He's dead, of course
by Doug Brodie
/1. The LTA rule changes – there’s more detail than most people know.
We received confirmation from one of the providers we use, AJ Bell, confirming the last set of regulations included in the abolition of the LTA. It wasn’t simple, and that’s why Ms Reeves’ tax grab via IHT on pensions is subject to a two-year consultation period. This is the outline of changes confirmed:
When the lifetime allowance (LTA) was abolished on 6 April 2024, errors in the legislation put some clients at an unfair disadvantage, and left others completely unable to take certain benefits. To correct these issues, new regulations came into force on 18 November.
Key changes include:
We’ll now be able to pay out Scheme Specific Lump Sums, and PCLS payments over £375,000 for clients with Enhanced and Primary Protection.
Clients with Enhanced Protection will be able to transfer without losing the benefits of that protection.
The standard transitional calculation will ignore the age 75 test.
Clients who have been issued a TTFAC will need to provide a copy of it to every pension scheme they’re a member of within 90 days of it being issued (or 90 days of 18 November 2024, if later).
Personal representatives of deceased clients will now have until 31 October following the tax year of a death benefits payment to apply for a TTFAC (living members must still apply before a lump sum).
When asked about simplistic changes that a Chancellor can make to pensions we always hedge from a direct answer and the items above should show you why. It’s never simple, there are way too many layers to this onion.
/2. How much it costs one client to get an extra £3,286 state pension per year.
£1,480.90p.
Our lovely client had various earnings breaks whilst bringing up the kids and changing career. HMRC confirmed that she was £3,286 per annum on her state pension (inflation linked and guaranteed). This was because she was nine years short on her class 2 national insurance contributions.
Prompted by us to check, HMRC then confirmed back to her the single payment she had to make to make up that shortfall was just £1,480.90. That’s always going to be the most profitable piece of advice we could ever give her.
/3. Data: Merchants Trust v Vanguard FTSE ETF
We run money with Vanguard. We run money in cash. We are product agnostic and fiercely independent. Where the data points are, that’s where we follow.
This is actually a very wide table so to make it easy to read we’ve chopped it in half and put one set of data on top of the other.
The total dividends on a £100k portfolio equalled 81% of the starting value.
In summary:
What most renders the Vanguard ETF unsuitable for our purposes is the volatility of income.
/4. Data: a peek at a part of what tracking trusts entails
The charts above are simplified to give a clear visual impact. As you may know, we run our research here via our sister company, Chancery Lane Research Limited. One of the updates they provided to me this week was a ‘marker’ sheet, a summary showing key attributes of trusts over the last seven months.
That’s a record of data, what we really need to know is what’s changing, and how much:
Once we’ve been able to identify what has moved, we can then ask the question ‘why?’. Hence our meeting with Ben Lofthouse last week, the manager of the £385m Henderson International Income – we are very lucky to be in the middle of London, however, there is a cost to being here. The ability to ring people responsible for client money and get a face-to-face meeting almost whenever we want is added value to being here. It’s exceptionally important to be well informed.
/5. How French succession law works
French succession taxes can be as high as 60%, so it’s vital to be well informed if you have property there. ‘Forced heirship’ in French succession is real:
Forced heirship and reserved heirs
French forced heirship rules dictate how assets are distributed on death. Key points are:
Assets do not automatically pass in accordance with your will.
Children are protected heirs, inheriting up to 75% of your estate.
Spouses are not automatically protected.
There can be ways of limiting the effect of forced heirship rules.
Provided you have a will, under French law your estate is divided as follows:
With one child, 50% freely disposable and 50% to the child
With two children, 33.4% freely disposable and 66.6% to the children
With three children, 25% freely disposable and 75% to the children
I’m not writing about what happens if you don’t have a will – that’s simply reckless.
What is essential to know is that EU Regulation 650/2012 means foreign nationals living in an EU country can opt for the succession law of their country of nationality, instead of their country of residence. UK nationals can elect for the relevant UK succession law to apply to their whole estate however this must be stated in your will, otherwise French law applies by default.
And if you think ‘we’re married, nothing to worry about’, well the French have tortuous interpretations of that as well.
The different types of marriage contracts in France can affect how assets are owned. For example:
Séparation de biens (separation of assets) – each spouse is treated as owning the assets acquired by them personally, and 50% of jointly held assets. Most British married couples automatically fall into this regime, as do PACS partners.
Communauté réduite aux acquêts (community property ownership) – wealth created after marriage is considered joint property (even if held in one name); assets acquired before marriage remain the property of the original owner.
The donation entre époux alternative can help protect the surviving spouse where there are children from an earlier relationship, but there are still restrictions.
Before changing your regime, research the tax implications – a different marriage regime will not automatically improve your succession tax position.
For example, it would not avoid the 60% succession tax for stepchildren and may mean children from your current marriage end up paying more tax.
The basic heuristic here is that to afford a French or European property you have to be able to afford a French or European solicitor. There again, you’ll be dead when the inheritance kicks in so it won’t be your problem! (With great thanks to French Connexion).
