Inherited SIPP help! Don't know what to do

annyv

Hi, My brother (62 ) died leaving me and our surviving brother as beneficiaries to his estate. Outside of his estate, he also left a couple of accounts for n a Quilter SIPP. My surviving brother will have to make his own arrangements as he's non dom and doesn't pay UK tax.
I however am really confused and having consulted an IFA, have ended up even more confused.
I want to take all of my share (I'm 58 ) but I don't know what the tax implications are. I'm a basic rate tax payer.
I don't want to put it into a SIPP or personal pension scheme as that involves not having full control and paying people to manage it.
I read somewhere that, because it's an inherited SIPP and my late brother was under 75 and I'm over 55 that there won't be any tax issue. I really don't want to get involved with HMRC self assessment again ( been there, done that) Please help. I need to let my IFA know what I want to do as I believe he's trying to push me into re investment.

Linton

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

My understanding is....

As your brother died before age 75 there is no tax at all if you inherit his SIPP.  So you can take all the money as a tax free lump sum payment.  Or you can leave it in a SIPP.

By taking it as a cash lump sum you will be liable to tax on any subsequent capital gains, dividends or interest unless you can get the money into an ISA.  If you leave it in a SIPP you won't be liable to any tax.

So think carefully about whether to take the lump sum.  Given the tax benefits it being in a SIPP does not significantly restrict your options - you can take the entire SIPP as cash any time.  Depending on the value and the time period over which the money will be kept you may find that the tax advantages of a SIPP outweigh the additional costs.  It could provide you with a tax free income for the rest of your life.  The tax benefits of an inherited SIPP have been seen as overly generous and it would not be surprising if these were restricted at some point.

I assume your deceased brother had no other relatives.  The pension is not covered by the will so who gets the SIPP will be at the discretion of Quilters.  They will take account of what he wrote in his "statement of wishes" when the SIPP was set up but if they decide this is not appropriate they can ignore it.  Almost always the statement of wishes will be followed.

I assume your surviving brother also inherits part of the SIPP.  So you may well have to sort it out together.  You need to do this within 2 years or you will lose the tax benefit.  I suggest you (or perhaps the executor if this is not you) should begin discussions with Quilters.

MallyGirl

Your IFA should spend time to understand your requirements - they should not push you into anything. They also shouldn't confuse you - did you tell them that you didn't understand what they were saying?
What to do would be influenced by the amounts involved. If it is £20k and you could draw down in full and put it in an ISA then that is nice and simple. If it is £200k and you are saying that you want to take it in full then they ought to be pointing out the pitfalls of not keeping up with inflation etc if you don't leave it in investments of some sort (not that investment provides any guarantees). Plus you would need to be spreading the money around to stay under the £85k protection limit. They also ought to be considering your overall retirement/financial situation - what pensions do you have, do you have debt or a mortgage needing to be paid off.

Aretnap

annyv said:

I don't want to put it into a SIPP or personal pension scheme as that involves not having full control and paying people to manage it.

You still have full control of you leave it in the SIPP - you can choose how it is invested (from leaving it in cash to investing in stocks and shares) and you can withdraw it at any time.

As for paying people to manage it, you do that if you withdraw it and put it in the bank as well. Banks don't offer their services out of the goodness of their hearts after all. They lend out your money at (say) 8% interest rate and pay you a 5% interest rate on your balance - what is the missing 3% if not a fee to the bank for managing your money? The charges within a SIPP aren't really that different - it's just that the SIPP provider is more upfront than the bank about how much it is taking, so you notice it more.

The only way to avoid paying someone to look after your money is to withdraw it all as cash and keep it under the mattress. But that means you are certain to lose out to inflation, and you run the risk of it all going up in smoke if you have a fire, so that's not something I'd recommend.

squirrelpie

annyv said:

I don't want to put it into a SIPP or personal pension scheme as that involves not having full control and paying people to manage it.

Many SIPPs leave you in full control and you don't pay anybody to manage them. I'm with HL for example. There are some fees for administration, yes, but all the management is up to me and I have full control to the degree allowed by the law.

dunstonh

I read somewhere that, because it's an inherited SIPP and my late brother was under 75 and I'm over 55 that there won't be any tax issue. I really don't want to get involved with HMRC self assessment again ( been there, done that) Please help. I need to let my IFA know what I want to do as I believe he's trying to push me into re investment.

That is a strange relationship with an IFA.    Generally, the IFA should state the best way to achieve your objectives.     You shouldn't be telling the IFA the method.

i.e. you state what you want (e.g. your spending plans) and the IFA then uses the best method to achieve those and issues any warnings as appropriate.      If what you want to do is not achievable without high risk or you have got it into your head to do it in a way that is not optimal, then the IFA should encourage you to do alternatives. 

I don't want to put it into a SIPP or personal pension scheme as that involves not having full control and paying people to manage it.

That is not a sensible reason in itself.  If you put it in a bank account then the charges in your bank account are typically higher than those in a pension.  The difference is that charges on savings accounts are implicit whereas investment products/tax wrappers are explicit.    You also have full control of the money.   

This indicates a lack of knowledge and understanding of the options and could lead to bad decision making on your part.

So, what is your intention for the money for the inherited pension?

  

NannaH

Open a SIPP,  assuming it’s a sizeable sum - keep it in cash ( Hargreaves don’t charge for cash) and transfer out £20k a year into an ISA ( if you don’t already do that) .  

 If you don’t have plans for the money, leave it in a SIPP,  and it can be inherited tax free by your heirs. 

What pension provisions do you have?  

Are you still working?  

annyv

So, to answer some questions, the amount is £183k each for my surviving brother and I. I have 2yrs NHS pension which will amount to nothing and I currently pay in to my Tesco pension which, if I stay another 8/9 years may yield a very little and have £45k in a Cynergy locked for 2yrs account.
My brother has no other relatives and Quilter have already agreed that my surviving brother and I are the beneficiaries and I am my brother's executor (to answer another question)
Thank you for the advice so far. I think I need to go back to the IFA and make some decisions.

Albermarle

annyv said:

So, to answer some questions, the amount is £183k each for my surviving brother and I. I have 2yrs NHS pension which will amount to nothing and I currently pay in to my Tesco pension which, if I stay another 8/9 years may yield a very little and have £45k in a Cynergy locked for 2yrs account.
My brother has no other relatives and Quilter have already agreed that my surviving brother and I are the beneficiaries and I am my brother's executor (to answer another question)
Thank you for the advice so far. I think I need to go back to the IFA and make some decisions.

So it looks like you really need this pot to give you an income during a hopefully long retirement. In that case you do not want to just withdraw it.

Can you clarify .
Have you actually employed/paid an IFA ? Or just had an initial chat with them ( for free) . If it is the latter then the discussion tends to be rather general and they will not give you any specific advice, which is maybe where the confusion is coming from.

Albermarle

NannaH said:

Open a SIPP,  assuming it’s a sizeable sum - keep it in cash ( Hargreaves don’t charge for cash) and transfer out £20k a year into an ISA ( if you don’t already do that) .  

 If you don’t have plans for the money, leave it in a SIPP,  and it can be inherited tax free by your heirs. 

What pension provisions do you have?  

Are you still working?  

The OP will actually inherit the money as a Beneficiary Pension/SIPP.
It looks like from their new post that they will need it to fund retirement income, so probably best they leave it as a pension and then take an income from it when they retire.