The Lemon Fool

terminal7 wrote:

dealtn wrote:
The reason is that it is taking into account that generally people buy more of something when it is cheaper than when it is expensive. If that's too difficult an economic concept then this will be tricky to get across

- not always true - Giffen goods!

T7 (pedantically)

Absolutely true, but it seems the existence of complexity, and attempting to simplify things to explain, is too sarcastic. Relative switching due to price effects, and also disposable income effects as the prices within a basket change with their range of price elasticities is too much. Best elaborated on the Economy board I suppose.

Bouleversee wrote: I don't understand why it's not at the same rate as NS&I CPI indexation, however.

I was consulted (as were 100s of others) on the options for inflation and indexation measures by the Government (via the ONS, BoE, and DMO) about 10 years ago. It was complicated then, and I doubt it's any simpler now.

I thought the discussions about the inadequacy of RPI had been put to bed long ago. There is no perfect measure of inflation but ONS and others (independent of government) have published serious work in this area. The Carli formula has obvious faults and a built in upwards bias.

https://www.ons.gov.uk/economy/inflatio ... 2018-03-08

Best wishes,

Steve

Steveam wrote:I thought the discussions about the inadequacy of RPI had been put to bed long ago. There is no perfect measure of inflation but ONS and others (independent of government) have published serious work in this area. The Carli formula has obvious faults and a built in upwards bias.

https://www.ons.gov.uk/economy/inflatio ... 2018-03-08

Best wishes,

Steve

Well it may have been put to bed, but for Bouleversee (and others including me) the effect of the change is just beginning to be felt. I agree that there is no perfect measure of inflation.

Dod

Steveam wrote:I thought the discussions about the inadequacy of RPI had been put to bed long ago. There is no perfect measure of inflation but ONS and others (independent of government) have published serious work in this area. The Carli formula has obvious faults and a built in upwards bias.

https://www.ons.gov.uk/economy/inflatio ... 2018-03-08

Best wishes,

Steve

Which references the consultation I was involved in

https://webarchive.nationalarchives.gov ... lease.html

The RPI vs CPI discussion is going on elsewhere on this thread (and is probably bigger than just this thread but never mind!)

A couple of things to add into the mix

1. The RPI & CPI figures used by NS&I are lagged 2 months, because that's what's available at the date of issue of various statements and maturity letters. RPI & CPI are usually issued by the ONS mid-month (IIRC. third Wednesday of the month): https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/previousReleases. If you have an anniversary for this month (Feb), February's RPI/CPI figure doesn't become available until mid-March, so isn't available in Feb, and if you have a maturity date at the beginning of a calendar month, the previous month RPI/CPI isn't available, hence (I presume) why they lag by 2 months.
2. The change from RPI to CPI took effect on 1 May 2019: https://nsandi-corporate.com/news-research/news/nsi-confirm-index-linked-savings-certificates-move-rpi-cpi

The calculations for an index-linked certificate are tricky, and also the points in time when they add interest and add indexation can add complexity. It took me quite some time to work out how to do it. I have a spreadsheet that does annual and maturity values, and I'd be happy to put a worked example here if you want to give me the issue number and the start date with a nominal amount.

As to whether to roll over or not, that's your choice. However, the way I think about it (when I have that debate with myself)

• they're tax free
• no need to report any returns on income or capital gains tax forms
• no need for a financial adviser or any fees
• amounts held with NS&I have their own savings safety net by the Treasury (https://www.nsandi.com/get-to-know-us/security/protect-your-money) separate from the FSCS limit. The FSCS covers non-NS&I bank accounts to £85k per person/institution.
• interest rate on ILSCs is guaranteed above inflation (OK only 0.01% above inflation, but still above inflation)

IANAL/A, just a Joe Blogs customer of NS&I

Yorkshirelad1 -

True, and I believe you can access them to pay IHT due before probate is granted. I can't remember whether they have to be included in the asset value when applying for probate; do you know? It wouldn't make much difference to the amount that has to be found in my case, however, and as a Yorkshire lass I no longer find them a worthwhile investment. I'm not convinced that they are even keeping up with inflation now and wondering whether it would make more sense to cash them in and give them to sprogs to put in their ISAs. An investment in, say, Scottish Mortgage IT would grow at a rate far above inflation (over 100% last year IIRC) and would also be tax free and could be accessed readily for the same purpose. Decisions, decisions!

Bouleversee wrote:Yorkshirelad1 -

True, and I believe you can access them to pay IHT due before probate is granted. I can't remember whether they have to be included in the asset value when applying for probate; do you know? It wouldn't make much difference to the amount that has to be found in my case, however, and as a Yorkshire lass I no longer find them a worthwhile investment. I'm not convinced that they are even keeping up with inflation now and wondering whether it would make more sense to cash them in and give them to sprogs to put in their ISAs. An investment in, say, Scottish Mortgage IT would grow at a rate far above inflation (over 100% last year IIRC) and would also be tax free and could be accessed readily for the same purpose. Decisions, decisions!

• You can use Savings Certificates to pay IHT before (and in order to get) probate. However, this is the same as most banks: there is something called the "Direct Payment Scheme" where banks may use the deceased's "frozen before probate" bank account to make direct payment to HMRC to settle IHT to get probate. I was told by a solicitor that using NS&I to pay IHT under the Direct Payment Scheme can take a long time (NS&I are not known for their speedy responses) which would slow down getting probate
• If you hold ILSC in your own name, like most other assets, they will be included in your estate for IHT purposes (ILSCs are only free of income and capital gains tax)
• ILSC will, by definition, keep up with CPI inflation (+0.01% interest currently....)
• If you haven't used your annual ISA allowance, then selling your ILSCs and putting the proceeds in your ISA or their ISA (if they're over 18) would be comparable tax-wise. Bear in mind that if you gift the funds to your sprogs to put in their ISA, you're telling them what to do with it, and it's not a "gift without reservation" so not tax free so the funds could end up being taxed as if inside your estate.
• It's a bit unfair to compare ILSCs with SMT. SMT (esp in an ISA: Yes, I do hold SMT in my ISA) knocks almost everything else out of the water at the moment and it's bound to look more attractive than ILSCs

IANAL

I was with you most of the way on your reply but then read:

yorkshirelad1 wrote:

Bouleversee wrote:...

Bear in mind that if you gift the funds to your sprogs to put in their ISA, you're telling them what to do with it, and it's not a "gift without reservation" so not tax free so the funds could end up being taxed as if inside your estate. ...

Possibly something to discuss at Taxes Practical but the relevant term is “gifts with reservation of benefit”.

I can’t see your example would be caught, as there is no obvious benefit reserved, but haven’t read Lifetime transfers: introduction to gifts with reservation of benefit https://www.gov.uk/hmrc-internal-manual ... /ihtm04071 and onwards recently.

Only really replying in case Boulee becomes unduly concerned. Unless I’m wrong!

I was about to say the same, PD. I wouldn't need to tell them to put any gift in an ISA. They are not entirely without common sense and I know they haven't had enough income this year to fund their ISAs. Also, I don't see what benefit there would be to me since I would have donated both capital and income with no chance of or need for anything to come back to me. Any benefit would be only to them and only if I lived for 7 years which is not very likely and at a reduced level before that, i.e. the longer I live after 2 years, the less IHT there would be to pay on the gift, as I am sure you know.
I agree it would be different if I gave them sufficient money to move to a house which could accommodate me as well and then didn't pay them rent but there is zero chance of that happening unfortunately. Of course, we don't know what horrors are going to descend on us when Rishi decides how to get back some of the billions or is it trillions by now spent since Covid-19 arrived.

If ILSCs have to be included in my estate, as I feared they might, they become even less attractive.

What happened to that suggestion that money could be borrowed out of the ISA for a short time and then put back in again? I don't think it got off the ground, did it? It would be annoying if they had to use all their ISA money to pay IHT until they got probate and were able to access their inheritance. However, I am veering off topic here.

Thanks to both for your contributions.

.

Bouleversee wrote:i.e. the longer I live after 2 years, the less IHT there would be to pay on the gift, as I am sure you know.

Well, as you suggest, this really is off topic for here but I do know many misunderstand the IHT taper relief availability where the IHT threshold has not been breached (there is no taper, which is not as beneficial as it looks at first glance) and I don’t propose to continue here.

On one of your other points, Flexible ISAs were briefly discussed recently at Investment Strategies:

viewtopic.php?p=385120#p385120

PinkDalek wrote:I was with you most of the way on your reply but then read:

yorkshirelad1 wrote:

Bouleversee wrote:...

Bear in mind that if you gift the funds to your sprogs to put in their ISA, you're telling them what to do with it, and it's not a "gift without reservation" so not tax free so the funds could end up being taxed as if inside your estate. ...

Possibly something to discuss at Taxes Practical but the relevant term is “gifts with reservation of benefit”.

I can’t see your example would be caught, as there is no obvious benefit reserved, but haven’t read Lifetime transfers: introduction to gifts with reservation of benefit https://www.gov.uk/hmrc-internal-manual ... /ihtm04071 and onwards recently.

Only really replying in case Boulee becomes unduly concerned. Unless I’m wrong!

I stand corrected and enlightened!

PinkDalek wrote:

Bouleversee wrote:i.e. the longer I live after 2 years, the less IHT there would be to pay on the gift, as I am sure you know.

Well, as you suggest, this really is off topic for here but I do know many misunderstand the IHT taper relief availability where the IHT threshold has not been breached (there is no taper, which is not as beneficial as it looks at first glance) and I don’t propose to continue here.

On one of your other points, Flexible ISAs were briefly discussed recently at Investment Strategies:

viewtopic.php?p=385120#p385120

Many thanks. Always a mine of information. Will have a look later. Killing myself in the garden all day today.

Despite the rate I’m rolling one forward this month and will probably roll other forward. I have no clear idea of what’s likely to happen to inflation over the next 5 years and these do protect against an unpleasant spike.

Best wishes,

Steve