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Inheriting a pension fund
SuzieSue
Posts: 4,110 Forumite
I have a defined contribution personal pension fund. I understand that if I die before I am 75, it can be inherited tax free within 2 years.
However, if I die after age 75, then tax might be payable by my beneficiaries depending on the amounts involved and their marginal tax rates.
Does anyone know why they have set a limit of 75 for tax free inheritance?
I do not understand what difference it makes when you die. Also, it might encourage unscrupulous relatives to try to persuade people to pop their clogs before their 75th birthday.
However, if I die after age 75, then tax might be payable by my beneficiaries depending on the amounts involved and their marginal tax rates.
Does anyone know why they have set a limit of 75 for tax free inheritance?
I do not understand what difference it makes when you die. Also, it might encourage unscrupulous relatives to try to persuade people to pop their clogs before their 75th birthday.
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However, if I die after age 75, then tax might be payable by my beneficiaries depending on the amounts involved and their marginal tax rates.
And only if they draw it. If they dont draw it and leave it for their own retirement, they only pay income tax on what they draw at that time.Does anyone know why they have set a limit of 75 for tax free inheritance?
Probably historical reasons as 75 was the old maximum vesting age.I do not understand what difference it makes when you die.
Possibly to reflect that fact that if you die under the age 75, you are quite a way below the average life expectancy.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
What is the tax rate paid if the inherited pension takes you over the LTA? Is it 55%?0
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What is the tax rate paid if the inherited pension takes you over the LTA? Is it 55%?
See https://www.gov.uk/tax-on-pension-death-benefits0 -
The pension is inherited by a beneficiary(s) but does not form part of their pension allowance so wont be included in LTAs. The beneficiary pays tax at the individuals marginal rate on any monies drawdown from the pot. It is also treated as being outside of the deceased Estate for Inheritance tax purposes0
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The pension is inherited by a beneficiary(s) but does not form part of their pension allowance so wont be included in LTAs. The beneficiary pays tax at the individuals marginal rate on any monies drawdown from the pot. It is also treated as being outside of the deceased Estate for Inheritance tax purposes
At their marginal rate? Really?Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
The pension is inherited by a beneficiary(s) but does not form part of their pension allowance so wont be included in LTAs. The beneficiary pays tax at the individuals marginal rate on any monies drawdown from the pot. It is also treated as being outside of the deceased Estate for Inheritance tax purposes
You're wrong, according to https://www.gov.uk/tax-on-pension-death-benefits
The beneficiary pays income tax on drawn down sums, not marginal-rate tax.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
The beneficiary pays income tax on drawn down sums, not marginal-rate tax.
Don't disagree - they pay Income Tax at their marginal rate0 -
FatherAbraham wrote: »You're wrong, according to https://www.gov.uk/tax-on-pension-death-benefits
The beneficiary pays income tax on drawn down sums, not marginal-rate tax.
Same thing surely?
The provider may automatically deduct tax at the standard rate, but the link explains that the beneficiary can get a refund if too much tax has been deducted (or must declare any liability to higher-rate tax).This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0 -
Clifford_Pope wrote: »Same thing surely?
No.
Tax at marginal rate is where the amount taxed has no effect on the tax rate.
Income tax is a progressive tax, where the additional taxable income can take one into a higher tax band.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
Don't disagree - they pay Income Tax at their marginal rate
This is incorrect. Different parts the taxable income may fall into different tax-rate bands.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0
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