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

Dazed_and_C0nfused

Sea_Shell said:

(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? 

Do you mean someone could effectively get an additional variable Personal Allowance dependent on whether they inherited a spouses pension?

So inherit £6k and you get an extra £6k Personal Allowance.  Inherit £15k and you get an extra £12,570?

As a Scottish resident taxpayer could I also have my spouses starter rate band, basic rate band and intermediate rate band or when I inherit their £25k and have my State Pension as well as my own £25k will I have to start paying higher rate tax 😢

Sounds massively complicated!

Aretnap

Sunnylifeover50plan said:

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/

You can get round the Telegraph paywall if you click CTRL-A CTRL-C quickly enough, then paste into Word (other text editors are available).

Linton

Sunnylifeover50plan said:

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!

As far as I can see there is no substantial change proposed to inheriting a pension pot free of income tax. The proposals explicitly reaffirm this benefit. The main issue would seem to be whether an inherited pot remains free of tax on any investment gains.

I have not found any proposed change to the legislation that relate to this.  If there are no changes existing legislation remains in force. However I do not know what the existing legislation says on the matter.

Pensions_matter_2

From what Ive read (and thats just commentary, not the consultation documents), it seems the new tax (on death under 75) only applies if the funds stay in the pension scheme (building up in a tax privileged environment) and are withdrawn as income, but not if the funds are taken as a lump sum on death (up to the LTA limit) and so become held outside the scheme. Worth looking into this further to check this is right enough. As I say, Ive not read the government documents.

Sunnylifeover50plan

Hi @Sea_Shell I too posted on the other thread - I'm pretty much in agreement with what you are saying. The threads could be merged but then again they aren't really addressing the same question.

Pensions_matter_2

Yes, I just noticed that too and wondered if I should be posting in the other thread. 

NannaH

I’ve always said that PA should be shared between retired (or going further, non retired) married / civil partner couples,  so they get £25k regardless of how their income is split.
Couples who are evenly matched in pensions are better off than the current majority who have one (usually the Man) with a much better pension.  

I wonder how many people actually inherit a pension from an under 75 yr old?
I doubt it would make much difference to tax revenue.  

FIREDreamer

NannaH said:

I’ve always said that PA should be shared between retired (or going further, non retired) married / civil partner couples,  so they get £25k regardless of how their income is split.
Couples who are evenly matched in pensions are better off than the current majority who have one (usually the Man) with a much better pension.  

I wonder how many people actually inherit a pension from an under 75 yr old?
I doubt it would make much difference to tax revenue.  

However after SPA there isn’t much personal allowance left anyway once the state pension comes into payment.

ussdave

Wouldn't doing something like that simply further the imbalance in retirement income requirements between single people and those in a couple?

michaels

Not specific to this change but linked to the topic, but if your kids are standard rate tax payers does it make sense to use property equity withdrawal rather than drawing from your pension pot to keep your non-pension inheritable assets below £1m (as a couple)?