Inheriting pension - tax question

mark55man

so does the pot the children inherit count to their LTA? and if the pot is over your own LTA at the point you pop your clogs what happens then in regard to tax??  thank you

zagfles

mark55man said:

so does the pot the children inherit count to their LTA? and if the pot is over your own LTA at the point you pop your clogs what happens then in regard to tax??  thank you

The LTA of the deceased is relevant, not the beneficaries. If death under 75 and uncrystallised funds are designated within 2 years then a BCE applies and an LTA charge will be payable if the deceased's LTA is exceeded. It's possible to avoid the LTA test by leaving it over 2 years, but then the pot is taxable on the recipient.

No LTA test on crystallised funds on death, or on death over 75.

See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm072430

dunstonh

triplea35 said:

tacpot12 said:

The best advice to your beneficiaries is to leave the money where it is until they retire and use it to give them a better retirement than they otherwise would have had.  Only if there is an urgent requirement to clear debts (e.g. their house is about to be repossessed) would it make sense to draw the money out if they have to pay income tax above the basic rate on it. 

If you died before age 75 would it not be better for the beneficiary to take the pot tax free and, if keeping it for retirement feed it into their own pension and by doing so obtain further tax benefit? 

Maybe keep their own pension to pass on (beyond the 25%) and enough to use the personal allowance and use the inherited to supply a tax free income above that and feed back in a lump sum if they wish.   You could play around with scenarios and outcomes.