SIPP growth after crystallisation and where it is applied

caveman8006

Albermarle said:

 What is the status of crystallised funds, as these are still within the SIPP, do they still have the same trust status as uncrystallised funds within the SIPP? 
Yes
 I understand that if one takes a 25% PCLS then that has clearly become a personal asset and would become part of my estate and subject to IHT.  This latter point might be one reason why one might not automatically take a PCLS at crystallisation - although I am then not sure I can see why anyone would crystallise funds if not intending to draw any down or take a PCLS at all. 
There are very few instances where it makes sense not to take the tax free cash, even with the potential IHT liability . In fact not even sure that many providers have the ability to crystallise your pension and not pay out the PCLS, as it all happens automatically in their systems.

Not sure that is always true - £100k taken out of the SIPP leaves £25k subject to 40% inheritance tax and £75k either tax free (death prior to age 75) or to recipients marginal tax rate (likely 20%). If left in SIPP, then all is subject to the latter...likely to be substantially smaller in  most cases. I agree though that if you choose to take less than 25% as PCLS, then you need to keep clear record as some administrators do not record BC1 crystalizations in a  very transparent  way (ie. showing split between PCLS and intial drawdown account balance) which the absence of makes the second test at 75 problematic 

Albermarle

caveman8006 said:

Albermarle said:

 What is the status of crystallised funds, as these are still within the SIPP, do they still have the same trust status as uncrystallised funds within the SIPP? 
Yes
 I understand that if one takes a 25% PCLS then that has clearly become a personal asset and would become part of my estate and subject to IHT.  This latter point might be one reason why one might not automatically take a PCLS at crystallisation - although I am then not sure I can see why anyone would crystallise funds if not intending to draw any down or take a PCLS at all. 
There are very few instances where it makes sense not to take the tax free cash, even with the potential IHT liability . In fact not even sure that many providers have the ability to crystallise your pension and not pay out the PCLS, as it all happens automatically in their systems.

Not sure that is always true - £100k taken out of the SIPP leaves £25k subject to 40% inheritance tax and £75k either tax free (death prior to age 75) or to recipients marginal tax rate (likely 20%). If left in SIPP, then all is subject to the latter...likely to be substantially smaller in  most cases. I agree though that if you choose to take less than 25% as PCLS, then you need to keep clear record as some administrators do not record BC1 crystalizations in a  very transparent  way (ie. showing split between PCLS and intial drawdown account balance) which the absence of makes the second test at 75 problematic 

ON a strict calculation basis you are right . If IHT was your main worry , then probably easiest just not to crystallise at all . Then you still have the option of taking the tax free cash later .
Otherwise I think for most people it is a case of a bird in the hand now ( minimum 20% saved ) than a potential larger saving later when you are dead, assuming you still had enough assets left when you die .
Also looking forward there must be a possibility of pensions becoming subject to IHT ( or partly subject ) as it is basically a loophole and not what pensions were designed for . There was some speculation about this before the budget , with the respected IFS saying the rules on inherited pensions were 'ludicrously generous '