More budget speculation

Albermarle

Extract from the Daily Express,  who seem to publish  a pension scare story every  day, but maybe no smoke without fire,,,,,,

Sunak could impose inheritance tax on our pension pots when we die, in a move that could generate a fortune for the Treasury.

Carl Emmerson, deputy director at impartial think tank the Institute for Fiscal Research, has attacked pension tax breaks as "indefensibly generous" and "very, very beneficiant", and called for them to be reviewed.

He said it was "unfair" to allow families to use their pensions to pass on wealth free of IHT, when they are primarily designed to save for retirement.

Sean McCann, chartered financial planner at NFU Mutual said , "If Mr Sunak wanted to cast his net further, he could make the bold decision to make pensions liable for inheritance tax, raising significant sums in the process."

Under current rules, if you die before age 75, you can pass on defined contribution personal or workplace money-purchase pensions to loved ones free of income tax or inheritance tax, provided payment is made within two years of death.

Emmerson suggested the age 75 rule was too generous and Rebecca O'Connor, head of pensions & savings at Interactive Investor, said: "It could be viewed as odd giving heirs a double tax-break when a pension is meant to be for your retirement rather than tax planning."

DairyQueen

If implemented such a policy could alienate too many voters for Tory comfort. It could potentially screw the carefully laid retirement and IHT plans of a big chunk of middle Britain. 

jamesd

I suppose they could apply inheritance tax to the survivor 50% or whatever benefits of defined benefit and annuity schemes but wouldn't making survivor benefits subject to IHT after the first death be quite controversial? Survivor benefits for DC are provided by inheriting the pot of money and that's no more proper use for taxation than the survivor benefits of DB and annuity..

None of these three benefits is arbitrary, since protection of spouses and children after retiree death is a significant part of planning, particularly for early retirees at say 57 who could have a spouse and several young children to support after their own death. The successor benefit protects the children if their mother also dies. Protection of grandchildren may also be a factor since a child aged 16 or less could have a child of their own who needs support.

Survivor benefits for DC are more flexible. While unmarried people and children are potentially included in all three types of benefit, potentially, the DC case includes those who aren't spouses, unmarried partners and children. I haven't seen it done yet but if someone here was to leave me DC money I'd get it on the same terms as their family.

Making all three types of survivor benefit subject to inheritance tax, with some derived capital value for DB and annuity benefit calculations, could be viable.

Sea_Shell

Personally, I'd be spitting feathers (and financially screwed) if, on DHs passing (before 75) I had to pay 40% IHT on his pension funds.

I'll need that money to live on!!!

Surely they wouldn't bring something like that in on first death, where a spouse is the beneficiary?!?!

DairyQueen

Sea_Shell said:

Personally, I'd be spitting feathers (and financially screwed) if, on DHs passing (before 75) I had to pay 40% IHT on his pension funds.

I'll need that money to live on!!!

Surely they wouldn't bring something like that in on first death, where a spouse is the beneficiary?!?!

Similar situation to you. It has taken much time, planning and costly professional advice to arrange our finances to protect us throughout retirement. A major factor has been the IHT-free status of our SIPPs. Not least the decision to transfer out of my DB pension.

We would have to re-write wills, change withdrawal plans, and Lord knows what else to accommodate IHT on pension funds. We would have to change ownership of certain assets.

It would be a great deal of hassle and extra cost. I can accept an increase in income tax. I would accept paying NI in retirement. But if they screw with the tax status of pension funds I will be venting my spleen at the next election.

Those of us already retired (or near to) would be seriously stuffed as we will be most affected courtesy of having already carefully arranged our plans around current rules.

sheslookinhot

Is inheritance tax due on death of a spouse ?

Aretnap

sheslookinhot said:

Is inheritance tax due on death of a spouse ?

No. And I can't imagine that changing any time soon, so any concerns about being having to pay IHT on DH's pension pot can be safely dismissed. 

OTOH there's no obvious reason why middle aged, middle class children need to be able to inherit large amounts of pension money entirely tax free. The nature of pension money is that it has never been subject to income tax, so even the usual (dubious) complaint about IHT being a tax on money which has already been taxed doesn't apply. 

Dazza1902

Out if interest why are DC pots iht free to anybody other than a spouse ? What was the original logic in making them so ?

NedS

Dazza1902 said:

Out if interest why are DC pots iht free to anybody other than a spouse ? What was the original logic in making them so ?

Because pensions sit outside of a person's estate, they do not fall to be subject to inheritance tax.

zagfles

Sea_Shell said:

Personally, I'd be spitting feathers (and financially screwed) if, on DHs passing (before 75) I had to pay 40% IHT on his pension funds.

I'll need that money to live on!!!

Surely they wouldn't bring something like that in on first death, where a spouse is the beneficiary?!?!

I think you can relax, the idea that they would both apply IHT to a pension, plus abolish the spouse IHT exemption, is highly unlikely.  

What's far more likely is they make inherited pensions taxable as income on the recipient regardless of age of death (now it's taxable on death over 75 but tax free under 75).

zagfles

jamesd said:

I suppose they could apply inheritance tax to the survivor 50% or whatever benefits of defined benefit and annuity schemes but wouldn't making survivor benefits subject to IHT after the first death be quite controversial? Survivor benefits for DC are provided by inheriting the pot of money and that's no more proper use for taxation than the survivor benefits of DB and annuity..

None of these three benefits is arbitrary, since protection of spouses and children after retiree death is a significant part of planning, particularly for early retirees at say 57 who could have a spouse and several young children to support after their own death. The successor benefit protects the children if their mother also dies. Protection of grandchildren may also be a factor since a child aged 16 or less could have a child of their own who needs support.

Survivor benefits for DC are more flexible. While unmarried people and children are potentially included in all three types of benefit, potentially, the DC case includes those who aren't spouses, unmarried partners and children. I haven't seen it done yet but if someone here was to leave me DC money I'd get it on the same terms as their family.

Making all three types of survivor benefit subject to inheritance tax, with some derived capital value for DB and annuity benefit calculations, could be viable.

Or they could simply have different rules for "dependants" and "nominees", as they are already defined in legislation. eg no IHT for dependants, but IHT for nominees.

Or as above make inherited drawdown subject to income tax regardless of age of death. That's already the case for DB survivor benefits.