Tax free lump sum from pension

SomeMadeUpName

SomeMadeUpName said:

Marcon said:

SomeMadeUpName said:

HappyHarry said:

What is wrong with leaving it in the pension wrapper?  In the pension wrapper it grows tax-free, and in a SIPP you can invest it pretty much in what you want to. Whilst in the SIPP it is exempt from Inheritance Tax for ever.
This then leaves the ISA allowance free for other monies.

I don't see the advantage of taking the tax-free cash and then investing it inside an ISA. The only thing you are doing is making the monies eligible for IHT.

But, many couples estates are worth well less than £1m (including PPR) especially in the north of the UK with the lower house prices, so if you get the tax free money out of the pension then it becomes part of a tax free estate, whereas if you leave it in the pension once you are 75 isn't the recipient after death taxed on it?*
So really it's down to your age and size of your estate.

But not IHT - it would be income tax.

Agreed.  In the scenario above though (over 75, total estate less than the relevant IHT limit) better to have the money out and passed totally tax free (as estate), than in (the pension) and so subject to income tax on withdrawal by the beneficiary.

Absolute final point on this (I promise) 

In the scenario (over 75, total estate less than relevant IHT limit) if the funds come out of the 'donor' pension fund, then pass as part of an untaxed estate to a beneficiary they can then use those funds to invest in a pension in their own name, boosting the amount by 25-66.7% compared to leaving it in the pension and passing it over as part of the pot.