Marginal Gain – May 2023

How is it May already? This year has started with speed and looking like it’s not going to slow down. This month’s articles cover off some of the changes that are happening plus a great article from Peter about the risks of pension withdrawals without advice.

Wendy Devlin

Head of Advisory Services

On the trail of unpaid IHT

HMRC has set up a new specialist team to target estates of wealthy deceased individuals in order to check whether a greater Inheritance Tax (IHT) liability may have been due than originally calculated by estate executors. This clampdown has seen record amounts of unpaid tax being clawed back by HMRC with levels expected to rise further in the coming years.

Record sums recovered

Data obtained through a Freedom of Information request has revealed that a total of £326m was collected by HMRC as a result of targeted IHT investigations in the year to March 2022. This was the largest amount ever recovered and represents a 28% increase on the amount raised by investigators in the previous 12-month period.

Threshold freeze

The standard IHT rate is currently 40%, paid on the value of any estate above £325,000; in addition, homeowners benefit from an extra £175,000 allowance if they pass on their primary residence to a child or grandchild. These thresholds, however, have been frozen until 2028, which inevitably means more people are likely to be dragged into the IHT net. In 2021-22, families collectively paid £6.1bn in death duties, up from £5.4bn the previous year, and monthly data up to December suggests the figure for 2022-23 will be even higher.

Complex rules

More than 13,000 individuals have been embroiled in IHT investigations since 2019. While some of these bereaved families may have acted deliberately, others are likely to have made innocent mistakes and simply fallen foul of IHT rule complexities. Two areas where mistakes commonly occur relate to the provision of lifetime gifts and the valuation of personal possessions.

We’re here to help

If you have any concerns or need advice on any aspect relating to IHT then do get in touch; we’re always happy to help.

Author: Richmond House


Time to review your resilience

Awareness of the importance of protection has risen since the pandemic and led many to reassess their financial and personal priorities. It’s sensible to review your protection cover once a year and to discuss it with those close to you to make sure it still meets your needs.

Have the conversation

Only half (52%) of unmarried adults who are in a relationship know whether their partner has a life insurance policy and more than a quarter (27%) of those who do know are unaware of the policy’s value1.

Many people assume they will automatically be entitled to the life insurance payout in the event of their partner’s death. This may not necessarily be the case. So, consider whether the policy should be put in trust to ensure the proceeds go where you want them to.

Prepare for financial shocks

How would you cope if you became ill? Would you have to rely on your partner, or struggle on trying to work? Almost one in five (19%) working adults say they would have to rely on their partner’s income or savings if they were unable to work, with 19% struggling to pay their mortgage or rent if they were unable to work for two months due to illness or injury. Some 11% would resort to taking on debt such as a loan, overdraft, or credit cards2.

It makes sense to review your situation carefully if you’re self-employed too. Only 6% of self-employed workers have an income protection policy and millions of self-employed people consider they would have to carry on working if they suffered an illness or injury.

1Scottish Widows, 2023

2LV=, 2023

Author: Richmond House


We speak your language

Financial jargon can be confusing and overwhelming. A new study1 has revealed that seven in ten UK adults are puzzled by financial jargon.

Age gap

The research also found that those aged under 25 are least likely to feel puzzled by financial jargon, with around half (52%) of those aged 18 to 24 stating this, compared to 69% across all age groups. However, there may be an explanation as to why this age group are less confused by financial jargon – they simply might not have heard of certain financial products or terms. For example, less than two thirds of UK adults (61%) in this age group report hearing the term ‘pension’ compared to 97% of those aged 55 and above. In contrast, 18 to 24-year-olds are the group most likely to be aware of the term ‘ESG fund’ (Environmental, Social and Governance).

But even if you have heard a term, it doesn’t necessarily show that you understand its meaning. Just 61% of people who are aware of an ‘ESG fund’ feel confident of its meaning.

Lost in translation

One of the biggest challenges when it comes to financial jargon is that it often feels like a language unto itself. Even if you’re a skilled communicator in other areas, financial terminology may use specialist jargon that can leave you feeling lost.

Ultimately, it’s important to remember that financial jargon is a tool for communicating complex concepts and ideas. We can explain everything you need to know in plain English. Get in touch – whatever your age!

1Aviva, 2022

Author: Richmond House


Pension & Temptation

It’s that time of year again. The postman has just delivered the annual statement for that little pension you’ve had for years. You promise yourself that next time the pension guy is in the office, you’ll give him the details to get it transferred in to your workplace plan – but you’ve been promising yourself that for the last 5 years and still you haven’t managed to get round to it.

You look at the statement and notice the value hasn’t changed that much over the last year and it crosses your mind that, rather than transfer it, you might just cash it in because you want that holiday/ new car/ kitchen make-over and you know that whatever happens your pension just isn’t going to give you that perfect sunset as you sip cocktails on the beach/have that new car smell/be a joy after making do with the same old kitchen for the last 20 years.

So, you pick up the phone to the pension company, half-listen to all the things they’re telling you but, ultimately, the lure of the sun/car/kitchen is sufficient that you go ahead and start waiting for the cash to hit your bank account.

A few days later, the money arrives and you’ve passed the point of no return. And reality strikes (assuming the total value of the plan you cashed in was £10,000 or more)…

Firstly, you have 91 days from getting the money to notify the pension company that runs your workplace pension (and any other pensions you might be paying into) that you are now subject to the Money Purchase Annual Allowance (MPAA). If you don’t notify in time, HMRC will fine you £300 automatically and, potentially, another £60 a day until you do what you are supposed to.

Secondly, that promise you made to yourself that you’ll increase your future pension payment to make up for the money you’re spending now falls apart because the MPAA limits how much you can pay in future. This is contributions wherever they come from – you, your employer, tax relief. The limit was £4,000 per year but it has just gone up to £10,000 a year. If you exceed these amounts, you’ll pay tax on the excess at your highest rate.

If you’re particularly unlucky, you might even find that you’re paying tax on your employer’s contribution because they are quite generous when it comes to the pension – a situation you hadn’t even dreamt of before all this started.

Most people, having found themselves in the position described above, have an initial reaction of confusion. “I thought the Government wants us to have a decent pension” is a common response. They do. The fact that the MPAA appears to run totally counter to that idea is, however, neither here nor there. It may not be fair or logical but they are the rules and, until someone decides otherwise, they have to be abided by.

So, as tempting as the idea of cashing that pension in may be and however strong the lure of the beach/car/kitchen is, be sure to check out the ramifications of what you’re about to do as it could seriously damage your financial health.


Author: Peter Murphy
Tel: 01438 345777