Sipp Esa and Tax

Kim1965

My wife 57 has been ill health retired, she recieves contributary Esa, 3 db pensions. In total her income is 12.5k. She has a sipp(75k), if she takes the sipp as income, her Esa is reduced.
 Her condition is incurable, the hospital gave form ds1500 which helped attain enhanced ill health retirement. Am i correct in thinking she can access her entire sipp tax free?
 If so, would it be a good idea to put this into isas 40k before apr,il the reminder after April.?
 Once the money is in Isas i think it can be access ed tax free? Money from savings (isas) does not reduce Esa.
 Apart from joint cash savings of40k our only wealth is our house 400k, my dc and db pensions. My dc pension will remain within sipps to go into drawdown when i decide to finish working. We have two kids.
 Our aim is to have the flexibility to access this sipp money without losing Esa and not paying tax on it. If it is not used it will pass to the kids.
Is my thinking correct?

mark55man

Hi @Kim1965 - sorry your post hasn't got any answers.  Also, and more so, I'm sorry for your troubles.

The end of the week is often slow on here.  My job as forum ambassador is to help ensure help is provided.  That help would be more relevant if you could explain what schemes your wife is in.

Q1.  Tax free - I think there is a difference between incurable and terminal - normally that benefit applies if life expectancy is less than 1 year.  Also though I'm not sure of that is available if the pension is DB and already in payment.  That may depend on the scheme.
Q2. ESA  - this board doesn't tend to know about benefits you might be better posting at the benefits board.  However general savings advice and pension would almost always be to put money outside an ISA into an ISA.  That money would then be accessible tax free.
Otherwise your set up sees to be reasonable a blend of fixed income (DB) and money (DC).  The only remaining thing to be sure you understand is the inheritance tax rules depending on the amounr received, and whether you want your wife's assets to transfer to you, or possibly to the kids.

Good luck

Marcon

Kim1965 said:

My wife 57 has been ill health retired, she recieves contributary Esa, 3 db pensions. In total her income is 12.5k. She has a sipp(75k), if she takes the sipp as income, her Esa is reduced.
 Her condition is incurable, the hospital gave form ds1500 which helped attain enhanced ill health retirement. Am i correct in thinking she can access her entire sipp tax free?
 If so, would it be a good idea to put this into isas 40k before apr,il the reminder after April.?
 Once the money is in Isas i think it can be access ed tax free? Money from savings (isas) does not reduce Esa.
 Apart from joint cash savings of40k our only wealth is our house 400k, my dc and db pensions. My dc pension will remain within sipps to go into drawdown when i decide to finish working. We have two kids.
 Our aim is to have the flexibility to access this sipp money without losing Esa and not paying tax on it. If it is not used it will pass to the kids.
Is my thinking correct?

I don't know enough about benefits to answer from a fully informed starting point, but I hope the following will be useful and point you in the right direction to get the information you need at what must be a truly awful time for you.

My understanding is that a DS1500 is used only where someone has very short life expectancy (6 months), so I was very sorry to read this. It should mean that your wife is able to access the whole of her SIPP tax free, but whether it's a good idea to do so is another matter, particularly if doing so reduces your ESA. Perhaps https://www.turn2us.org.uk may be able to help, or https://www.mariecurie.org.uk/help/support/benefits-entitlements/benefits-social-care-system/special-rules 

A spouse or civil partner can inherit the ISA tax free; see https://www.gov.uk/individual-savings-accounts/inheriting-an-isa-from-your-spouse-civil-partner. The proceeds of an ISA cannot automatically be passed on to your offspring tax free if IHT is payable on your estate.

If a wife predeceases her husband and on death transfers all her assets to her husband (or vice versa), then none of the nil rate band is used on the first death, and the wife's nil rate IHT allowances pass to her husband. Same thing for civil partners and obviously same-sex married couples. Given the value of the estate, it is likely no IHT would be payable if the property is left to your children. See https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band. 

Mark55man - to answer your point, a DB pension which is already in payment cannot then be cashed in('commuted') on grounds of serious ill health. That's an HMRC stance, not down to the rules of any particular DB scheme. The rules of the particular DB scheme will dictate whether serious ill health commutation* is permitted by that particular scheme. 

*taking a one-off tax free lump sum in lieu of the member's DB pension (i.e. before it starts to be paid) where life expectancy is certified by a registered medical practitioner as no more than 12 months. This does not normally impact on any pension which would be payable to a spouse and/or 'eligible children'.

Kim1965

Ok, thankyou for your answers between the benefits board and pension board, i think i know our course of action. The db pensions have already been sorted. The sipp has not. Taking the sipp as a lump sum does not affect esa oddly enough. 
Thanks for the kind sentiments. 
 

mark55man

Thanks @Macron

My DB scheme has a guaranteed 5 years pay out, which may apply here - OP just has to be careful to check. I'm not sure how automatic that sort of payment is, nor the tax implications.  

Marcon

mark55man said:

Thanks @Macron

My DB scheme has a guaranteed 5 years pay out, which may apply here - OP just has to be careful to check. I'm not sure how automatic that sort of payment is, nor the tax implications.  

Most (but not all) DB schemes have  that provision in their rules and, as with your scheme, it's usually a five year guarantee i.e. if the pension is in payment and the member dies before receiving 60 monthly payments, a 'balancing payment' is paid out. This is paid as a cash lump sum at the discretion of the trustees, so is tax free in the hands of the recipient(s).

There are some exceptions to this (e.g. some DB schemes pay a spouse's pension at a higher rate for the first year, or some other provision), which is why it's not possible to give a hard and fast answer which applies in all circumstances.

In either case, this is a provision in DB schemes which applies after death, whereas taking the whole lot as tax free cash because the member is in serious ill health, if the DB scheme allows that as a possibility, would need to be done while the member was still alive.

Sincere apologies to OP for being quite so graphic, but I'm answering in case it is of help to other readers of this thread.

Albermarle

Sorry to hear about your situation.

I presume that you are named as the beneficiary of your wife's SIPP ?
In which case you would get the SIPP and be able to access it tax free when she has died. 

It could be an alternative way of getting to the same result ?

mark55man

Thanks @Marcon - interesting  about the DB and 5 years.  Also OP should double check what the spouse's benefits are for the DB's already in payment

+ Sorry for tagging the wrong person.  You prob know this but macron is an account but not active since 2009 so I may have got away with it

Kim1965

mark55man said:

Thanks @Macron

My DB scheme has a guaranteed 5 years pay out, which may apply here - OP just has to be careful to check. I'm not sure how automatic that sort of payment is, nor the tax implications.  

The five year gaurenteed payment applies to all three db pensions. 

Kim1965

Most (but not all) DB schemes have  that provision in their rules and, as with your scheme, it's usually a five year guarantee i.e. if the pension is in payment and the member dies before receiving 60 monthly payments, a 'balancing payment' is paid out. This is paid as a cash lump sum at the discretion of the trustees, so is tax free in the hands of the recipient(s).

There are some exceptions to this (e.g. some DB schemes pay a spouse's pension at a higher rate for the first year, or some other provision), which is why it's not possible to give a hard and fast answer which applies in all circumstances.

In either case, this is a provision in DB schemes which applies after death, whereas taking the whole lot as tax free cash because the member is in serious ill health, if the DB scheme allows that as a possibility, would need to be done while the member was still alive.

Sincere apologies to OP for being quite so graphic, but I'm answering in case it is of help to other readers of this thread.

No need to apologise. Im seeking peoples thoughts regarding finances. 

MovingForwards

Please submit a PIP application, with the support of McMillan etc, if you haven't already done so. It's fast tracked in these circumstances and isn't a means tested benefit.