private pension inheritance tax

charb56

my brother died age 50 and had a private pension with a named beneficiary (his only niece age 26). he never drew on any of it.
the letter from the pensions agency says this is without tax and is not part of the estate and gives options to her, eg take in a lump sum or buy another product. does it incur inheritance tax?

SevenOfNine

Our late sons fell outside of the scope of his estate & did not have to be declared for IHT purposes. It is quite common I believe.

Keep_pedalling

It is normal for pension payouts to fall outside the deceased persons estate. If this is what the pension trustees are saying then this is correct.

Yorkshireman99

charb56 wrote: »

my brother died age 50 and had a private pension with a named beneficiary (his only niece age 26). he never drew on any of it.
the letter from the pensions agency says this is without tax and is not part of the estate and gives options to her, eg take in a lump sum or buy another product. does it incur inheritance tax?

How big is the sum?

getmore4less

charb56 wrote: »

my brother died age 50 and had a private pension with a named beneficiary (his only niece age 26). he never drew on any of it.
the letter from the pensions agency says this is without tax and is not part of the estate and gives options to her, eg take in a lump sum or buy another product. does it incur inheritance tax?

Not part of the Brothers estate so not included in his assets for the IHT capital return.

Malthusian

It would only incur Inheritance Tax if the trustees decided to pay it into his estate and let the executors (or the intestacy rules) decide where it went. As he nominated his niece and it will be paid directly to her that scenario isn't on the table.

Although she could take the whole lot tax free, bear in mind that if she isn't planning on spending the whole lot immediately, it may be better to receive it as a nominee drawdown plan. The money can then grow tax-free until she does need it, at which point it will still be tax-free. (Assuming the Government doesn't change the rules again.) If she takes it as cash and doesn't spend it, it could take years of using her ISA allowances to make it tax-free again.

securityguy

"private pension with a named beneficiary"

Pension schemes vary in their willingness to pay lump sums outside the estate when there is no letter of wishes and the position of the deceased with regard to a will or intestacy is anything other than utterly obvious. If the deceased's estate is contested, then the safest thing is for the same dispute to resolve issues over the lump sum (which is in many cases the single largest asset). Similarly life insurance more generally: in simple cases pay direct, in more complex cases pay it into the estate and leave it for probate to sort out.

However, when there's an expression of wishes, it's absolutely straightforward: they get the money. The end. Yes, in principle it's possible to imagine some action based on an expression of wishes being done under duress, but as the letters are workplace matters and not shown to third parties until death, that possibility is remote and I have never heard it (and I have been a pension trustee) seriously considered as a risk to the fund.

Yorkshireman99

getmore4less wrote: »

Not part of the Brothers estate so not included in his assets for the IHT capital return.

Assuming it is structured in the way that the OP suggests. But it is not universal so it is always essential to check.

Yorkshireman99

Malthusian wrote: »

It would only incur Inheritance Tax if the trustees decided to pay it into his estate and let the executors (or the intestacy rules) decide where it went. As he nominated his niece and it will be paid directly to her that scenario isn't on the table.

Although she could take the whole lot tax free, bear in mind that if she isn't planning on spending the whole lot immediately, it may be better to receive it as a nominee drawdown plan. The money can then grow tax-free until she does need it, at which point it will still be tax-free. (Assuming the Government doesn't change the rules again.) If she takes it as cash and doesn't spend it, it could take years of using her ISA allowances to make it tax-free again.

Good advice. I would suggest it is essential that she take professional advice on what to do rather than from the pension company.

charb56

thanks everyone, does anyone have experience of pensionwise as a reliable advice source?

Silvertabby

thanks everyone, does anyone have experience of pensionwise as a reliable advice source?

Pensionwise give information, not advice. If your niece needs help with deciding what to do with the death grant, then she will need to pay for advice from an IFA.