Do SIPP withdrawals count as normal income

Cam6265

I am retired and over 75 with a SIPP flexible drawdown account. I am considering what gifts I can make that will be exempt from IHT immediately (ie not PETs which require 7 years to become exempt). Govt guidance includes pensions as income. Can I make SIPP drawdowns and use them to "maintain my standard of living" whilst making IHT exempt gifts to my children? 

The distinction between capital and income in Govt guidance seems to me very strange in these days of financial instruments which can convert income to capital and vice-versa.

Brie

Isn't there income tax on SIPP drawdowns?  I thought it was because you could add to your SIPP and get tax relief.   And then you withdraw some money and get taxed at whatever is the appropriate rate.  I don't see what this has to do with making gifts IHT exempt.  It's a different tax.  

There are some gifts that you can make the would be IHT exempt but they seemed pretty modest to me.  £3k per annum.  £XX as a wedding present.  £X as a birthday present.

xylophone

Have you already taken your full PCLS?  If so, any other money removed from your SIPP counts as taxable income in the year of receipt.

Or accessed the pension so as to take some as PCLS and some as income?

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/what-is-flexible-retirement-income-pension-drawdown

SIPP income is as much income as your state pension or occupational income or rental income or investment income.

If you have income surplus to requirements for maintaining your usual standard of living , see

https://www.theprivateoffice.com/insights/gifting-surplus-income#:~:text=Gifting from income&text=Gifts made from excess income,regular expenditure has been met.

dunstonh

 I am considering what gifts I can make that will be exempt from IHT immediately (ie not PETs which require 7 years to become exempt). Govt guidance includes pensions as income. Can I make SIPP drawdowns and use them to "maintain my standard of living" whilst making IHT exempt gifts to my children? 

Wouldn't that be counterproductive?
your pension is outside of the estate.   So, drawing money from the pension, paying income tax on it,  bringing it into the estate to then gift it doesn't achieve anything.  It doesn't reduce your estate value.  

The distinction between capital and income in Govt guidance seems to me very strange in these days of financial instruments which can convert income to capital and vice-versa.

You say these days but defined contribution pensions haven't had a change in taxation in over 50 years.  Tweaks here and there but fundamentally similar in terms of the taxation on withdrawals.

Albermarle

Cam6265 said:

I am retired and over 75 with a SIPP flexible drawdown account. I am considering what gifts I can make that will be exempt from IHT immediately (ie not PETs which require 7 years to become exempt). Govt guidance includes pensions as income. Can I make SIPP drawdowns and use them to "maintain my standard of living" whilst making IHT exempt gifts to my children? 

The distinction between capital and income in Govt guidance seems to me very strange in these days of financial instruments which can convert income to capital and vice-versa.

Money left in your pension pot when you die, is not included in your estate for IHT calculations.
This is because it is held in trust for you by the pension trustees. It should not be included in any will, but you must inform the pension company of your intended beneficiaries for the pension.

Pat38493

I was thinking the same, but I am wondering if OP is looking to give the money away without having to pop their clogs first

Cam6265

Thanks for the quick responses. Yes - I have taken all the PCLS and withdrawals from my SIPP are taxed at 40% so not obviously a tax-saving move. My query was more about the "regular income" referred to in the Govt guidance - as it states that this includes pensions, but with a flexible drawdown SIPP this is not the same each year.

I would also be interested in any experience of how "normal standard of living" is defined in practice, as lumpy expenditure incurred in buying a new car or replacing a bathroom is quite normal, but does not give rise to a stable year-on-year expenditure profile.

Sea_Shell

Doesn't the OP just mean that does gifting "spare" pension income count as "excess".

Which is a misnomer if you can choose how much income you draw.

In other words, does your net worth have to remain constant (or increase) for any income to be considered excess?

You could otherwise just draw £x000 more than you need, and call it "excess" income, having paid tax on it.



ETA - cross posted with OP