When a Dysfunctional Website is Actually a Good Thing

Happy New Year everyone. A little delayed from the normal 1st working day of the month with this newsletter, such are the delays associated with the festive period and that very strange week or so between Christmas and New Year, when no one seems to know what day it is.

Anyway, I hope you all had a superb time. I had a lovely break with the family, but equally I am looking forward to getting back into a degree of normality. A break from the deluge of bad weather would also be a bonus - it’s rained for three days straight at the time of writing, and the weather was so bad they cancelled the famous Hogmanay street party – but let’s not get ahead of ourselves.

By popular demand and in reference to the last newsletter where the bold Mac would attack every parcel that he could (he did that again this year), here he is enjoying the spoils of his parcel:

Shameless promotion, but Mac doesn’t seem to mind.

Premium Bonds – What Are They?

One of the things I will mention to people who are looking for a home for some short-term cash is Premium Bonds. Premium Bonds are a handy tax-free way to save money. What happens is that instead of the usual monthly interest that one would accrue in a regular bank account, your bonds are placed into a monthly prize draw. You then have the chance to win a tax-free prize of £25 to £1 million.

Important to note off the bat that you will not win every month.

The prize draw is conducted by a random number generator called ERNIE (Electronic Random Number Indicator Equipment – catchy, isn’t it?). You can either have your prizes added back into your PB account, thus increasing your savings, or, if you have reached the maximum allowed amount of £50,000, then the winnings will be paid directly into your bank account.

This is a handy little site from the people at MoneySavingExpert that estimates the rough return you should expect for your PB savings. They’re working off an average prize rate of 4.15%, which again, is pretty good considering it’s tax-free, and especially for those people that have already used their ISA allowance.

The bad news is it won’t make you a millionaire any time soon:

Odds of winning:

Yes, the 4.15% may not be the very best savings rate around and your decision should always reflect your individual circumstances, but the providers of PBs, National Savings and Investment (owned and backed by the UK Govt), have included a rare feature that, for me, makes them a bit more attractive as a savings option. It’s a feature from a bygone era.

Their website is mince, to lean on the Scots vernacular. It is annoying to sign in, it doesn’t work on some browsers, and it kicks you out randomly. What this means though – putting a positive spin on things – is that it creates friction between you and your savings. Or perhaps a better example would be, it creates friction between your children/grandchildren and their savings.

They can’t simply login to an app, transfer money with a few clicks and buy the latest, oh I dunno, what are the cool kids into these days? Is it still that power drink stuff? We’ll go with that.

Anyway the point is that the unusability (is that a word?) of the website and the 2/3 days between requesting the money and it being in your bank gives you time to cool off. Perhaps re-think a purchase or even put you off it in the first place. Not the worst thing in the world.

So, in short, premium bonds can be a useful little option in the right circumstances.

Deathbed gifts

Now, this next section will get a touch technical, but it’s a fascinating point that I recently stumbled upon. Allow me to quickly set the scene.

Everyone in the UK has two nil rate bands (NRB) for inheritance tax (IHT) purposes. An NRB is a band of wealth that is attached to assets given away when someone dies. In simple terms, it is the amount that we can give away to beneficiaries on our death without any IHT being applied. Any assets bequeathed above the value of the available NRBs are taxed at an IHT rate of 40%.

There are two NRBs in the UK. The first is the straightforward NRB, which is £325,000 for everyone. This can be applied to any asset.

The one which we’ll be focusing on today is the second one, known as the residential nil rate band (RNRB). This is £175,000 and can only be applied to the main home, with a few little quirks.

The first quirk is that the property must be left to a direct descendant. In HMRC’s terms, a direct descendant is children, grandchildren, foster children, and stepchildren. Siblings, nephews, nieces, and friends are out of luck in this regard.

The main quirk however is that the RNRB, unlike the NRB, can very easily be lost altogether. For every £2 of estate value over £2m, £1 of the RNRB is lost. Therefore, estates with a value of £2.35m will have no use of the RNRB whatsoever, left with only the standard £325k, assuming it is a single person who has never married.

For fun (did I actually just type “fun” there) let’s walkthrough what would happen in that instance. Assuming a single individual never married and left a value of £2.35m exactly, nothing to charities and therefore no NRB, we would have a NRB of £325k. We would therefore have an estate liable to IHT of £2.025m. The IHT on this is a punchy £810,000, which needs to be paid before the assets of the estate can be distributed. Ouch.

However, there is a little-known option that can very easily restore the full amount of the RNRB, the concept of a “deathbed gift”. Often the stuff of movies or novels, people changing their will at the last minute, it can have a very practical real-world use.

Most of us are aware of the seven-year clock on gifts, in that if an individual survives seven years the gift is fully out of the estate. Conversely, if someone dies within seven years of making a gift it is brought back into the estate and liable to IHT.

However, there is no such clock on gifts in relation to the RNRB. Strange, isn’t it? So you could be on your deathbed, and using the earlier example a never-married individual with an estate of £2.35m, if they make a gift of say, £350,000 just prior to their death, it would obviously fail the seven year rule.

However, it would immediately reduce their estate to the required £2m in order to then get full use of the potential £175,000 RNRB. The IHT saving on that deathbed transaction is £70,000. Not a small amount.

PS: When pensions are added to the estate in 2027, a lot more people are going to find that their RNRBs are in jeopardy. Advice required if you are affected.

Optimism Prism

Your monthly dose of the good stuff:

•                  Fundraiser completes mammoth year-long marathon-a-day challenge for Samaritans

•                  ‘Real heroes’: Capital DJ Jordan North praises RNLI crew who rescued him

•                  UK's biggest ever dinosaur footprint site unearthed

Recommendations

Recommendations

• The stock market. The S&P 500 finished the year up 25%. 20 year are 618% - a little bit better than cash in the bank.

• These guys. I am the lucky recipient of one of their hampers and it is superb.

• Adam is a friend, we’re both from the same town. His company SSR recently did our home removal. This is a great listen and a good laugh.

Welcome to 2025. Let’s have a cracking year.

All the best,

Andy