Pension and options going forward

omen666

My father has the option of retiring eas early as March 2011 and anytime thereafter. He must give 3 months notice of his decision to retire.

He has 4 options to select for his retirement.

He is electing to have a lump some of £130,000 and a monthly pension of £1400 reduced to £1100 after 2017.

He is concerned as he heard that the current government is looking to bring in a new law come this new tax year (April 2011) that there will be a 40% tax payable on all pension lump sums over a certain amount. Something like anything over 25k.

Can anyone confirm if this is going to be the case? If so it is worthwhile him putting in for his retirement now for March.

He plans not to just live on the money but also get a part time driving job to tide him over for some beer money!

Also another question. Him and my mum own the house outright and are still together. The house is worth circa £140k. They are looking to move into a new bungalow or something as we have all flown the nest so to speak.

He is wondering what he can do about purchasing a new house that keeps the tax man and government away from it in inheritance tax. Is there a way he could sell the current house and buy the new one in another family members name and then pay a monthly rent to that family person so it doesnt get hit with inheritance tax?

Also is there a way he can put his money away to prevent inheritance tax or maybe say if my parents have to go into a care home circumvent that ??

Thanks for any help

Loughton_Monkey

Firstly, any thoughts of a 40% tax on pension lump sums is new to me. Where did he get that from?

Obviously, none of us knows what governments might do in the future, but this idea would create a huge backlash of public opinion - unless it was announced with a huge delay (10 or more years) and/or some other 'benefit'.

Are your parents very rich? They have Inheritance Tax limits of around £325,000 each. Don't know what their wills say, but normally one would expect 'mirror wills' - which would say on first death, the whole lot goes to the spouse. On the second death, the house + other assets would go to kids etc. In a case like this, the first person's allowance is transferred to the second spouse, making a total allowance of £650,000 upon the second death.

Pointless passing the house over now, I think, since this would (could) be taking into account anyway in Inheritance Tax. But I am no Inheritance Tax expert.

omen666

Loughton_Monkey wrote: »

Firstly, any thoughts of a 40% tax on pension lump sums is new to me. Where did he get that from?

Obviously, none of us knows what governments might do in the future, but this idea would create a huge backlash of public opinion - unless it was announced with a huge delay (10 or more years) and/or some other 'benefit'.

Are your parents very rich? They have Inheritance Tax limits of around £325,000 each. Don't know what their wills say, but normally one would expect 'mirror wills' - which would say on first death, the whole lot goes to the spouse. On the second death, the house + other assets would go to kids etc. In a case like this, the first person's allowance is transferred to the second spouse, making a total allowance of £650,000 upon the second death.

Pointless passing the house over now, I think, since this would (could) be taking into account anyway in Inheritance Tax. But I am no Inheritance Tax expert.

No they are not rich. We have always been of the belief that when say both your parents die after having mirror wills ( which mine have) then we would have to pay 40% on their assets, I assume by what you say this is not correct then?

dunstonh

He is concerned as he heard that the current government is looking to bring in a new law come this new tax year (April 2011) that there will be a 40% tax payable on all pension lump sums over a certain amount. Something like anything over 25k.

There is no such rule change taking place or proposed to take place. The changes affecting crystallisation of pensions for next year (although may get put back to 2012 in conjunction with other changes coming in that year) are all positive and do not involve any increase is tax.

I suspect your father has mistaken the reduction in the annual contribution allowance to £50,000 which could see some higher earners in final salary schemes exceed the annual allowance and pay a tax for doing so. Someone else posted on here last week hearing similar. It is either a misread, misreporting or malicious myth (work place is a hot bed of pension misinformation for example).

mjm3346

omen666 wrote: »

No they are not rich. We have always been of the belief that when say both your parents die after having mirror wills ( which mine have) then we would have to pay 40% on their assets, I assume by what you say this is not correct then?

40% only on anything above the limits, as stated £325k each or 650k on the second death if the 325k was not used on the first.

bilbo51

mjm3346 wrote: »

...if the 325k was not used on the first.

...and it won't be used on the first with mirror wills.

omen666

Thanks guys, stops a panicky parents who have worked all their lives worry if it is all going to be taxed yet again and them penalised.

Appreciate your words and time