and live, uh, of the, of the

• 38:03Speaker 07

  seven year rule. But yeah, I'm just a bit dubious whether he, he, he's right in thinking he's got a 1.325 as a nil rate.

• 38:12Martin Lewis?

  Well, we've got Harriet here and so we've got a tax lawyer on it. My, my understanding is you're right, he's wrong. You can only have yours and one spouse's. And in fact, the, the reason that's important is if you had two people who had both had previous spouses who had passed away, a widow, let's say a widow and a widower, could be two widowers or two widows, but you get the point. Then they actually, when I talked earlier that marriage is a really good way to reduce inheritance tax, in their cases, if they got married, they're potentially losing their previous allowances from their past spouses. So it could be negative for them. Because I talk about that, I think, Harriet, you're going to say you only can only have the two, aren't you?

• 38:50Speaker 05

  The maximum that you can have is a total of two nil rate bands. However, if you had a situation where, for example, the most recent spouse, say, had used half of their nil rate band, but the previous spouse also had some nil rate band, you could have the half that the previous spouse had and then some from the first spouse.

• 39:16Martin Lewis?

  Gotcha.

• 39:17Speaker 05

  To a maximum of one extra nil rate band. So you, the, you are completely right as to the outcome. The reasoning is slightly different. And the only thing to add there is. The amount that is available on a transferable nil rate band is the amount of the the maximum is the amount of the nil rate band at the time of that first death. So if you had somebody who died before it was three hundred and twenty five thousand pounds and you could you could that that does happen. The maximum would be the maximum that they had there. So I think you said your your mother died in nineteen seventy nine.

• 39:53Speaker 07

  She did, yes.

• 39:54Speaker 05

  Yeah, so that that would be a lesser full amount, but equally if the if if your step mum had a full nil rate band, that wouldn't matter because you couldn't get any more than that anyway.

• 40:05Martin Lewis?

  And and Harry, just to just to clarify on the nil rate band, I'm so sorry, that you've got a three hundred and twenty five thousand nil rate band and a one hundred and seventy five thousand nil rate band. I presume it's a maximum of one each of those, it's not a combined five hundred thousand.

• 40:19Speaker 05

  No, it's it's a maximum of one each of those. The the residential nil rate band is calculated slightly differently, but in almost all situations it will come out to the same thing. So you can have your three hundred and twenty five, your spouse's three hundred and twen- well, former spouses up to three hundred and twenty five and the same for that one hundred and seventy five, your own one hundred and seventy five plus up to one hundred and seventy five for former spouses.

• 40:44Martin Lewis?

  I interrupted your question, I'm so sorry, do carry on.

• 40:47Speaker 07

  No, that's fine, so so it's a maximum of one million is all that he can have then to pass on, even though my mum, I never received anything from my mother when she died, obviously I was still quite young in the first instance.

• 41:00Speaker 05

  Yeah, so so that that is unfortunately correct. There are some other things that you could look at doing. Live and give is actually really not bad advice if you don't want to pay inheritance tax at all.

• 41:11Speaker 07

  Uh huh.

• 41:12Speaker 05

  Something that often comes up in inheritance taxes, or that I say a lot, is I say, you, the person passing money on, doesn't have an inheritance tax problem, the next generation does. If you want to help them solve that, that's fine, but you're not obliged to, it's not really your problem. Um, so I think it is worth reiterating that that that on a practical note, but you might want to look at if there's a possibility of gifts out of income, if there are looking at potentially exempt transfers, I think you said your father was eighty six, is that right?

• 41:48Speaker 07

  He was, yes, he did, yeah.

• 41:49Speaker 05

  So, you know, whether or not making a gift now and waiting seven years looks like being a viable option. Maybe, you know, that's going to be dependent on your father's health.

• 41:59Martin Lewis?

  Let's just do give and live for people who are listening because we haven't talked about it yet. And it's incredibly important and I'll do the very simple version first. If you give a gift to somebody, anything without reservation. So this is not a case of saying, I'm going to give you my home, but I'm going to live in it and not pay any rent. That's a gift with reservation. It's got to be a proper gift. You know, if you were going to do that, you could probably say, I'll give you my home, but I will pay you a commercial rent for it. And Harriet can discuss whether that would be acceptable or not, but you give somebody a proper gift. If you live three years, the inheritance tax rate you pay is reduced on that gift. So it's no longer the 40%, it starts to get lower.

• 42:40Martin Lewis?

  It tapers down until if you live seven years after you've given the gift. Then it is no longer part of your estate because you gave it away more than seven years ago. And therefore there would be no inheritance tax on the assets that you've given away. And that's what give and live is talking about. Now, obviously, at your father's age, being blunt because we have to be, I mean, I think, you know, we'd be hoping the three years we'll be getting for that. The seven years is a long time and statistically is getting a bit more dicey. But every year after three year, it improves, doesn't it, Harriet?

• 43:09Speaker 05

  That's absolutely right. The percentage starts going down in year three, more in year four. I think it's 20%, possibly 20% a year. That seems right. That would taper down to nil. So the rate reduces significantly by the time you get to year, say, five or six. And then after seven years, you have a completely exempt gift. So he could do that. The other thing he might want to think about is something that Martin already mentioned, which is if his primary objection is inheritance tax and you don't need all of his estate, he could look at giving to charities in a value over 10% of his estate. That's a possibility as well.

• 43:46Martin Lewis?

  Now, of course, it's that time of the show where we have to put Adrian to the test in Mastermind. But there's still more to come on inheritance tax, including the big change, which is that pensions from 2027 are going to be included as part of your estate. Plus, we will run through in detail all the different gifting rules and allowances where you can give money away and it doesn't count as part of your estate for inheritance tax purposes. For now, though, play that theme tune.

• 44:23Martin Lewis?

  Hello. Yes, and I should have thanked our caller too, sorry. Welcome to Money Mastermind. Adrian, the score stands that you've got 16 right and 34 wrong in this three option multiple choice quiz, which means, I'm sad to say, you're still

• 44:42Martin Lewis?

  no better than random chance. We're gonna get this better, though. I've decided I'm gonna be positive attitude with you on this, and I'm gonna be an encouraging cheerleader rather than a Grinch on the back of it. Adrian, it's March. We've got one day of sunshine. Tomorrow, a sideways drizzle is expected, but today, no. So you are in a DIY store to buy a barbecue. Right. This isn't a delusion. This is a clever counter-seasonal bargain purchasing strategy. Bravo to you, I say, sir. Bravo. Thank you. Now, you're in there, and you spot the Flamedaddy Big Meat XL Pro.

• 45:19Martin Lewis?

  Labeled £299, you instantly fall in love with it. It can apparently cope with more meats than a politician out canvassing. You take it to the till. It scans at £399.

• 45:35Martin Lewis?

  Now, hang on, you're thinking. Emotionally, I have committed to my sausages. The price ticket said £299, and now they're telling me it's £399. I don't believe that's right. So that is the question, Adrian. The price ticket said £299, but it's now at the till £399. Do you have a legal right to buy the Flamedaddy Big Meat XL Pro for £299? A, no. B, yes. C, yes, but only if all the other two Flamedaddy Big Meat XL Pro barbecues were labelled £299, and it wasn't just a one-off price ticket mistake.

• 46:15Speaker 04

  I, I surely not. I don't, no.

• 46:20Martin Lewis?

  Surely not what?

• 46:21Speaker 04

  I, I think, I think it's no. I think it's A. No.

• 46:25Martin Lewis?

  You think you don't have a right?

• 46:26Speaker 04

  You don't have a right, no. I can't, because other people be swapping tickets over, it'd be absolute chaos.

• 46:34Martin Lewis?

  Remember the third one is, yes, but only if all the other two Flame Daddy Big Meat XL Pro Barbecues were labelled £299 and it wasn't just a one-off price ticket mistake.

• 46:43Speaker 04

  Say that again.

• 46:44Martin Lewis?

  Yes, but only if all the other Flame Daddy Big Meat XL Pro, I wish I hadn't written such a long name for the number barbecue. XL Pro Barbecues were labelled £299 and it wasn't just a one-off price ticket mistake. So you can assume by that we're saying yes.

• 47:00Speaker 04

  Yeah.

• 47:00Martin Lewis?

  If it was the store who'd done the mistake, a systemic mistake. So you've got three options, no, yes.

• 47:06Speaker 04

  I think I've, well, hmm.

• 47:12Speaker 04

  I'm, I'm still gonna say no. I'm still gonna say no because, I'm still gonna say no because I think it's up to them what they select you on.

• 47:21Martin Lewis?

  Are you locked in on no?

• 47:23Speaker 04

  I'm locked in.

• 47:24Martin Lewis?

  We have the tension bed. Adrian, no is the correct answer.

• 47:38Martin Lewis?

  Well done, Adam.

• 47:39Speaker 04

  You are a piece of work trying to drag me away.

• 47:43Martin Lewis?

  I just realised you had an extra minute. And I also, can I just say, well done to Simon for nailing, nailing playing all the different sounds at the right points there. I thought that was very good. I've been told since the podcast that was actually studio manager Simeon, not producer Simon. But hey, I got five letters right and thanks to both of you. So let's just talk about this. Well done, Adrian. You got one right, I'm pleased to say. The label price is normally in UK law just an invitation to treat. It's not a binding offer. And it's worth remembering that because it does mean haggling in store is an option. If it's an invitation to treat from then, you can offer a different price too. So the shop is inviting you to make an offer. The contract is only formed when the retailer accepts your offer.

• 48:27Martin Lewis?

  Now, in store, that is normally by taking your payment. I should note, persistent mislabeling.

• 48:34Martin Lewis?

  After you've notified them that the price is wrong, could be unlawful and you could report that to Trading Standards because if they're doing it deliberately to mislead, that is a criminal offence. But the accidental misprice that you get would be wrong. Many big retailers though do operate store policies or scanning guarantees and will either sell at the lower price or refund the difference or offer another remedy. So it is always worth pointing out, hold on, that this says here and it says back there that it's £299. Can I speak to a store manager? You don't have a legal right, but you might be able to see if they could reduce the price. It is worth noting, online, because it's the point that the contract is formed that counts. Many people think that's when they pay.

• 49:15Martin Lewis?

  Online, it tends not to be when you pay, it's when they dispatch the item. And therefore, that's why, and we've seen loads of these price error mistakes before, where people have rushed in seeing something that should cost, you know, a plasma telly for £4.99 and instead of £499, they've rushed in and they've go, I've got a right, I've bought it, I've bought it. Now, if they haven't dispatched it, the contract hasn't been formed and therefore they do have a legal right to cancel, I'm afraid. So those are the rules. Adrian, I'm delighted to say, after all that, you've now got 17 right and 34 wrong. You get one more right and you are no longer no better than random chance. Next week.

• 49:57Martin Lewis?

  Hello, right, we're into our podcast-only extras bit now and I'm very lucky to still have Lucy Spencer, Financial Planning Partner at UK Wealth Managers, Evelyn Partners with us, and Harriet Brown, Tax Barrister, Chartered Institute of Taxation Fellow and presenter of the International Tax Bike Podcast, still with us to carry on going through the unsurprisingly enormous number of questions that you sent about inheritance tax. And we're going to plough through as many as we can in the time that we've got, so let's get straight into it. The next question, and we're expecting this, and I think Lucy, it's one for you. Joyce says, please can you cover the new rules about pensions and inheritance tax and how it works for those who have defined pensions? It seems to penalise those who have defined contribution pots that can be easily valued. So.

• 50:44Martin Lewis?

  Lucy, the latest up to date from next year, your unused pension would count towards your inheritance tax assets, wouldn't it?

• 50:54Speaker 06

  It will do and Joyce, for your information, it only affects the defined contribution schemes and they are easily valued. It's valued as at the date of death. So regardless of what age you pass away, post April 27, your pot will be in your estate for inheritance tax purposes, subject to those nil rate bounds which we discussed earlier. There is a difference to how they are taxed when they're withdrawn, depending on if you die before age 75 or if you die post age 75. So if you die post age 75, the funds will be liable to inheritance tax at 40%, but then also liable to income tax as at the beneficiaries'

• 51:38Speaker 06

  marginal rate when they take the income out of the pension. If you die pre age 75, even up to age 74, 364 days, then your beneficiaries can take the money out of pension income tax free, but they will still be liable to inheritance tax.

• 51:55Martin Lewis?

  Okay, so I just want to make sure I've got this right. Until the day before your 75th birthday, it counts as part of your estate for inheritance tax, or it will count as part of your estate, the amount of money in your pension. If it's a defined contributions pot, that's the money pot, you know, that's when you're saving up and you see you've got an amount of money. It's those type of pensions rather than final salary pensions. Once you're aged 75 and over, if you've got money left in there, then not only will it be inheritance taxable, but when the person who gets the money tries to take the income out, they're going to have to pay income tax at whatever rate they pay. So if they're a high rate taxpayer, you're going to have another 40% off. It is a double form of taxation. I mean, this is, this is a massive change coming, isn't it Lucy? And in many ways, because pensions weren't in the inheritance tax regime,

• 52:40Martin Lewis?

  many people were sort of operating that they would leave their money in their pension because it was a good way of passing assets inheritance tax free. Has this totally shaken up all the type of inheritance tax planning that you do with clients and thrown it all up in the air?

• 52:54Speaker 06

  It very much has done. So for years, I've been working with clients that actually were spending down their ISA allowances, they're spending down their general investments accounts. Now we're revisiting that planning, especially for those over 75 because of that double taxation rules. When we were speaking earlier, we mentioned gifts out of regular income, money taken from pensions can class as income. So we are seeing a lot of clients now actually drawing more income to gift away, to make those gifts out of regular income.

• 53:24Martin Lewis?

  I mean, this is seismic, isn't it, for your world? The level of incomes that people who come to someone who's a financial planning partner, that they're going to be relative to high net worth individuals, and it's a complete change?

• 53:35Speaker 06

  It is very much a complete change. And there's a lot of pensions out there which I haven't been touched, and there's some large pensions out there as well. So now we are just revisiting our clients' financial planning, revisiting their future planning in terms of how they prepare for passing on their wealth to their family.

• 53:53Martin Lewis?

  And Harriet, is the law locked in now, or are there still things to be decided on this?

• 53:58Speaker 05

  Yes. So the policy isn't going to change now. This is going to happen. It's still possible that it might be tinkered with in the coming finance bill, but it's not going to change in any material respect, I wouldn't have thought at this stage.

• 54:14Speaker 06

  Martin, could I add one more thing?

• 54:15Martin Lewis?

  Of course.

• 54:16Speaker 06

  Please, for everyone out there that has a pension, regardless if it's a large pension or you don't have an inheritance tax liability, but for everyone, make sure your nomination of beneficiaries forms are up to date, because that really tells the trustees of the pension scheme who you want to pass it to.

• 54:32Martin Lewis?

  So I put a clip on social media about that very issue yesterday. Yeah, people often think that pensions are covered in their will. It's not. It's the, for a private to work pension, it is the trustee or pension provider who decides where your money goes. And your nomination form or beneficiaries form or expression of wishes form is what tells them, well, how you tell them where you want it to go. You would have done it when you were signing up, but you'd be surprised how many people get in touch with me and annoyed because, you know, their partner's just died, they're not married, and it's gone to their partner's ex-wife, not them, because then that form wasn't updated. So I would echo your thoughts very much. Let's move on to our next question. Shaun, is money paid into a junior ISA outside of the estate for the purposes of inheritance tax in the same way

• 55:15Martin Lewis?

  money paid into a pension is? I wouldn't have thought so here. Let's check with Harriet. I don't think there's any special ISA exemption, is there?

• 55:24Speaker 05

  No, I mean, you could put money into a junior ISA and survive the gift by seven years, but in the hands of the junior whose ISA it is, it would still be within their estate.

• 55:35Martin Lewis?

  Yeah, I mean, junior, there's no special rules. So all the other gifting and exchange rules still apply to this, but there's no special giving somebody money to put in an ISA rule. And we need to come on to the gifting stuff. I have it in my questions. Really interesting one from Celia here. Harriet, I'll start with you on this. Can you refuse inheritance if the estate has debts over its value?

• 55:56Speaker 05

  You can. I'm assuming the reason this is being asked is because there's a concern that if you take the inheritance, you're liable for the debt, and that's simply not true. So realistically, you wouldn't need to disclaim the inheritance. You could simply just ignore it because there wouldn't be anything to inherit once the estate had been wound up.

• 56:19Martin Lewis?

  But the difficulty is if you wanted someone had a house and they had lots of debt, you can't just take the house and not take the debt. I mean, it's the estate that would pay the debts effectively, but that would still have to be paid, wouldn't it?

• 56:30Speaker 05

  Absolutely, yes. So you don't get the, you don't have to pay debts over the value of the estate, but equally, you can't just take the property sadly.

• 56:39Martin Lewis?

  Yeah, you've got to take the good and the bad that all comes with it. Gillian, "I'm a single person divorced, so no spousal allowance received. Property and now inclusion of pensions is an issue if I die before I spend them. What should I be looking at?" I think Lucy, this is in your bag, isn't it?

• 56:56Speaker 06

  So what I'd recommend is depending on who she wants to pass her pensions to, we can look at things like the gifting out of natural and excess income rule, which is immediately exempt. If she has other capital, she could make potentially exempt transfers. And also on potentially exempt transfers, any growth on that money is immediately outside the estate as well. So if you give a lump sum of Three hundred thousand pounds and then that grows in value because it's invested. It's only the three hundred thousand pounds which you need to last seven years. The growth is automatically outside the estates as well.

• 57:33Martin Lewis?

  So the potentially exempt transfer is the seven year rule or the three to seven year rule that we talked about earlier. Let's just, we're going, Sean's question is next, the allow two hundred and fifty pound gifts. Can you give only one two hundred and fifty pound gift per person per tax year? Or can you give multiple two hundred and fifty pound gifts to the same person in a tax year? No, you can't. It's one per person. But let's just do, Lucy, let's go through all those other gift allowances that are available. That we'll start with, there's a three thousand pound rule, isn't there?

• 58:03Speaker 06

  Yeah, so there's the large gift allowance, which is three thousand pounds per individual per tax year. And what that means is, so I can give three thousand pounds of my large gifts allowance either to one person or split between multiple people. And also we claim a tax year as well. So if you haven't given that three thousand pounds last tax year, you can effectively give six thousand pounds today.

• 58:27Martin Lewis?

  So this is, just so that people understand, this is outside of the seven year rule, outside of the giving money from surplus income rule. You're allowed, you as an individual can give up to three thousand pounds per tax year without paying inheritance tax on it. How do you denote that you're using this large gift allowance? Do you have to note down that that's what your intention was or is it just back out?

• 58:51Speaker 06

  So I recommend with all gifts, and that's the small gift allowance of the two hundred and fifty. We've spoken about the large gift allowance of the three thousand. Or any gifts actually written down either on a piece of paper or on a spreadsheet and held with your will. Because when you come, some passes away and you come to complete their inheritance tax form, there's actually a whole list where you have to detail all of the gifts which you've made leading up to your death. So no, definitely make a note of it and put in one column and just put large gifts allowance for this tax year.

• 59:24Martin Lewis?

  Okay, so I can give money from surplus income. I can give money away as long as I last seven years and it's a gift without restriction. I can give three thousand pounds to as many people. My maximum I can give is three thousand pounds, but I could share that between different people. What's the two hundred and fifty pound rule?

• 59:43Speaker 06

  So the £250 rule, effectively I could stand on a street corner and give £250 to as many people as I wish. What I can't do is give one person one pound more. So if, say, Martin and I was to give you £250, Harriet £250 in this tax year, what I can't do is then come back to you, Martin, and go, oh, actually, have another £50 on top of that.

• 1:00:08Martin Lewis?

  How does the £250, small gifts to an individual, so the £250 is you can give to as many people as you like, but maximum £250 to a recipient. The £3,000 rule is the maximum that the giver can give. How does the £3,000 rule and the £250 rule interact?

• 1:00:26Speaker 06

  The person who you've given the £3,000 to, you can't then give them the £250.

• 1:00:32Martin Lewis?

  Okay, so they have to be totally separate?

• 1:00:34Speaker 06

  The way I kind of look at it is you give your daughter £3,000 and then you give your grandchildren £250.

• 1:00:41Martin Lewis?

  Makes sense. And then Peter, is it really necessary to keep evidence of all gifts over £250 for seven years, given that most people don't know when they're going to die?

• 1:00:51Speaker 06

  My recommendation, and interested here Harriet's views on this as well, is if you keep a list of all of the gifts you have made, it will make things so much easier for your executives when they come in to fill in your inheritance tax forms.

• 1:01:05Martin Lewis?

  Harriet, what do you think?

• 1:01:06Speaker 05

  I completely agree with with anything. Keeping contemporaneous evidence as you go along is always going to put you or your estate executives in much better position to deal with HMRC. So yes, absolutely. It's not that onerous to keep keep evidence of gifts for seven years, I don't think. So yes, I would recommend doing it as well.

• 1:01:30Martin Lewis?

  Okay, so now I'm going to ask you both a tricky question. So Lucy, we're going to take your calculator away. You're answering this as a human being outside of your normal place. And Harriet, we're taking your wig off. I presume you wear a wig sometimes. I don't know, I may be wrong. Your barrister's wig off on this one. At what age would you say it is sensible for people to start keeping notes on all this type of stuff? You know, at what point in life do we start to start thinking, well, just in case there might be an administrative issue if I were to pass away? Go on, Harriet, let's put you on this one first.

• 1:02:03Speaker 05

  Early 40s, genuinely, because that's sort of when...

• 1:02:06Martin Lewis?

  That's so depressing.

• 1:02:07Speaker 05

  Well, you know, I think I'm in my mid 40s and I recently had the surreal experience of having a friend die of cancer and thinking, yes, that was too early, but it wasn't tragically early. Because it's around this age that these things start to happen. So I would say with an abundance of caution, early to mid 40s.

• 1:02:28Martin Lewis?

  Lucy?

• 1:02:29Speaker 06

  So I would say, I'm going to go slightly later than Harriet, and I'll go in your 50s.

• 1:02:37Martin Lewis?

  That's still depressing, Lucy.

• 1:02:39Speaker 06

  Maybe when you've received an inheritance, so your wealth is more, so you start to come over those nil rate bounds. For me, I'm a financial advisor, it's about the amounts. And if you've been diagnosed with an illness, start to keep those records then. For me, any point you go over those nil rate bounds, so inheritance tax becomes a concern for you.

• 1:03:00Martin Lewis?

  And the good news is, once you've lived, anything that's more than seven years ago, we don't really have to bother about that much because that's gone then, isn't it? Do we still keep records then?

• 1:03:11Speaker 06

  I'd recommend keeping records for 14 years, just because some allowances may have been used up in the previous year. So yeah, my advice is 14 years and it'll probably save you some legal costs as well.

• 1:03:24Martin Lewis?

  So we've now done giving gifts away from income. We've given potentially exempt transfers, if you live longer than seven years. The large gift £3,000 allowance, the multiple small gift £250 allowance. But then there are also, I believe, special occasion allowances for things like weddings, aren't there? I don't know if either of you, Harriet, maybe you've got a list of those?

• 1:03:46Speaker 05

  I have, I'm looking at the relevant section of the legislation, which is obviously very helpful. So you've got gifts in consideration of marriage or civil partnership, where a parent of either party to the union can give £5,000. So if all four parents gave the maximum, that would be £20,000.

• 1:04:04Martin Lewis?

  Yeah, parent or step parent, I'm guessing as well.

• 1:04:06Speaker 05

  Yes, yes, you could, yeah.

• 1:04:08Martin Lewis?

  Yeah.

• 1:04:08Speaker 05

  Uh, other people who are relations, so grandparents could give £2,500 and anybody else can give a thousand on the occasion of marriage.

• 1:04:18Martin Lewis?

  Okay, nice. Any other allowances in similar, similar vein, or is it, it's all about marriage, is it?

• 1:04:23Speaker 06

  I was just going to also say, you can also gift your large gift allowance with that as well. So the £3,000 we spoke about.

• 1:04:31Martin Lewis?

  So it's not exclusive. So if you're a parent, you could give on someone getting married, you could give them £8,000 outside of your estate, uh, even if you were to horribly pass away the next week.

• 1:04:42Speaker 06

  Yes.

• 1:04:43Martin Lewis?

  Cool. We've got one more question, I think, and I think we'll stop there. Hopefully we managed to cover most things that people want. Colin, will a SIP, self-invested personal pension, drawdown be considered as part of my estate? It will be inherited by my only son. He's a higher rate taxpayer. Should he keep it invested and can he draw down on it outside of the estate? I think Lucy, that is probably you.

• 1:05:07Speaker 06

  So the SIP will be part of Colin's estate post April 27. If he dies before he reaches age 75, then he'll pay inheritance tax on it. But no, his son won't pay income tax on it. If he passes away, um, post age 75, then his son will pay inheritance tax and then income tax, which is quite significant for a higher additional rate taxpayer. What I would recommend is actually he seeks financial advice with his son to see, are there other options? Does his son need the money? Could he pass to grandchildren, for example?

• 1:05:45Martin Lewis?

  Very interesting. Both of you, absolutely brilliant. Thank you so much for joining us. That's Lucy Spencer from Evelyn Partners and Harriet Brown, who is the presenter of the International Tax Bites podcast. Thank you so much. Hopefully we have demystified or at least made you understand the complexities of inheritance tax today.

• 1:06:07Martin Lewis?

  That's it for this week. We tend to put out a new episode every Thursday and Monday. The Monday one is our Question Time podcast where you can ask me absolutely anything and everything, open brackets, within reason, close brackets. If you've enjoyed it today, please tell your friends you've been listening to the Martin Lewis podcast. Why not give us a review online too? And even better, subscribe, then your pockets will be pleased with you every week. Thanks for listening.

• 1:06:48Speaker 08

  Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing [email protected]. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.

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