Telegraph article re: Pensions "tax loophole" to be scrapped under government plans

Sunnylifeover50plan

I appreciate that this might be behind a paywall but, for those that can access it, is it as it reads?

From what I can determine from the article the rules around DC/ SIPP pension pots being inheritable =<age 74 free of income or inheritance tax are going to be changed.

Quite a seismic change if accurate/ true?

https://www.telegraph.co.uk/pensions-retirement/inheritance-tax/pensions-tax-loophole-scrapped-under-government-plans/

NoMore

Already being discussed here LTA abolition from 2024 - Page 2 — MoneySavingExpert Forum and don't need a paywall as first post has a link to the governments proposal which is where the telegraph has got it from.

Sunnylifeover50plan

okay thanks, I'll have a look, maybe a moderator could close this thread?

FIREDreamer

web archive version https://archive.ph/VfmWj

Qyburn

It does seem  bit of an anomaly that tax treatment differs depending on if you die before or after age 75. What was the reason in the first place?

Sunnylifeover50plan

Thanks @FIREDreamer. 

I read the article as affecting all inheritable money contribution pensions/ sipps. There wasn't an obvious connection to the LTA or any alternative outcomes.

I was left with the impression that;
1/ the rules were changing from next april
2/ any SIPP would now attract tax on withdrawals & potentially inheritance tax whether the owner dies before during or after their 74 year of age.

Sea_Shell

Sunnylifeover50plan said:

Thanks @FIREDreamer. 

I read the article as affecting all inheritable money contribution pensions/ sipps. There wasn't an obvious connection to the LTA or any alternative outcomes.

I was left with the impression that;
1/ the rules were changing from next april
2/ any SIPP would now attract tax on withdrawals & potentially inheritance tax whether the owner dies before during or after their 74 year of age.

It reads to me like it applies to everyone, and that the LTA isn't specifically relevant.

So relevant to those of us with pensions nowhere near LTA levels?

Sunnylifeover50plan

@Sea_Shell hope not 

Albermarle

any SIPP would now attract tax on withdrawals & potentially inheritance tax whether the owner dies before during or after their 74 year of age.

I do not think the general exemption of pension pots from IHT is mentioned ( maybe it will one day though....) 

Just this issue of the income  tax treatment of beneficiary pensions passed down from someone under 75. 

The IFS has said loudly for some time that the beneficial tax treatment for pension pots was over generous, and mainly benefitted already well of families passing untaxed wealth down the generations.

Sunnylifeover50plan

Albermarle said:

any SIPP would now attract tax on withdrawals & potentially inheritance tax whether the owner dies before during or after their 74 year of age.

Just this issue of the income  tax treatment of beneficiary pensions passed down from someone under 75. 

The IFS has said loudly for some time that the beneficial tax treatment for pension pots was over generous, and mainly benefitted already well of families passing untaxed wealth down the generations.

It's the under 75 tax treatment which concerns me. The use case of wealth cascading down generations isn't mine. Instead my wife being able to inherit and spend my c. £600k SIPP tax free was central to our planning. It would have partially mitigated the risk of being unable to return and buy a modest home near family in the UK if I die relatively young and she sold our Spanish home.

With this change I'm pretty uncomfortable with our current arrangements, given previous health conditions, and very likely to return to the UK within the next 12 months. Time to revisit my planning.

c'est la vie!

Sea_Shell

(I posted this on the other thread too. but thought I'd re-post here too.   Although doesn't help the OPs position much)


Is it going to be an all or nothing cliff edge (the under 75 thing)?

So you could currently have a couple drawing up to their PA each, so have an income of ~£25k, and if one of them died early, then they could maintain their income without any additional tax.

But under the proposed changes, the widow would only have their own PA, and so would have to pay tax on anything above that (excluding any TFLS)

Why not have, at least, the ability to inherit your spouses PA limit, like an enhanced Marriage Allowance???    That seems fairer, so at least let a widow maintain their income stream at the same amount of tax paid than if they had not been widowed.   

Am I understanding it right, and who agrees with me?