IHT - Pensions

Mothman

I believe I do not currently have an IHT liabilty as a major part of my assets are in three DC pensions which I understand are held in trust and so outside of my estate. If I were to die first then under my expression of wishes given to the pension companies my wife is to be the sole beneficiary of all three pensions.

My question is what happens to the pensions when she subsequently dies, are they still considered to be held in trust and and so outside of her estate? If not then there would likely be an IHT liabilty in which case we probably need to review things.

PennyForThem_2

I am interested in this too

The HMRC says this:  https://www.gov.uk/tax-on-pension-death-benefits
If I was OP I would wonder if my partner was liable for tax depending on what age I died.

So I am 71 and no major health problems with a 250K SIPP not yet drawn on.  Sons are Trust beneficiaries.  I understand if I die before 75 - no tax liability for my sons, but after - yes, at their normal tax rate.

No IHT implications as OP said fall outside estate, I too believe.

macman

What sort of trust is it? 

Mothman

macman said:

What sort of trust is it? 

As I understand it defined contribution pensions are treated as being held in trust. What I don't know is once a pension has been inherited does it loose its trust status and so form part of the recipients estate for IHT purposes?

Albermarle

Mothman said:

macman said:

What sort of trust is it? 

As I understand it defined contribution pensions are treated as being held in trust. What I don't know is once a pension has been inherited does it loose its trust status and so form part of the recipients estate for IHT purposes?

No it does not. Your wife would presumably also nominate beneficiaries and they would get any DC pension pots left. In this way the pots can pass down the generations without ever being included in any IHT calculations as I understand it.

One point I am not sure about is what it says in the gov.uk link in a previous post.

If you inherit a defined contribution pot you can nominate someone to get any money you do not use before your death. The money must be in a flexi-access drawdown fund when you die.
This implies that the pot has to be crystallised ( and the tax free cash taken) before it can be passed on a second time, which is not something I was aware of. Maybe it does not mean that?


So I am 71 and no major health problems with a 250K SIPP not yet drawn on.  Sons are Trust beneficiaries.  I understand if I die before 75 - no tax liability for my sons, but after - yes, at their normal tax rate.

This is correct- no IHT liability, but if the death is over 75 then the beneficiary will pay tax on any withdrawals from the pension in the normal way. 

Mothman

Thanks Albermarle. That's an interesting point regarding crystallisation as previously we have always used UFPLS drawdown.