Should I Put More In My SIPP?

jamesd

highway55 wrote: »

So if the value of the SIPP is £150,000 then even if the beneficiary has no other income, £90,000 of it will be taxed at the 40% rate. If the SIPP were more than £150,000 then everything over that would be taxed at 50%.

At death the money is placed in a SIPP for the beneficiary. The beneficiary can withdraw from that SIPP at any rate they choose. if death was from age 75 the amount they take out each tax year is added to their taxable income for that year. If they are a basic rate tax payer on £20,000 a year they could take out a bit over £20,000 and pay only basic rate income tax on it. Or they could take all £150,000 and have a taxable income of £170,000 in that year and pay lots of unnecessary income tax. Or any other amount desired each year.

The treatment passes on to anyone who inherits this specific pot from the original beneficiary, so children of a spouse, then their grandchildren and so on through the generations.

If a father died over age 75 then the wife died under age 75 a child might inherit the father's portion under the over age 75 rules and the mother's at the under 75 rules fif she had a pension in hero own original name. The child would not get the father's pension money switched from the father's over 75 rules to her under 75 rules.

Thrugelmir

highway55 wrote: »

We may at some point decide to move overseas to retire where we already have a holiday home, in which case we would probably keep the BTL and possibly let out our house as another BTL.

Would it be a worthwhile return once agent fees are taken into account. Do you really want the hassle of tenants and 2 properties in your latter years.

highway55

jamesd wrote: »

At death the money is placed in a SIPP for the beneficiary. The beneficiary can withdraw from that SIPP at any rate they choose. if death was from age 75 the amount they take out each tax year is added to their taxable income for that year. If they are a basic rate tax payer on £20,000 a year they could take out a bit over £20,000 and pay only basic rate income tax on it. Or they could take all £150,000 and have a taxable income of £170,000 in that year and pay lots of unnecessary income tax. Or any other amount desired each year.

The treatment passes on to anyone who inherits this specific pot from the original beneficiary, so children of a spouse, then their grandchildren and so on through the generations.

If a father died over age 75 then the wife died under age 75 a child might inherit the father's portion under the over age 75 rules and the mother's at the under 75 rules fif she had a pension in hero own original name. The child would not get the father's pension money switched from the father's over 75 rules to her under 75 rules.

This puts SIPPs in a different light. For years we avoided putting too much into any sort of pension as we thought that at best the surviving spouse could inherit some but after that it effectively went to the state. Was that never the case or is this ability to pass on a legacy in perpetuity one of the big recent changes?

TH1878

highway55 wrote: »

This puts SIPPs in a different light. For years we avoided putting too much into any sort of pension as we thought that at best the surviving spouse could inherit some but after that it effectively went to the state. Was that never the case or is this ability to pass on a legacy in perpetuity one of the big recent changes?

Er.. A bit of both.

Before the recent changes, your wife could have inherited your pension fund free of tax as long as you were under 75 and hadn't drawn benefits. It would then form part of your wife's estate on her death.

After age 75, or after you'd drawn benefits, it could be paid as a lump sum minus a 55% tax charge or drawn as a pension income and taxed at your wife's marginal rates. Again, it would form part of her estate on death.

The new rules have pretty much removed the distinction between drawn (crystallised) and non-drawn (uncrystallised) pension benefits and now age 75 is the main factor to consider. Your beneficiaries can now leave the death benefits in a pension which can be passed down the generations.

jamesd

highway55 wrote: »

We thought that at best the surviving spouse could inherit some but after that it effectively went to the state. Was that never the case or is this ability to pass on a legacy in perpetuity one of the big recent changes?

Back in the days of Alternatively Secured Pensions there was an effective tax rate on death of 82% of the remaining pot.

Alternatively Secured Pensions were what first eliminate the need for those over 75 to buy an annuity, starting in 2006. ASP and its under-75 equivalent Unsecured Pensions were replaced by the more flexible Capped Drawdown and Flexible Drawdown in 2011, both available at any age from 55 to death at any age and with a 55% tax on death after age 75 if not inherited by a spouse into a pension pot of their own - spouse's choice.

atush

Thrugelmir wrote: »

Would it be a worthwhile return once agent fees are taken into account. Do you really want the hassle of tenants and 2 properties in your latter years.

Sell your current home and buy a flat to use when you are in the UK (and as a bolt hole to come back to). Invest the extra from the sale for income.

running a BTL from abroad is expensive.

kidmugsy

highway55 wrote: »

We have had an unexpected £100K windfall.

One doubt my wife and I have about adding anything further to the pension is that we are not clear on how much of it can be passed on to the kids after we’re gone.

If the windfall is a bequest, get your skates on and consider executing a Deed of Variation directing the money from you to either (i) your children, or (ii) a Discretionary Trust you would set up for your children. Make yourselves Trustees, and make the beneficiaries yourselves, the children, their children, and so on.

That way the £100k will not be caught for Inheritance Tax when you die.


Quite separately, move some of that capital that is sitting outside tax shelters into personal pensions of some sort, and ISAs.