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Lump sum payment for terminal illness

My wife has terminal cancer although not been given a prognosis of how long she may have but we should know after her next scan in July.
I'm looking into the possibility of getting her pension fund paid as a lump sum should she be given less than 12 months to live. She wants to help our son with the purchase of a house and wanted to use her private pension fund.
If she takes it as a tax free lump sum and puts it in our joint account will it be part of her estate?
There's around £105000 in the fund with Vanguard 60/40.
I know gifts of money are taxed if the person dies within 7 years of the gift but would that apply if he received it through the joint account?
She's not taken any benefits from the pension to date.
Thanks.

Comments

  • xylophone
    xylophone Posts: 45,214 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    This is a DC pension?

    If she takes the pension as a lump sum and credits it to your joint account, 

    https://www.accountingweb.co.uk/community/industry-insights/joint-bank-accounts-and-iht-the-tricky-bits



    Had she considered  simply naming  your son/ you and your son as the beneficiary/ies of the pension?

    https://www.gov.uk/tax-on-pension-death-benefits

  • Marcon
    Marcon Posts: 12,165 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper Combo Breaker
    kerfootuk said:
    My wife has terminal cancer although not been given a prognosis of how long she may have but we should know after her next scan in July.
    I'm looking into the possibility of getting her pension fund paid as a lump sum should she be given less than 12 months to live. She wants to help our son with the purchase of a house and wanted to use her private pension fund.
    If she takes it as a tax free lump sum and puts it in our joint account will it be part of her estate?
    There's around £105000 in the fund with Vanguard 60/40.
    I know gifts of money are taxed if the person dies within 7 years of the gift but would that apply if he received it through the joint account?
    She's not taken any benefits from the pension to date.
    Thanks.
    Forgive the bluntness of what follows...

    I presume your wife would like your son to have this money while she is still alive to see her chick safely nested in his own home? If so, then (assuming the prognosis next month isn't what you all want to hear) one possibility is that she cashes in her pension and then immediately gives you the cash. Gifts between spouses are free of tax, either before or after death. You can then give your son the money to buy the house, assuming he has reached the age of at least 18.

    Your minds must be in turmoil and I hope you will be able to face having a chat with a solicitor both to ensure your wife has a valid and up to date will and that you fully understand the tax consequences (or hopefully lack of them) of any actions you are considering.


    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • kerfootuk
    kerfootuk Posts: 77 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    It's a DC pension and I'm the sole beneficiary.
    Presumably the 7 year limit applies if I die within that time.
    Our wills give all assets to surviving spouse.
  • Marcon
    Marcon Posts: 12,165 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper Combo Breaker
    kerfootuk said:
    It's a DC pension and I'm the sole beneficiary.
    If the pension is paid to your wife as a lump sum on the grounds of serious ill health (ie less than 12 months life expectancy), then the expression of wish (aka nomination form) becomes redundant - she can choose what she then does with the money.

    Presumably the 7 year limit applies if I die within that time.
    Yes - but please see my comments below.

    Our wills give all assets to surviving spouse.
    I'm sure you will recognise the need to rewrite your own will in due course.
    Depending on how much you can all face doing, and how much of the £105K your son needs to buy his house, there may be scope (in tax terms) for alternative approaches eg your wife splits her current DC pension into more than one plan and takes one pot as tax free cash on grounds of serious ill health, then leaves the second pot to her son via an expression of wish form (which would mean he would inherit tax free if she is under 75 at the time of her death, with no '7 year rule' to worry about).

    Some financial, as well as legal, advice could ensure the family is best placed to take the decisions most likely to give your wife the peace of mind that she has used her hard-earned savings to the very best effect.
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • Albermarle
    Albermarle Posts: 24,468 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    kerfootuk said:
    It's a DC pension and I'm the sole beneficiary.
    Presumably the 7 year limit applies if I die within that time.
    Our wills give all assets to surviving spouse.
    There is a lot of confusion over the 7 year limit ( as we see from many posts ). In any case IHT does not apply to pension pots passed on.
    As above probably best to get some professional advice in this case. Hopefully she will have more time than you fear.
  • Marcon
    Marcon Posts: 12,165 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper Combo Breaker
    edited 24 June 2023 at 4:17PM
    kerfootuk said:
    It's a DC pension and I'm the sole beneficiary.
    Presumably the 7 year limit applies if I die within that time.
    Our wills give all assets to surviving spouse.
    There is a lot of confusion over the 7 year limit ( as we see from many posts ). In any case IHT does not apply to pension pots passed on.

    To clarify,  IHT potentially applies where:

    • the whole pension pot can be taken on the grounds of serious ill health (ie while the pension holder is still alive)
    • the cash is withdrawn from the pension by the pension holder (at which point it stops 'being a pension' and becomes 'just cash')
    • the cash is then passed on to someone else, either before or after the death of the pension holder.

    The cash then falls outside the pension regime because it is simply cash, rather than a pension pot, being passed on

    The reference above is to the 7 year limit if OP's wife gives him the cash (no tax on gifts from spouse to spouse), which he then passes on to their son - at which point the money is subject to the 7 year limit in relation to the husband's estate.
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
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