MSE News: Pension inheritance tax to be axed

dunstonh

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?

Yes. If the lump sum death benefit is deferred until after April 2015, the tax will not apply. If it is taken now, it will.

ineedsomehelp75

My father passed away in Oct and my mother has just received notification that she will be receiving £6000 of a widows pension from Jan. I'm just wondering would this be eligible for the new tax free draw down pension if she deferred receiving payment to April. Dad was already drawing down this government pension when he died and was under 75. Is tax based on your total income including a private pension but paid via your private pension. Could my mum get this bit tax free.

Sorry haven't a clue when it comes to tax any help welcome

jem16

ineedsomehelp75 wrote: »

Dad was already drawing down this government pension when he died and was under 75.

When you say government pension, do you mean your Dad was receiving a pension from the Local Government Pension Scheme - ie the LGPS? Your Mum would then be receiving the spouse pension?

if that is the case it's a Defined Benefit pension and nothing to do with the new rules.

Is tax based on your total income including a private pension but paid via your private pension.

Yes.

Could my mum get this bit tax free.

Your Mum would be given a tax code that uses her personal allowance minus a deduction for her state pension. Whether she pays tax depends on her total income. What will it be including both the Widow's pension plus the state pension? How much does she receive for her state pension?

ineedsomehelp75

It is a nilgos, northern Ireland local gov pension. Mum gets £560 state pension plus £190 of her own nilgos. What is a defined pension? In my ignorance..

jem16

ineedsomehelp75 wrote: »

It is a nilgos, northern Ireland local gov pension.

Ok same idea then.

Mum gets £560 state pension plus £190 of her own nilgos.

Is the state pension amount the 4 weekly amount? Is the £190 monthly?

What is a defined pension? In my ignorance..

A Defined Benefit pension is a pension that's based on the number of years service and your final salary (in your Dad's case). It does not have a pot of money and is guaranteed to pay out a certain number of benefits. Part of those benefits is a spouse pension which your mother is now entitled to.

The new pension rules relate to Defined Contribution schemes where there is a pot of money that rises and falls with stockmarket returns. It is not guaranteed.

ineedsomehelp75

Yes state pension 4 weekly and £190 monthly. Thank you so much for your help I was aimlessly googling before.

jem16

ineedsomehelp75 wrote: »

Yes state pension 4 weekly and £190 monthly. Thank you so much for your help I was aimlessly googling before.

It's quite possible that your Mum may be entitled to inherit some of your Dad's Additional State Pension but if he was a member of NILGOS for all of his working life there may be very little to inherit. However she should find out about this.

With her current state pension and NILGOS pension she is almost at the Personal Allowance as it is so she will pay tax on most of the £6000 pension - probably around £5000 of it.

She will already have a tax code for her NILGOS pension which will take into account her state pension. This might be better attached to the £6000 pension and then BR (all at 20%) would be given as a tax code for her own NILGOS pension. This would use her allowances better. Once your Dad's pension is in payment it would be worth her speaking to HMRC.

ineedsomehelp75

Thank you so much for your help