Budget to boost lifetime allowance for pension savings

EdSwippet

HUMBUG said:

...
a. "The Resolution Foundation think tank warned that, because pension pots are classed as outside of estates, people would be able to put unlimited amounts into their pension pots tax-free and then pass it on to their children without incurring inheritance tax."
...
My questions:
1.  If the Annual Allowance is going to be £60k , how can point  'a'  be correct? There is no unlimited amount you can put into the pension pots tax-free , it will still be £60k.

As you've already found for yourself, it cannot be correct. The Resolution Foundation's statement is at best spin, and at worst simply misdirection, aimed at stirring up division. This Wikipedia article gives most of the necessary context:

Torsten Bell is the chief executive of the Resolution Foundation, an economic thinktank. He was appointed in 2015, having been Ed Miliband's head of policy and a Treasury civil servant who became special adviser to Alistair Darling.

Bell has been associated with the coordination of policy developments for the Labour Party. He has received recognition across various factions within the party for his attention to detail.

Pensions are indeed outside of inheritance tax, but to describe this facet of them as unlimited is hardly "attention to detail".

NoMore

Of course its unlimited, in the fact that there's no specific limit on exemption from IHT. Yes there's limits on contribution, but there's no limit on the gain from those contributions within the Pension.

I do think however that there will be a limit introduced on IHT exemption at some point, more likely than re-instatement of the LTA imo.

RSTime

NoMore said:

Of course its unlimited, in the fact that there's no specific limit on exemption from IHT. Yes there's limits on contribution, but there's no limit on the gain from those contributions within the Pension.

I do think however that there will be a limit introduced on IHT exemption at some point, more likely than re-instatement of the LTA imo.

Indeed, agree. So what would you do if you had a pension pot bin excess of the current LTA and with the likelihood that the next government will reintroduce a cap in 2025 or shortly afterwards... I am only slightly above my LTA and will be crystallising my pension this year as I suspect will many wealthy folks whose pensions pots are substantially larger than mine, why wouldn't you?

HUMBUG

I'm glad there are some savvy people on the forum as my financial nous regarding pensions and tax rules are non-existent.

zagfles

HUMBUG said:

Does anyone know more about this inheritance tax loophole?

I quote from an article I've just read:

a. "The Resolution Foundation think tank warned that, because pension pots are classed as outside of estates, people would be able to put unlimited amounts into their pension pots tax-free and then pass it on to their children without incurring inheritance tax."

I've also read the following:

b' "When you die, your estate will not include your SIPP. This means it will be not be subject to tax at the normal rate of 40% for assets above £325,000. As a result, your beneficiaries will be able to receive SIPP death benefits as a lump sum or fixed income."

c. "The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024, and the Annual Allowance will be raised to £60,000." 

d.Can I save a lump sum into my SIPP? Yes. You can often do this online but you might need to contact your pension provider if you need to complete a form.

My questions:
1.  If the Annual Allowance is going to be £60k , how can point  'a'  be correct? There is no unlimited amount you can put into the pension pots tax-free , it will still be £60k .

or are they saying:

2. One can continue putting in £60k pa every year into their pension pot without having to worry about any tax on their contributions above the current limit £1,073,100 ?

3. I'm assuming point 'd' means you can put a one-off lump sum up to the max of 60k into a SIPP if you wished (if you are working)?

4. On this HMRC site link below, there are 2  ways inherited pensions can avoid paying tax  but the person who died must be under 75. So again, doesn't this seems to contradict point 'a' above unless of course the person dying is under 75?

Tax on a private pension you inherit - GOV.UK (www.gov.uk)

Most lump sums	Defined contribution or defined benefit	Under 75

Annuity or money from a new drawdown fund (set up or converted and first accessed from 6 April 2015)	Defined contribution	Under 75

Point a is simply wrong. You can't put unlimited amounts in "tax free" as you'll be hit by the AA tax if you put too much in.

You can only get tax relief on gross SIPP contributions up to your earned income. For instance if you earn £30k (after your contributions to your workplace scheme) you can only put £30k gross into a SIPP, ie £24k net.

Yes on death under 75 the inherited SIPP is tax free, over 75 it's taxable at the recipent's marginal rate.

zagfles

NoMore said:

Of course its unlimited, in the fact that there's no specific limit on exemption from IHT. Yes there's limits on contribution, but there's no limit on the gain from those contributions within the Pension.

I do think however that there will be a limit introduced on IHT exemption at some point, more likely than re-instatement of the LTA imo.

Indeed, but the quote stated "people would be able to put unlimited amounts into their pension pots tax-free " which is simply wrong.

Albermarle

Although can you  contribute more than the AA, as long as the excess does not attract any tax relief ?
Even if possible it would  be difficult to organise with a mainstream provider, but maybe with a specialist wealth manager /pension provider, it might be possible?
If this was the case then with no LTA limit , you could fill up your pension with Millions and keep it all out of IHT calculations?

MK62

In theory at least, yes......AIUI, whatever you put in attracts BR tax relief, and if that input goes above your earnings or AA, you get an AA tax charge, which you'd usually get the scheme to pay......but as you say, how easy this is to do in practice, especially to the extent of millions, I couldn't say, as I've never tried it myself.
That said, I've read of wealth managers telling of wealthy clients who are shovelling money into pensions for the sole purpose of IHT avoidance.......and that was before all this LTA abolition business.

RogerPensionGuy

Just listen to the first 20mins of this BBC4 radio show today, removing the LTA doesn't appear too popular, one person just mentions that 1.8M could be sensible. 

I don't think they can roll back on this politically because of rolling back on the last budget but, who knows, I'll hold my breath till the 6th of April. 
.

https://www.bbc.co.uk/programmes/m001k17y