FSAVC

LINEHAA

I have a family member who is terminally ill and has a FSAVC - when her life expectancy is less that 1 year, she can complete a from signed by her GP which would release the whole FSAVC pot approx £130k.  my question is this - should she a) take the pot, if she does this does it get added to her overall estate and is therefore subject to IHT? or b) should she leave it and on her death it would then get distributed to her nominated individuals?  if she does (b) are there any tax consequences for her and the nominated individuals?
I guess I'm asking what is the best thing to do from a tax point of view 
Thanks 

dunstonh

my question is this - should she a) take the pot, if she does this does it get added to her overall estate and is therefore subject to IHT? or b) should she leave it and on her death it would then get distributed to her nominated individuals?

If she doesn't need the money and she is aged under 75 then if the money is left in the pension and she dies, the beneficiaries will get it tax free and outside of the estate (so no IHT).   If she qualifies for payment under terminal illness rules, she will get the pension tax free but any unspent money will be in the estate and potentially subject to IHT.

Not all pensions support all death benefit options.  For example, Nominee flexi-access drawdown and/or successor flexi-access drawdown may not be available.   If those options are likely to be the best option (impossible to say on what you have told us) then the pension needs to be sorted before death.  Not after (i.e. transfer it to a modern plan that supports that option).   Getting tax free flexi-access drawdown for life may be better for the beneficiary than getting a lump sum once.

FSAVCs ceased to exist in 2006 and existing FSAVCs were reclassified as personal pensions and follow personal pension rules.   Some providers still use FSAVC as they have been lazy on their software.  Others will have changed the name to personal pension.     Just mentioning in advance in case the person dealing with the paperwork gets forms referring to PPP rather than FSAVC.

LINEHAA

Thanks for this.
So if she does not need the money (as she has enough income from her final salary pension) and has no need to spend it on anything or can't use it, eg blow it all on holidays, then from a tax point of view it's better to leave it where it is and gave it dished out to beneficiaries as this would be tax free?
I don't see the point of her taking it and it then becoming subject to IHT (as her estate will be over the threshold)
I would have this her pension adviser would have given her this info 🙁

Marcon

LINEHAA said:

Thanks for this.
So if she does not need the money (as she has enough income from her final salary pension) and has no need to spend it on anything or can't use it, eg blow it all on holidays, then from a tax point of view it's better to leave it where it is and gave it dished out to beneficiaries as this would be tax free?
I don't see the point of her taking it and it then becoming subject to IHT (as her estate will be over the threshold)
I would have this her pension adviser would have given her this info 🙁

Is she under the age of 75 (and will be at the time of her death if this occurs in 12 months from now), and does the FSAVC [now PPP, as explained above] provider have the ultimate say in who receives the payout(s)?

LINEHAA

Yes she will be under 75, she is only 60 and I'm not sure if the provider (Aviva) have the ultimate say - I know she has done an expression of wishes, which I assume they would abide by as she has no dependents, her living relatives would be her two sisters, who may be the nominated beneficiaries 

AlanP_2

I would have this her pension adviser would have given her this info 🙁

Does she have a pension adviser (IFA / FA) or does she have a DIY personal pension effectively with Aviva (who can't offer advice)?

A free call with Pensionwise may be helpful to her in understanding the "rules, but no advice will be given. 

dunstonh

Yes she will be under 75, she is only 60 and I'm not sure if the provider (Aviva) have the ultimate say - I know she has done an expression of wishes, which I assume they would abide by as she has no dependents, her living relatives would be her two sisters, who may be the nominated beneficiaries 

Aviva's platform based pension (their modern offering) has more death benefit options than their legacy plans.   Some of the legacy plans will be lump sum only.   The later ones can offer beneficiary drawdown.  It's possible that return of contributions only could apply to some pre-1988 ones.

She needs to find out exactly what she has in terms of options and whether the options meet her objectives in terms of the beneficiaries and what is best for them.   Don't rely on assumptions.