Is there any point in taking the 25% TFLS?

clivep

I've been very prudent with our investments and we are in the fortunate position of having sufficient in our ISAs to live out the rest of our lives without need of withdrawing any money from my main pension pot.

When my wife and I eventually die then the value of the estate that my son will inherit will be over the IHT threshold.

It seems sensible to name my son as beneficiary of my main pension pot so no IHT will arise on this.

If I take the 25% TFLS from the pot and invest it then eventually this will incur 40% IHT.

If I don't take the TFLS and die before 75 then my son will inherit the larger pot tax free.

If I don't take the TFLS and die after 75 then my son will be able to drawdown from the larger pot and only pay tax at his marginal rate.

It would appear that it makes no sense to take the TFLS. Have I got this right?

kidmugsy

Seems OK to me. Of course, the law may be different when you do die.

As for your estates eventually paying IHT: you could, if you wanted to, gift up to the Nil Rate Band to a Discretionary Trust set up with you and your wife as Trustees, and your widow, your son, and his wife & descendants as beneficiaries. Then if you live seven years that money will escape IHT too, and yet after your death would be available to your widow if the Trustees so decided.

mania112

You can gift your son the tax-free cash and so long as you live for 7 more years, there will be no IHT to pay on it.

westy22

I am in almost the same position as you.

I am 62, but still earning, so my SIPP is untouched. I have decided not to take the TFLS and to review this decision if I am still alive when 73/74.

Of course, I hope that the rules don't change in the future and that the 25% tax free allowance remains intact with no ceiling.

redux

mania112 wrote: »

You can gift your son the tax-free cash and so long as you live for 7 more years, there will be no IHT to pay on it.

In the past, and I assume this may still be true, but take advice to check:

You could also take out decreasing life assurance to cover inheritance tax occurring if you don't survive 7 years, and pay the premiums yourself as a gift from within your current income.

Whether it comes as a worthwhile price, I have no idea.

Snakey

Presumably your estate only goes to your son on the second death, so you can give up to £325k to your son now without worrying about IHT as even if you did die within seven years it would be covered by your nil rate band (inheritance from husband to wife is exempt).

If the 25% is that size or smaller, and you are sure that you don't need the money, give it to your son now and then you can enjoy watching him spend it. Otherwise he'll get it in 20 years time when you'll be dead and he'll be old and it won't be as much fun for any of you.

I don't suppose you'd like to adopt a daughter?

clivep

Thanks for the replies.

kidmugsy wrote: »

Seems OK to me. Of course, the law may be different when you do die.

As for your estates eventually paying IHT: you could, if you wanted to, gift up to the Nil Rate Band to a Discretionary Trust set up with you and your wife as Trustees, and your widow, your son, and his wife & descendants as beneficiaries. Then if you live seven years that money will escape IHT too, and yet after your death would be available to your widow if the Trustees so decided.

It seems to me that keeping the fund in the pension (and adding the allowable £3,600 gross annual contributions) effectively achieves the same sort of thing (at least until I'm 75) as a Discretionary Trust and allows me to control the investments with minimal set-up/running costs.

Snakey wrote: »

Presumably your estate only goes to your son on the second death, so you can give up to £325k to your son now without worrying about IHT as even if you did die within seven years it would be covered by your nil rate band (inheritance from husband to wife is exempt).

If the 25% is that size or smaller, and you are sure that you don't need the money, give it to your son now and then you can enjoy watching him spend it. Otherwise he'll get it in 20 years time when you'll be dead and he'll be old and it won't be as much fun for any of you.

I'm essentially doing this at the moment as I'm about to receive this sort of amount from the sale of my father's house after he died last October. I'm passing this straight on to my son to purchase a house. I could possibly have done this better by getting a variance to my dad's will to make my son the beneficiary rather than me just in case I don't live another 7 years.

It's true that if I die within 7 years that there'll be no IHT on this but on second death there wouldn't be an unused allowance to get added to that of my wife so the IHT bill on 2nd death would be much higher.

sleepless_saver

clivep wrote: »

I'm essentially doing this at the moment as I'm about to receive this sort of amount from the sale of my father's house after he died last October. I'm passing this straight on to my son to purchase a house. I could possibly have done this better by getting a variance to my dad's will to make my son the beneficiary rather than me just in case I don't live another 7 years.

It's not too late for a deed of variation, you have 2 years from the date of death.

xylophone

Re DoV -

https://www.gov.uk/alter-a-will-after-a-death

Any changes to the will must be completed within 2 years of the death.

clivep

Thanks,

I've just been reading up on it and downloaded the 'instrument of variation checklist (IOV2)' form. Seems like a good idea to do a variation just in case!

kidmugsy

clivep wrote: »

I'm essentially doing this at the moment as I'm about to receive this sort of amount from the sale of my father's house after he died last October. I'm passing this straight on to my son to purchase a house. I could possibly have done this better by getting a variance to my dad's will to make my son the beneficiary rather than me just in case I don't live another 7 years.

You've got two years from the old boy's death to do a deed of variation, so get your finger out now. The govt is investigating the prospect of new laws on DoVs, so skates on.