In this UK personal finance Q&A, Pete and Roger tackle six listener questions covering pensions, investing, tax and money mindset. We discuss whether high earners should ever consider opting out of the NHS pension due to annual allowance tax, how to handle family gifts during divorce, and what to do about ERI on accumulating ETFs in a GIA. You'll also hear guidance on rebalancing after strong fund gains, rebuilding finances after an IVA, and investing a £350k inheritance with ISAs, SIPPs and premium bonds. Shownotes: https://meaningfulmoney.tv/QA52 01:34 Question 1 Dear Pete and Roger, Could you provide an opinion on if and when it would be worth at least considering leaving the NHS pension scheme due to tax reasons? I can sense immediate puckering and this is not something I ask on a whim - I am aware of the comparative value of public sector DB pensions versus other retirement savings methods and indeed encourage the staff I work with to pay in. I am a senior doctor in my 40s with high NHS earnings and rental income on top. I am one of those affected by Annual Allowance tapering and have significant AA tax bills every year with no end in sight. My projections are that I will have an annual AA tax charge of ~£30k every year going forwards as my income is pretty stable. The annual AA tax charge is up to 40% of the annual capital benefits accrued in any year (i.e. LTA calc of 20 times pension plus 3 times lump sum). I pay this via scheme pays but the scheme pays loan docked from benefits at retirement is inflated at CPI+1.7% against pension benefits growth of CPI+1.5% from my own research. I don't expect much sympathy as a high earner but no-one wants to pay more tax than they have to and I never hear my situation talked about other than snippets in the depths of Reddit forums. My plan is to keep ploughing on and engage a full-scale planning review when I turn 50 leaving up to 10 years to consider aversive action once my wife and I have 'enough' pension. Many thanks for your thoughts. David. 09:23 Question 2 Dear Pete and Roger, I want to say a big thank you for all of the guidance you provide, there really is nothing else like it and has been hugely beneficial in organising my finances. My question for you is how to structure gifts to someone who is going through the early stages of a divorce. My sibling is sadly in this situation and our mother is looking to make a sizeable gift to us following the death of our father. How should we be thinking about this and are there any vehicles or structures such as trusts that we could be using to avoid my siblings spouse from being entitled to half of the gift? Grateful for any guidance you can provide in this matter. Best regards, Alfred 13:12 Question 3 Hi, I have held several GIA accounts for many years and I hold accumulating ETFs within the GIAs. Occasionally, I have had to pay CGT through my self assessment when I have sold these ETFs. Mostly, I have always been a basic rate tax payer. I have recently discovered that HMRC requires Excess Reportable Income (ERI) to be declared on accumulating ETFs. In the case of ETFs which receive company dividends, this means I need to take note of the Reporting date of each ETF and add up all notional dividends as if they were paid on the distribution date (6 months later) and if over £500, I should have paid dividend tax on the excess. Also, in the case of some MMF ETFs I hold, these may have an ERI notional interest payment and this would count as being potentially subject to income tax. Since I have sold many of these ETFs and I have not subtracted the ERI amounts from my total gain, I have probably overpaid tax (CGT) rather than underpaid as a basic rate tax payer. However, if I was a higher rate tax payer, I would probably have been underpaying tax if I have not accounted for ERI. This is because the higher rate dividend tax is much higher than the CGT rate. I now understand that to avoid having to calculate ERI on accumulating ETFs each year and keep a running total for each one, most people simply buy distributing ETFs inside a GIA rather than accumulating ETFs and I am in the process of ensuring all my ETFs are the distributing kind inside my GIAs. Should I be concerned about ERI on my accumulating ETFs? Do accountants calculate ERI for their clients on all the accumulating ETFs they hold? If so, how do they do it as there does not seem to be any easy way? Do HMRC ever check that the ERI on accumulating ETFs has been declared (my guess is that they would only bother for high rate taxpayers with large ETF holdings)? How would HMRC even know that you hold large amounts of accumulating ETFs on which you should be declaring ERI? Why is it that hardly anyone seems to know about ERI on accumulating ETFs? 19:14 Question 4 Good morning both, I would like to start by thanking you for all your hard work over the past decade or so. I am a mid 40's year old woman who had no financial knowledge until about 2 years ago. I had a cancer diagnosis which led me to leave a very time consuming and stressful job and take over the family finances which had been neglected for the best part of 20 years. We are now in a much better position; we have filled our ISA's and that of our children, put more money into SIPP's (and opened one in my case) and opened junior SIPP's for the kids. Our mortgage is paid off too. I have listened to all your back catalogue and in some cases relistened to episodes which have been especially useful to our situation! Thank you. My question relates to funds that have done particularly well and what is best to do with them. Some of my earlier fund choices are showing gains of around 50%. This seems extraordinary to me and I am very happy with the return. My Dad (much more experienced who has been doing this for 50 odd years) tells me the best thing to do with these funds is to take out 50% of the gain and reinvest in a different fund. What would your advice be? Take out the whole lot and re-invest? Take out 50% and re-invest that as recommended by my Dad or leave the whole lot in and hope it continues to grow? For background, I am very happy with the gains but we are very much on a catchup programme as we have started so late. The sums involved are still quite small! The ultimate aim is for my husband to retire early. I hope to work again too at some point once all treatment is finished but only part time. I am so grateful for everything you have done and always wait eagerly for the next episode to drop. With very best wishes, Agnes 26:02 Question 5 Hi, Hope you are well and can help a Cornish lass! I am 35 and have never been able to budget or manage finances. In fact I have always buried my head in the sand. Unfortunately, when lockdown and maternity leave hit at the same time, we could not afford our debt repayments (we had purchased a house in January of 2020 too). We had no choice but to take out an IVA. We are now in the 6th year of this as it was extended as we couldn't release equity from our home. This is due to end in November of this year and I have been doing my best to learn about budgeting and managing finances ready for when this ends. I have started a spreadsheet to start tracking expenses and aim to start an emergency fund plus a pot for putting some money away for Christmas/birthdays. I have been discussing this with my husband and he thinks we should get an overdraft as soon as the IVA finishes to start building our credit rating, whereas I think we should get a small credit card that we pay off each time we use it. What do you think we should do as our first few steps coming out of the IVA to build more security for our future? Thank you in advance. Kindest regards Lisa 33:12 Question 6 Salutations, Roger, Pete, My question is on what to do with a lump sum inheritance-y thing as a younger guy. My parents have been very financially successful in business and incredibly generous to my brother and I, and gifted us each an apartment a few years ago, to make use of the "first property" exemptions and the 7 year gift rule. Now that I'm mature enough to understand the opportunity, I've taken control of the management of mine. While I understand it's an incredible income generating asset, I'm not a fan of real estate, and am much more comfortable selling the property and investing in index funds within the variety of wrappers available in the UK. After fees and taxes, should I go through with the sale, I will net approx £350k. My plan is as follows: - £47k into premium bonds (I currently have £3k) - £40k into my SIPP (limited by current salary) - £40k held in cash, to be invested into my SIPP in tax year 2, potentially up to £52k as my salary rises - Remainder into GIA - All invested in Vanguard index tracking funds I'm 26, working as an Officer in the military, so I have an incredibly low cost of living (subsidised accommodation and no utilities), and a non contributory DB pension plan, so no need to allocate money there, and am able to max out my S&S ISA yearly just with my salary. I know these steps are good, but having the best part of £220k in a GIA, paying CGT on the other end of that makes me a little unhappy, especially if I hold it for multiple decades. I'm aware this is a real champagne problem but do either of you have any recommendations on improvements to my plan and mindset, or are you able to poke any holes in my approach? Should I hold more in cash to later invest into my SIPP? Bed and ISA/ SIPP over time? Spend some of it, even? I know it's an aggressive approach, but I'm sort of an "all or nothing" sort of guy, even with investing as is referenced in my 70+% savings rate, but balance has always been hard for me to find. My goal is to be Financially Independent by 36. I'll likely keep working but I like the security of that idea, and the saltily coined term "F-you money". Whatever
