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Around the world central banks have printed money to help combat the impact of the coronavirus on the economy. Many economists are concerned that this will ultimately lead to serious inflation. The current inflation target for the UK is 2%.

“HMRC receives over £5 billion a year from IHT, and this figures is likely to increase“HMRC receives over £5 billion a year from IHT, and this figures is likely to increase.”.”

Let’s imagine the government manages to contain inflation to 2% here but it still leaves those IHT allowances frozen at their current level. In 10 years the Bamfords' £1 million house would be valued at over £1.2 million. Investments that are well managed and growing and surplus income all add to the issue.
Frozen pensions

I mentioned earlier that pensions are exempt from IHT, but these were also caught in the allowances freeze. The standard Lifetime Allowance — the amount you can accumulate in pension savings over your lifetime without incurring tax charges — was frozen at £1,073,100.

If James’s £1 million pension grows by 5% a year it will be worth £1,276,000 when he retires in five years’ time, taking him beyond the limit. He will pay 25% on any money he withdraws as income from his pension that is over the Lifetime Allowance — on top of income tax — or 55% on any lump sum.

However, he can currently leave his pension to loved ones. This is a great way of helping children and grandchildren with their own pension savings plans. And it may be worth considering giving some other surplus money away now.

Giving money away

  • Under Potentially Exempt Transfer (PET) rules, you can pass on property, assets and possessions free of IHT as long as you do not die within seven years.
  • You can give away £3,000 worth of gifts each tax year (so £6,000 for couples) without triggering the PET clock.
  • Each year you can also give away wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child).
  • You can give payments to help with another person’s living costs, such as an elderly relative or a child under 18. You can also support a child’s higher education cost.
  • You can give away the family home, but to carry on living in it you will need to pay the new owner the market-rate rent and continue paying the bills. We certainly would not recommend this without advice.

I hope you and your family remain healthy and safe. We hope to be able to open offices more in the coming months, which should allow more opportunity to meet up. In the meantime, we will continue monitoring how the investment environment is evolving as the world reopens and we start to see what the ‘new normal’ looks like. Please visit rathbones.com to find out more about our latest views.

We hope you enjoy this edition of InvestmentInsights.

Julian Chillingworth
Chief Investment Officer

Read the latest version of Investment Insights, Q3 2021


Around the world central banks have printed money to help combat the impact of the coronavirus on the economy. Many economists are concerned that this will ultimately lead to serious inflation. The current inflation target for the UK is 2%.

“HMRC receives over £5 billion a year from IHT, and this figures is likely to increase“HMRC receives over £5 billion a year from IHT, and this figures is likely to increase.”.”

Let’s imagine the government manages to contain inflation to 2% here but it still leaves those IHT allowances frozen at their current level. In 10 years the Bamfords' £1 million house would be valued at over £1.2 million. Investments that are well managed and growing and surplus income all add to the issue.
Frozen pensions

I mentioned earlier that pensions are exempt from IHT, but these were also caught in the allowances freeze. The standard Lifetime Allowance — the amount you can accumulate in pension savings over your lifetime without incurring tax charges — was frozen at £1,073,100.

If James’s £1 million pension grows by 5% a year it will be worth £1,276,000 when he retires in five years’ time, taking him beyond the limit. He will pay 25% on any money he withdraws as income from his pension that is over the Lifetime Allowance — on top of income tax — or 55% on any lump sum.

However, he can currently leave his pension to loved ones. This is a great way of helping children and grandchildren with their own pension savings plans. And it may be worth considering giving some other surplus money away now.

Giving money away

  • Under Potentially Exempt Transfer (PET) rules, you can pass on property, assets and possessions free of IHT as long as you do not die within seven years.
  • You can give away £3,000 worth of gifts each tax year (so £6,000 for couples) without triggering the PET clock.
  • Each year you can also give away wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child).
  • You can give payments to help with another person’s living costs, such as an elderly relative or a child under 18. You can also support a child’s higher education cost.
  • You can give away the family home, but to carry on living in it you will need to pay the new owner the market-rate rent and continue paying the bills. We certainly would not recommend this without advice.

I hope you and your family remain healthy and safe. We hope to be able to open offices more in the coming months, which should allow more opportunity to meet up. In the meantime, we will continue monitoring how the investment environment is evolving as the world reopens and we start to see what the ‘new normal’ looks like. Please visit rathbones.com to find out more about our latest views.

We hope you enjoy this edition of InvestmentInsights.

Julian Chillingworth
Chief Investment Officer

Read the latest version of Investment Insights, Q3 2021