Will I just inherit my dads pension or will I pay inheritance tax?

ognum

I am not a pension specialist but my belief is that if it is in a SIPP and your father dies before he goes in to drawdown and before he reaches 75 then the whole amount is passed on according to his wishes in the forms he has completed.

This could be 100% to you mother or can be split in any percentage to whoever he nominates. If you mother can manage without the whole amount your father can nominate you to avoid IHT on your mothers estate.

Once he is in DD the situation changes

do correct me if I am wrong

ognum

I believe that it he dies in drawn down the choice is to take a lump some minus 55%tax, buy an annuity or continue in drawdown. Presumably your mother will require an income unless she is independently provided for.

hoodedclaw79

Would it be possible to add my name to the SIPP so in the event of my dad dying the SIPP would just continue rather than going through any inheritance procedures.

bilbo51

It's not straightforward.

Read this: http://www.hmrc.gov.uk/pensionschemes/chapter-9.pdf

ognum

bilbo51 wrote: »

It's not straightforward.

Read this: http://www.hmrc.gov.uk/pensionschemes/chapter-9.pdf

That's right, if it was the rest of the country would be going it!

atush

There is no way round it I am afraid. Your mother will get 100% of the fund, and when she dies you will get 45%.

You could of course ask your father to either gift certain assets to you if you think he will live another 7 years, or ask him to leave you assets to his nil rate band and the rest to your mum.

And I would certainly be a bit wary should my son take so much interest in inheriting my money?

magpiecottage

atush wrote: »

There is no way round it I am afraid. Your mother will get 100% of the fund, and when she dies you will get 45%.

The fund will be subject to a 55% tax charge if it is taken as cash rather than as (taxable) income. If a surviving spouse takes an income from it then the remaining fund cannot be taken as cash on their death so the 55% tax charge on whatever is left then can only be avoided if they have nominated a charity to receive it beforehand - may I suggest the Magpiecottage Beer Fund?

Aegis

magpiecottage wrote: »

The fund will be subject to a 55% tax charge if it is taken as cash rather than as (taxable) income. If a surviving spouse takes an income from it then the remaining fund cannot be taken as cash on their death so the 55% tax charge on whatever is left then can only be avoided if they have nominated a charity to receive it beforehand - may I suggest the Magpiecottage Beer Fund?

I've yet to encounter successive deaths and passing of pensions, but this didn't seem quite right to me, so I checked HMRC. Their pages still refer to out of date terminology, but the rules for a dependant's unsecured pension drawdown are quoted as follows, with no contradiction in their updates post 6 April 2011:

What happens when the dependant dies while receiving an unsecured pension?

If the dependant dies whilst in receipt of a dependants’ unsecured pension before reaching age 75 the remaining fund may be

• paid out as an unsecured pension fund lump sum death benefit, taxed at 35%.
• used to provide any other dependant of the member at the time of the member’s death with either a dependants alternatively secured pension or a dependants unsecured pension (depending on the age of the dependant) or
• used to provide a dependants annuity or a dependants scheme pension.

From here.

The terminology has changed to either capped drawdown or flexible drawdown, and ASP no longer exists, but otherwise the structure of drawdown now is pretty much identical to the system referred to on that page of the Registered Pension Schemes Manual. The tax rate on death has changed to 55%, but other than that I can't see why a succession of deaths would result in anything other than a lump sum of 45% of the remaining fund at the point where the remaining funds could no longer be used to provide a dependant's pension.

If this case arises with any of my clients, you can guarantee I'll be on the phone to HMRC to ask them to clarify that the rules are the same as they were for USP!

magpiecottage

That's my understanding. I have also checked the Chartered Insurance Institutes Retirement Options notes (J05 to you and me) and they say the same thing - there is a 55% tax charge, leaving 45% to be passed on unless the member nominates a charity (which sadly is unlikely to really include my beer fund).

System

You may not be able to avoid the 55% tax charge, but you can at least ensure that it does not end up in your mother's or your estates to be reckonable for Inheritance Tax, by the pension holder nominating a trust as beneficiary rather than an individual. Your mother, you, or anyone else can be potential beneficiaries of that trust.