LTA: remove charge from April 2023 and abolish from April 2024

Albermarle

I don't think the Labour party have a clue about the complexity and damage of what they have committed to with reintroducing the LTA for example

Probably not but a knee jerk reaction is the way politics works, the Conservatives also indulge in it as well. The final outcome will no doubt be different

In any case  am not that sure that the Conservatives knew exactly what they were doing when they abolished it either. It has opened up some big opportunities for tax avoidance ( mainly around IHT ) for very high earning people/households/wealthy families. Here is a good story about it.

Monevator - Make more money, invest profitably, retire early

Not sure how this benefits the country....

LHW99

In any case  am not that sure that the Conservatives knew exactly what they were doing when they abolished it either. It has opened up some big opportunities for tax avoidance ( mainly around IHT ) for very high earning people/households/wealthy families. Here is a good story about it.

Monevator - Make more money, invest profitably, retire early

Hmmm. So Stephen & Sarah prefer to fill their & the children's ISA's and put money in pensions for their children, but can't afford to pay into their own pensions? Not the best management plan IMO

And Mike and Lary could "give some money to Sarah now, in the reasonable expectation that she’d pay for their care or medical bills if it came to it later". - Sounds like a gift with reservation, even if the Sarah (/ Stephen) actually complied (some hope?).

And in an expression of wishes Sarah wants to  "... instructs the pension trustees to allow Mike and Mary the option of forgoing the benefits in favour of other beneficiaries, if they wish." - Surely that may be sufficiently prescriptive to mean the SIPP is no longer IHT free?

MK62

zagfles said:

MK62 said:

zagfles said:

MK62 said:

zagfles said:

MK62 said:

zagfles said:

Albermarle said:

MK62 said:

If Labour profoundly disagree with this policy shift, and it appears that they do, then it's not all that surprising that they will oppose it.....at least they are being straight and up front about that........if they win the next election the LTA will be back.
While the dust is still settling on this bombshell, so details probably aren't fully worked out atm, it would be rather helpful in the coming weeks if they fleshed out exactly what they mean, and if their plans will, should they win the next election, include any measures to retrospectively tax anyone who takes advantage of the LTA's charge removal/abolition in the meantime.
I guess it's a case of wait and see......again.....
My own view is that I think it would be unlikely they'd retrospectively tax anyone, and even if they did, that they'd put anyone who takes advantage of the LTA removal in a worse position than today..........but who knows for sure?

If I was a betting man, then I would say if Labour get in they will not actually in the end reverse the LTA abolition, as it would be too complicated. Plus negative effect on Doctors etc
However including pension pots in IHT calculations ( or partly include over a certain amount for example ) could well be on the agenda.
Even the normally very pro Tory/anti LTA   Daily Express is expressing some reservations. Quote

Labour loves accusing Tory chancellors of helping out their rich mates, so at first I scoffed Shadow Chancellor Rachel Reeves line of attack But the more I look at Hunt's move, the more I see her point. Hunt has just given super-wealthy Britons a massive opportunity to fight back against his own inheritance tax squeeze, by allowing them to pump a small fortune into pensions.

The backlash against Hunt's move will hit all of us. If pensions are seen as a massive IHT tax dodge for the rich, it could tempt Reeves to do more than restore the lifetime allowance.

She could make everybody's pensions subject to IHT.

Plenty of people want to see this happen. Last December, the Institute for Fiscal Studies published a paper arguing that the overly generous tax treatment of pension pots at death needs to be swiftly ended.

Thanks to Hunt, that day has just moved closer.

Families have been handed a tax planning nuclear weapon today, and will be clamouring to use it.Unfortunately, Labour has been handed an opportunity to go nuclear on our pensions, too.

If she does, we'll know who to blame. Jeremy Hunt.

I bet he didn't expect that

I suppose now they're falling they need something else to talk about. Perhaps they need reminding the "super-wealthy" eg those on £360k+ (like company directors, pro footballers and some BBC pundits) can't "pump in" more than £10k a year into their pensions because of the AA taper. But I think that's a bit advanced for the Express.

That's not exactly the case though - the AA taper might restrict the amount of pension contributions those on £360k+pa can get tax relief on to £10k pa, but it doesn't actually restrict the amount they can put into a pension.......that's the crux of this potential "IHT loophole" it appears the chancellor might have created.....

Yeah, they could pay a 45% AA charge in order to save 40% IHT Brilliant tax planning!

They are going to be paying 45% tax on those earnings either way.........if they don't put it in a pension, they'll pay 45% income tax, and then potentially a further 40% in IHT......putting it in the pension will, as it stands, avoid the IHT.

No, it's very unlikely to be a sensible tax dodge.

If they exceeded the AA, paid the 45% tax charge, and then finded they needed the money in their lifetime, they'd end up paying income tax on top. And for the "super-wealthy", probably at 45% or at least 40%. So they'd be taxed twice on the same money probably at 45% both times.

Therefore - it would only make sense for someone who is sure they won't need the money in their lifetime.

If that's the case, then why not give the money away now, and avoid IHT completely if they survive 7 years, and partially if they survive at least 3. Also if they gift out of income, there is no IHT anyway however long they survive. And if they don't want the beneficiary to have it yet (eg a child) they could use some kind of trust.

In the case of terminal illness or even poor health, HMRC can investigate substantial pension contributions within a couple of years of death and can rule them liable for IHT.

So, why would anyone want to pay the 45% AA charge, and then leave their beneficiaries liable for income tax on drawdown (unless they die under 75), when they could just pay the 45% tax and give them the money with no additional taxes?

Well if estate planning and IHT avoidance was as simple as "just give them the money now with no additional taxes" then it'd all be very simple......😁

It is. If you don't need the money and can survive 7 years

On the point about double taxation, if you felt there was a reasonable chance you'd need the money, then you probably wouldn't put it into a pension without tax relief.......so yes, you'd likely only consider this route if you were reasonably sure you wouldn't need the money......so the case of this double taxation should never arise. However, if unforeseen circumstances meant you did need the money at some point, then it's true that you'd have paid 45% tax on the contributions going into the pension, and you'll then also have to pay at your marginal rate on withdrawal.......not great, but your alternative of giving the money away now would mean you'd have.......nothing......perhaps a bit less great. That's the thing about planning for the future.......you're never 100% sure about much at all.

Or just give it to a beneficiary who you trust and who won't spend it all, and agree if you did need some they give it back Obviously it couldn't be formailised as that would be a gift with reservation, but maybe have a card to play if they don't, cut them out of your actual will, or take a home reversion loan out.

Likely to be a far better option than double taxation. There's probably other more advanced things the "super-wealthy" could do to avoid IHT. I doubt they'll be taking the Express's advice.

....you'd have to hope this highly trusted beneficiary is actually as trustworthy as you think when it comes to a big pot of cash and just pray he/she doesn't die before you........apart from that, what could possibly go wrong?......😉

Albermarle

Hmmm. So Stephen & Sarah prefer to fill their & the children's ISA's and put money in pensions for their children, but can't afford to pay into their own pensions? Not the best management plan IMO

Those private school fees and skiing holidays don't come cheap I guess 

To be honest I did not read every last detail and some of the comments, were also a bit dubious about whether normal family dynamics would allow such open flexibility in moving money around the generations.

However it does show that abolishing LTA has opened up a nice avenue in more tax avoidance for high earners and their wealth managers. Until the IHT rules are changed maybe...........

zagfles

MK62 said:

zagfles said:

MK62 said:

zagfles said:

MK62 said:

zagfles said:

MK62 said:

zagfles said:

Albermarle said:

MK62 said:

If Labour profoundly disagree with this policy shift, and it appears that they do, then it's not all that surprising that they will oppose it.....at least they are being straight and up front about that........if they win the next election the LTA will be back.
While the dust is still settling on this bombshell, so details probably aren't fully worked out atm, it would be rather helpful in the coming weeks if they fleshed out exactly what they mean, and if their plans will, should they win the next election, include any measures to retrospectively tax anyone who takes advantage of the LTA's charge removal/abolition in the meantime.
I guess it's a case of wait and see......again.....
My own view is that I think it would be unlikely they'd retrospectively tax anyone, and even if they did, that they'd put anyone who takes advantage of the LTA removal in a worse position than today..........but who knows for sure?

If I was a betting man, then I would say if Labour get in they will not actually in the end reverse the LTA abolition, as it would be too complicated. Plus negative effect on Doctors etc
However including pension pots in IHT calculations ( or partly include over a certain amount for example ) could well be on the agenda.
Even the normally very pro Tory/anti LTA   Daily Express is expressing some reservations. Quote

Labour loves accusing Tory chancellors of helping out their rich mates, so at first I scoffed Shadow Chancellor Rachel Reeves line of attack But the more I look at Hunt's move, the more I see her point. Hunt has just given super-wealthy Britons a massive opportunity to fight back against his own inheritance tax squeeze, by allowing them to pump a small fortune into pensions.

The backlash against Hunt's move will hit all of us. If pensions are seen as a massive IHT tax dodge for the rich, it could tempt Reeves to do more than restore the lifetime allowance.

She could make everybody's pensions subject to IHT.

Plenty of people want to see this happen. Last December, the Institute for Fiscal Studies published a paper arguing that the overly generous tax treatment of pension pots at death needs to be swiftly ended.

Thanks to Hunt, that day has just moved closer.

Families have been handed a tax planning nuclear weapon today, and will be clamouring to use it.Unfortunately, Labour has been handed an opportunity to go nuclear on our pensions, too.

If she does, we'll know who to blame. Jeremy Hunt.

I bet he didn't expect that

I suppose now they're falling they need something else to talk about. Perhaps they need reminding the "super-wealthy" eg those on £360k+ (like company directors, pro footballers and some BBC pundits) can't "pump in" more than £10k a year into their pensions because of the AA taper. But I think that's a bit advanced for the Express.

That's not exactly the case though - the AA taper might restrict the amount of pension contributions those on £360k+pa can get tax relief on to £10k pa, but it doesn't actually restrict the amount they can put into a pension.......that's the crux of this potential "IHT loophole" it appears the chancellor might have created.....

Yeah, they could pay a 45% AA charge in order to save 40% IHT Brilliant tax planning!

They are going to be paying 45% tax on those earnings either way.........if they don't put it in a pension, they'll pay 45% income tax, and then potentially a further 40% in IHT......putting it in the pension will, as it stands, avoid the IHT.

No, it's very unlikely to be a sensible tax dodge.

If they exceeded the AA, paid the 45% tax charge, and then finded they needed the money in their lifetime, they'd end up paying income tax on top. And for the "super-wealthy", probably at 45% or at least 40%. So they'd be taxed twice on the same money probably at 45% both times.

Therefore - it would only make sense for someone who is sure they won't need the money in their lifetime.

If that's the case, then why not give the money away now, and avoid IHT completely if they survive 7 years, and partially if they survive at least 3. Also if they gift out of income, there is no IHT anyway however long they survive. And if they don't want the beneficiary to have it yet (eg a child) they could use some kind of trust.

In the case of terminal illness or even poor health, HMRC can investigate substantial pension contributions within a couple of years of death and can rule them liable for IHT.

So, why would anyone want to pay the 45% AA charge, and then leave their beneficiaries liable for income tax on drawdown (unless they die under 75), when they could just pay the 45% tax and give them the money with no additional taxes?

Well if estate planning and IHT avoidance was as simple as "just give them the money now with no additional taxes" then it'd all be very simple......😁

It is. If you don't need the money and can survive 7 years

On the point about double taxation, if you felt there was a reasonable chance you'd need the money, then you probably wouldn't put it into a pension without tax relief.......so yes, you'd likely only consider this route if you were reasonably sure you wouldn't need the money......so the case of this double taxation should never arise. However, if unforeseen circumstances meant you did need the money at some point, then it's true that you'd have paid 45% tax on the contributions going into the pension, and you'll then also have to pay at your marginal rate on withdrawal.......not great, but your alternative of giving the money away now would mean you'd have.......nothing......perhaps a bit less great. That's the thing about planning for the future.......you're never 100% sure about much at all.

Or just give it to a beneficiary who you trust and who won't spend it all, and agree if you did need some they give it back Obviously it couldn't be formailised as that would be a gift with reservation, but maybe have a card to play if they don't, cut them out of your actual will, or take a home reversion loan out.

Likely to be a far better option than double taxation. There's probably other more advanced things the "super-wealthy" could do to avoid IHT. I doubt they'll be taking the Express's advice.

....you'd have to hope this highly trusted beneficiary is actually as trustworthy as you think when it comes to a big pot of cash and just pray he/she doesn't die before you........apart from that, what could possibly go wrong?......😉

Well obviously. If you don't trust them, don't do it. Keep it outside the pension and you'll pay no further tax if you need it. Point was this simply isn't the tax dodge for the "super-wealthy" that the Express claims it is.

Mick70

Crazy situation IMO
Should have just raised it 
I do believe that  IF labour get into power then they will be under massive pressure to reinstate it 

zagfles

Mick70 said:

Crazy situation IMO
Should have just raised it 
I do believe that  IF labour get into power then they will be under massive pressure to reinstate it 

All been discussed. Raising it to the same real terms level as Labour introduced it ie over £2.5 million would have been far more beneficial to the better off and would have been a bigger giveaway.

But would have been useless to those who'd already crystallised 100% and who might have retired early when they got there.

Abolishing the LTA but capping the PCLS means those who've crystallised 100% can build further benefits and doesn't allow those over the LTA to build further PCLS.

Labour are just using it as a political football so they can trot out the tired old trope of "Tories looking after their rich mates" when in fact most of the "rich" would have been better off with the LTA at the level it was under the last Labour govt.

Albermarle

Mick70 said:

Crazy situation IMO
Should have just raised it 
I do believe that  IF labour get into power then they will be under massive pressure to reinstate it 

Probably an easier route for Labour, would be to remove/reduce  the IHT exemption instead. Removing the LTA has shone a light on the IHT exemption, as it can now be further exploited by the 'rich'.
Just raising it would have been a lot better for those just hovering around/above  LTA, as it would not have frozen the tax free part at the current level.

Sterlingtimes

Upon the abolition of the LTA, will SIPP providers be required to retain records of crystallisation events and notify beneficiaries annually of LTA percentages? Can this information be deleted forever?

zagfles

Sterlingtimes said:

Upon the abolition of the LTA, will SIPP providers be required to retain records of crystallisation events and notify beneficiaries annually of LTA percentages? Can this information be deleted forever?

They'll need records for the PCLS cap. They probably haven't decided how they're going to do it, they have a year to work it out.