MSE News: Pension inheritance tax to be axed

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  • zagfles
    zagfles Posts: 20,274
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    If a pension pot can now be paid out under drawdown in any amounts you wish, from monthly payments spread over a lifetime to cashing in the lot in one go, then what exactly is a "lump sum" ?

    99.99% of the pot would be drawdown at the marginal rate, but 100% would be taxed at 45% ?
    Yes it seems a bit odd to have the flat 45% for pots for the over 75's, yet anyone inheriting can drawdown at marginal rates. There's probably some obscure technical reason for it.
  • Pincher
    Pincher Posts: 6,552
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    I wish they would do a documentary about how you actually go about inheriting say £100million. Doesn't have to be about a particular person, a composite scenario based on real procedures will be fine.

    Love to know what happened to Steve Job's money.

    Bill Gates has said his kids won't get much, but I wonder. If you publicly declare you have inherited US$40BILLION, you will need an army of ex-SAS security men guarding you, so nobody would say so, even if you intend to inherit it anyway.

    After all, the Rothschilds have been doing it for a couple of centuries, so it can happen.

    If I was Bill Gates, I would probably buy a country, and change the inheritance tax laws.
  • OldDIYer
    OldDIYer Posts: 129
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    robin61 wrote: »
    Seems like this could be a decent option to prevent inheritance tax.

    Rather than give the money away 'young' pensioners (under 75) can put £3,600 (net £2880) into a SIPP, nominate their children, grandchildren, .......... to receive it on their death and avoid some Inheritance Tax (IHT) for the beneficiaries of their estate!

    Also, if they have pension pot already, and have other savings, they could leave the pot untouched (and nominate someone to receive it) and spend the savings instead. More IHT avoided!

    And, the money is still under the 'young' pensioners' control. Nothing to stop them drawing it out and going on a world cruise, buying a Ford Mondeo, ..... if they change their mind.:beer:

    Seems like a good idea to me.:j
  • Daniel54
    Daniel54 Posts: 831
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    Rather than give the money away 'young' pensioners (under 75) can put £3,600 (net £2880) into a SIPP, nominate their children, grandchildren, .......... to receive it on their death and avoid some Inheritance Tax (IHT) for the beneficiaries of their estate!

    Also, if they have pension pot already, and have other savings, they could leave the pot untouched (and nominate someone to receive it) and spend the savings instead.

    Pension money would be subject to income tax on drawdown ( and probably need to be left in trust -not clear at this stage)

    Regular tax free gifting in this scenario remains the best option,in my opinion

    Only matters if the estate is over £325k/£650k joint anyway

    Option to leave an uncrystallised pot pre age 75 free of IHT is unchanged
  • Linton
    Linton Posts: 17,062
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    Daniel54 wrote: »
    Pension money would be subject to income tax on drawdown ( and probably need to be left in trust -not clear at this stage)

    Regular tax free gifting in this scenario remains the best option,in my opinion

    Only matters if the estate is over £325k/£650k joint anyway

    Option to leave an uncrystallised pot pre age 75 free of IHT is unchanged

    Is this true?? The sound bites/spin was that it would be completely tax free, with the bizarre consequence that a pension helps the beneficiaries more than the pensioner. So not only does the money cascade down the generations, the donor gets tax relief creating the pot and the recipient gets it tax free.

    I guess the key restriction is that the pensioner must die before 75 - perhaps a rather drastic step to take in the interests of tax avoidance.
  • zagfles
    zagfles Posts: 20,274
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    Daniel54 wrote: »
    Pension money would be subject to income tax on drawdown
    Only if the person dies over 75, and even then, there was tax relief putting the money in so unless the beneficiary is a HRT payer it's tax neutral.

    And if the pensioner dies under 75 the beneficiaries get 25% extra free.
  • zagfles
    zagfles Posts: 20,274
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    Linton wrote: »
    Is this true?? The sound bites/spin was that it would be completely tax free, with the bizarre consequence that a pension helps the beneficiaries more than the pensioner. So not only does the money cascade down the generations, the donor gets tax relief creating the pot and the recipient gets it tax free.

    I guess the key restriction is that the pensioner must die before 75 - perhaps a rather drastic step to take in the interests of tax avoidance.
    But if they don't, the beneficiary just pays marginal rates, which if basic rate cancels the tax relief on the money going in.

    I guess people could consider planning who their beneficiary is based on the tax rate they pay, for instance if son is a 40% tax payer but daughter in law is a non tax payer nominaite her rather than him! Obviously would have to be confident they don't split up etc!
  • Daniel54
    Daniel54 Posts: 831
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    zagfles wrote: »
    Only if the person dies over 75, and even then, there was tax relief putting the money in so unless the beneficiary is a HRT payer it's tax neutral.

    And if the pensioner dies under 75 the beneficiaries get 25% extra free.

    Thanks for the correction ( based on what we know so far)

    As others have said,it seems strange to have different regimes pre and post an apparently arbitrary age of 75 ( which I assume was originally 10 years past state retirement age)

    I get the feeling this has not been fully thought through and will be interested to see the detail when this comes to Parliament
  • My father passed in August aged 60. He had a private pension with aviva. He had drawn money on occasion from it and so my sister and I were told it would be subject to 55% inheritance tax. If we were to leave the money until April would we benefit from the proposed changes?
  • kidmugsy
    kidmugsy Posts: 12,709
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    lulabug22 wrote: »
    My father passed in August aged 60. He had a private pension with aviva. He had drawn money on occasion from it and so my sister and I were told it would be subject to 55% inheritance tax. If we were to leave the money until April would we benefit from the proposed changes?

    My understanding is "yes". You'd better make sure that Aviva don't hand it over before then. And if I were you I might then get it out before the election in May. You never know.
    Free the dunston one next time too.
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