Flexible Drawdown - Death Benefits

BazzerPontefract

I currently have a stakeholder pension plan and want to move it to a SIPP and put it into Flexible Drawdown.

The bit I can't get my head around is death benefits.

Just say, for the sake of an example, that I have 100K pot and I tick all the boxes to satisfy the Flexible Drawdown criteria.

Just say, for the sake of an example, that I want to drawdown 20K per annum, how does death benefits work?

In the first year, is the whole pot (100K) subject to tax on death at 55% or simply that portion of the pot (20K) that I've earmarked to take as income.

I guess the question, from another perspective is this: is it the case that when you go into income drawdown it is assumed that your taking the pension, therefore the whole of the remaining pot is subject to 55% tax on death.

Thanks.

kidmugsy

BazzerPontefract wrote: »

I currently have a stakeholder pension plan and want to move it to a SIPP and put it into Flexible Drawdown.

The bit I can't get my head around is death benefits.

Just say, for the sake of an example, that I have 100K pot and I tick all the boxes to satisfy the Flexible Drawdown criteria.

Just say, for the sake of an example, that I want to drawdown 20K per annum, how does death benefits work?

In the first year, is the whole pot (100K) subject to tax on death at 55% or simply that portion of the pot (20K) that I've earmarked to take as income.

I guess the question, from another perspective is this: is it the case that when you go into income drawdown it is assumed that your taking the pension, therefore the whole of the remaining pot is subject to 55% tax on death.

Thanks.

None gets taxed at 55% if you've nominated your spouse to get the death benefits,and crystallised the pension, and she elects to use it either in drawdown or for annuity purchase. She'll pay only ordinary income tax on it.

That's the status quo: what the transitional position will be I don't know.

What the new position will be after 05/04/2015 will depend on the results of the forthcoming legislation.

Linton

If a pension is in payment....

If you have a spouse or other dependents the remaining money can be transferred to them as a pension. Payments from this pension will be taxed in the normal way. Otherwise the money is paid as a lump sum outside the pension subject to 55% tax. Note that adult children are not normally dependents. Death payments from a pension are made outside the estate and so IHT is not relevant.

The Chancellor's proposals for the major changes in April 2015 include a review of the death tax rate.

If the pension is not in payment then the money is simply transferred tax free normally to the people nominated by you in your expression of wishes form when you set up the pension.

In your example if you put the whole of the £100K into Flexible drawdown presumably taking the 25% tax free lump sum than that whole pension is in payment. You could have split the £100K into 2 separate pensions and only crystallised one of them In that case the uncrystallised pension is not in payment.