Asking for a friend .... actually, not, asking because I’d never thought folk w/could do this ...

zagfles

So they transferred out of a DB scheme and as a result ended up with a massive LTA problem? Were the LTA issues explained in detail by the IFA who advised on the transfer? We've seen examples here of IFAs recommending DB transfers without even consdering or accounting for the LTA issues.

I'd be considering a complaint against the IFA unless all this was fully understood and accounted for

Aegis

TBC15 wrote: »

Just a thought, would buying a place in Portugal and taking your pension there get around the tax thing?

No, as the double tax treaty doesn't exempt the pension from the Lifetime Allowance. This might be an opportunity to get around a large chunk of income tax, but it's quite a big step to decide to move away from the UK for 5+ years for tax purposes!

Woby_Tide

Aside from the moral and legal aspect but if they were to divorce and then one died presumably there would be an impact on the spouses pension concept also as those rights would no longer exist. I know with a £1m pot each their lifestyles presumably wouldn't be hindered much anyway but

Malthusian

Woby_Tide wrote: »

Aside from the moral and legal aspect but if they were to divorce and then one died presumably there would be an impact on the spouses pension concept also as those rights would no longer exist. I know with a £1m pot each their lifestyles presumably wouldn't be hindered much anyway but

No problem there (just lots of problems elsewhere). It's now a DC pension so you can make a new Expression of Wish after the divorce, naming your ex 100%.

There is no "spousal exemption" for pension death benefits as there is with Inheritance Tax - there is no difference in tax treatment whether you nominate your wife, your kids or your cleaner.

Divorce doesn't invalidate an expression of wish, because an expression of wish has no legal validity in the first place. The trustees have full discretion and an expression of wish is just a suggestion. However, if a nomination to one's ex-wife is dated before the divorce, the trustees are likely to assume it no longer reflected your wishes, especially if there are other potential beneficiaries such as children. So a new expression of wish dated after the divorce would be essential.

Even with a post-divorce nomination to your ex, it is still possible that the trustees would override your expression of wish and give the pension fund to your children or other relatives if they made an application to the trustees. Rather than to your ex who is not dependent on you and probably living in the Algarve with a fancy man called Pedro by now anyway.

The big disadvantage is not pension death benefits but everything else. If you died in the middle of a tactical divorce you would likely have a very large and unnecessary IHT bill due to the loss of the spousal exemption.

On the plus side, as long as you remember to re-do your Will after divorce, your wishes are likely to be followed unless someone dependent on you can clear the high and expensive bar of a challenge under the Inheritance (Provision for Family and Dependents) Act. (If you don't bother re-doing your Will post-divorce, your ex is excluded - it is still legally valid but your ex is treated as if they'd died.)

If it was a still a DB pension you are correct that the spouse's pension would be lost.

Thrugelmir

Thriftydude wrote: »

Married friend has a large pension pot (£2m - 2.5m) having left a final salary scheme when gilts were absurdly priced (lucky timing).

How much did the advisor pocket for this advice?

Gilt prices have been driven to such low levels for good reason. Nothing absurd in the pricing. Time may tell if this is indeed "lucky".

Odds on the OP returning?

bostonerimus

Money does corrupt.

People with a lot of money often seem disposed to do whatever they can to keep it, even if it means breaking tax laws. The ironic thing is that even after paying the tax they are usually comfortable and far better off than most people.

I live in a US state that has an inheritance tax that starts at $1M and there are ways to hide the money, some of which are dubious and others which are just onerous as it needs companies and or trusts to be set up.

In the end it's best just to be sensible, keep your nose clean wrt taxes and tell the truth. A poorer honest marriage is far more important that a wealthier dishonesty separation.

Thriftydude

Thanks everyone for your views so far, sorry if I ought to have been replying in line.

I’ve been away today but managed to speak to my friend this afternoon and they too pass their thanks as there’s lots here they had a view on and some they hadn’t thought of.

On fraud, they hadn’t considered this. Perhaps because they’re Edinburgh based so covered by what they thought was a difference in Scottish divorce laws. They noted the seriousness of fraud.

They weren’t totally persuaded by the evasion argument (because of the above) as a result but I think the volume of views offering that as an opinion is making them think more seriously that way.

They hadn’t thought of all of the alternatives put forward, and we’re grateful for ideas.

There were truly surprised at the lack of moral judgement ... it reaffirmed their faith in people but made a wider societal judgement that “those with a pension problem, listen well and share thoughts”. They said their family (small or no pensions) trotted our the standard ‘you’ve got to be earning it to be paying it’ line to them and weren’t much help.

On the issue of unintended consequences ... put so well by a few folk, they recognised it and thought that’s a personal call and what sat behind their thoughts to do this was who would benefit most from the saving ... with that amount of a pit, it was their kids so they didn’t think that an issue but, again, the strength of opinion they found helpful.

The advisor for the change charged them around £8k to do the TVAS and set up the SIPP.

On gilts, They didn’t know why this was good (that was my recollection as I moved mine at much the same time). From my recollection at the time, from one CETV calculation to the next (99 days apart), my own valuation increased by almost £500k due to gilt values and, when I look at their cost over the last ten years, mine were valued at the lowest recorded cost. My friend chose to ‘twist’ about two weeks after I did so they would have been close to rock bottom (as it was then, who knows what the future brings - good point).

My reading is that the jury Is out, but more inputs are very welcome.

Thank you all ... TD

bostonerimus

I'm often amazed at people's lack of moral deamons. If it feels wrong then it usually is. I'm sure it's possible for legal arguments to be made that it's ok for a happily married couple to divorce and shade the truth in the proceedings and reduce their tax bill. But my rectitude is worth far more than money and I'm surprised how inexpensively some value theirs.

Thriftydude

@bostonerimus Moral deamons are exercised in many ways in the UK in my own experience. Ask many self employed People if they choose to pay income tax or use the tax efficiency of CGT on dividends and you’ll see it ... I see few who pay what an employed person does ... generally as they pillory the big tech companies for their shameless sidestepping of tax too. I know there’s differences in other areas but it’s really not a level playing field out there.

Of course, everyone pays what they’re due to pay within the UK’s tax jurisdiction, so no one is doing anything wrong - no ?

Personal fibre, and the strength of the moral compass will direct the steps that folk take.

I may live in different circles to you, but I know many who will side step taxes soon as look at you, some even brag about how little they pay - in some cases bragging to have paid zero in tax for seven consecutive years, whilst living the high life with booze fueled weekends and foreign holidays as far afield as Australia .... whilst saying the ‘rich’ should pay more.

Don’t get me wrong, I pay close to £90k a year in income tax and the only tax rebate I receive is for gift aid donations. It rankles me to witness such selfishness and hypocrisy, but truly, the world we live in is not quite as philanthropic as we’d love to believe at times. TD

sandsy

zagfles wrote: »

So they transferred out of a DB scheme and as a result ended up with a massive LTA problem? Were the LTA issues explained in detail by the IFA who advised on the transfer? We've seen examples here of IFAs recommending DB transfers without even consdering or accounting for the LTA issues.

I'd be considering a complaint against the IFA unless all this was fully understood and accounted for

This. They should go back and re-read the suitability letter they got from the adviser, the one that gave the reasons for transferring out of a DB scheme. With an LTA bill of the size mentioned, the LTA should have featured prominently in the advice letter.

And if it didn't, they should consider complaining, first to the adviser then to the Financial Ombudsman if the initial complaint doesn't achieve anything. A successful complaint resulting in redress might pay the tax bill and then some - saving the costs and moral questions of divorce.