SIPPs and inheritance tax

LHW99

I don't know how old you are Fred, but things were different in those days, and yes I had some similar experiences and decided to take control for better or worse.

However, some people need / want advice / hand-holding. On the whole, maybe 50% of something is better than 100% of nothing, so if you are in the position of being relatively clueless, paying for help is not a bad idea.

Of course there is definately the issue of needing a certain level of funds already to be able to get accepted by an IFA. Perhaps that will be where robo-advice will fill a gap in the years to come

OTOH If you haven't got that level of funds by pension age, then IHT probably won't be an issue anyway.

cfw1994

fred246 said:

My own private pension started as an FSAVC which was sold to me in my twenties so the IFA could get commission. The commission was very front loaded so when I had paid all the commission she told me it was a 'load of rubbish' and I should stop contributing. Most of it was in a with profits fund but she had also put some in a 'money market' fund. After a few years I asked another IFA to take a look but she said that her fees were such that there would be nothing left. So I sorted it out myself. Needless to say a 'money market' fund wasn't the best place for a pension for someone in their twenties. With profits wasn't great either so I have done a much better job with it than the IFAs. Obviously I know the current rules but I am more interested in how easily they can be changed. It's more interesting to know the views of a wide range of people than a single adviser who is only interested in their fees. I intend to spend quite a lot more and give more away but spending in lockdown isn't easy. Meanwhile the investments are going up but tomorrow may be different.

That's all well & good....but the question wasn't about the history: financial advice was a different world even 20 years ago!!
So: now you presumably are in a position for your descendants to pay IHT: what mechanisms do you prefer to help minimise that, or are you simply happy for that to be their 'problem', & that avoidable IHT is all good to be paid by your offspring?

DT2001

The approach to IHT will differ to your own requirements for retirement funding. I agree that you just have to plan using current rules as no one knows which rules will change - some in your favour and some not.
If your required retirement income and emergency fund can be generated by DB, SP and a small pot you could transfer any surplus (in cash or ISA’) over £1m as PETs. £1m tax free is possible with luck (property relief and 2 x £325k allowance). Obviously more difficult in London and South East as so many properties use all/large % of total.
My M-I-L was over the threshold a few years ago so her portfolio was tweaked to produce more income. The surplus income was/is passed on in regular payments. This together with the increased property relief and a bond into trust has brought her back within the limits. This has dampened growth but also allows the income, if needed later on, for care fees to be switched back. 
How far do you reduce your assets?
We, like many on here, do not factor in getting any inheritance in our plans, so when elderly parents pass on we’ll look to retrospectively adjust the will to skip our generation. If you’re lucky to have over £1m of assets already it will save 40% on the whole lot.
Our plans were developed with help from IFA as whilst I had found some options he suggested some others and a combination will cover a few tweaks to the current rules. Fees will be more than covered by benefit to our beneficiaries.

A_J

Thanks everyone for your suggestions here so far. 
 
I've seen similar pensions/IHT advice from Octopus Investments, Hargreaves Lansdown, Royal London, etc. - e.g. from Royal London:

"Option 1 – At our discretion (as the scheme administrator): ... If you choose this option, any benefits we pay will not be subject to any inheritance tax."

But... I'm working with a Co-Op will writer (via the promo deal MSE has with them), and they're quite adamant there's a "gotcha" to all this:

"If you have nominated someone to receive the pension lump sum, then this would not be paid through the estate and would not be subject to inheritance tax,
*HOWEVER* the value of the sum would be included in your gross estate value and the tax that would have been payable from the pension sum would then be paid elsewhere from the estate."

If the IHT just gets "paid elsewhere from the estate" then clearly these claims of "free of inheritance tax" are misleading.

Am I missing something please?

Albermarle

I think ( I am not an expert ) it comes down to wording.
Normally you fill in an 'expression of wish' form as to who you would like the beneficiary of the pension to be .
The Trustees of the pension have the right to give it to someone else, although they hardly ever do. 
In this case there are no issues with IHT as far as I understand .
I think the issue might be the word 'nominate '

dunstonh

Albermarle said:

I think ( I am not an expert ) it comes down to wording.
Normally you fill in an 'expression of wish' form as to who you would like the beneficiary of the pension to be .
The Trustees of the pension have the right to give it to someone else, although they hardly ever do. 
In this case there are no issues with IHT as far as I understand .
I think the issue might be the word 'nominate '

For most people, nomination of beneficiary and expression of wish is interchangeable language to mean the same thing.  However, some providers will use the different wordings to describe the absolute nomination (not subject to trustees)  - which can involve IHT or the nomination which is still subject to the trustees (which does not involve IHT - still a caveat there as there is some anti-avoidance rules in place - rarely activated).

I suspect you are correct on it being a misunderstanding due to terminology.

 

pip895

fred246 said:

When I went for my free meeting at Pension Wise the one thing that he went on and on about was that you should put money in a SIPP to avoid inheritance tax. The more I think about it the more I think that a government will just suddenly change the rules. How many people use a SIPP in this way? How safe is it to assume it will work? Can the rules just be changed overnight?

My suspicion is that this will either go or be reduced in generosity in some way long before I (or rather my descendants) can take advantage of it, but I will still plan to use it whilst it's there..

My approach is 
1. Spend it
2. Give it away 
3. Use such other mainstream allowances (no specialist needed to tell you they exist or to set them up) as are available e.g SIPP 
4. Don't fret about letting the government have 40% of what is left over (descendants can always give it to charity if they don't want the government to get it).

A_J

dunstonh said:

...absolute nomination (not subject to trustees)  - which can involve IHT or the nomination which is still subject to the trustees (which does not involve IHT - still a caveat there as there is some anti-avoidance rules in place - rarely activated). 

Thanks dunstonh. So Co-op Legal's theory that IHT just gets "paid elsewhere from the estate" (below) is wrong then?

"If you have nominated someone to receive the pension lump sum, then this would not be paid through the estate and would not be subject to inheritance tax,
*HOWEVER* the value of the sum would be included in your gross estate value and the tax that would have been payable from the pension sum would then be paid elsewhere from the estate."

dunstonh

A_J said:

dunstonh said:

...absolute nomination (not subject to trustees)  - which can involve IHT or the nomination which is still subject to the trustees (which does not involve IHT - still a caveat there as there is some anti-avoidance rules in place - rarely activated). 

Thanks dunstonh. So Co-op Legal's theory that IHT just gets "paid elsewhere from the estate" (below) is wrong then?

"If you have nominated someone to receive the pension lump sum, then this would not be paid through the estate and would not be subject to inheritance tax,
*HOWEVER* the value of the sum would be included in your gross estate value and the tax that would have been payable from the pension sum would then be paid elsewhere from the estate."

You would have to say it is wrong in most cases as the vast majority of people keep their nomination subject to trustees discretion.