Inherited annuity

SunnysideBeach

Hi I appear to be the named beneficiary on an inherited annuity - there is a choice to receive a lump sum payment (greatly reduced) or a monthly sum. It is from usa and we understood it was to be paid out with the estate. Our relative who died had lived here in uk for last two years so the solicitor is considering if this should be part of iht calculation - if it is, we would end up paying 40% tax (Iht) and 45% income tax on every payment until the money is all paid out. Is this correct? And if so how is the product valued for iht?
I’ve read all the HMRC info but I don’t fully comprehend why we would be liable for 85% tax on something. Feeling very sad. 

GDB2222

An income stream may be taxable under IHT as in interest in possession, so there may be a tax charge on the underlying fund. How that works when the fund is outside the UK jurisdiction is beyond me. 

And, yes, the income would be taxed in your hands. 

You say the alternative lump sum is greatly reduced. How do you work that out?

If this is a couple of hundred pounds a year, then maybe seeking advice here makes sense. If the annuity is serious money, you need professional advice.

Hoenir

How would a regular payment be made to you. The US banking system is very different to here in the UK. If it's by $ cheque would be a pain in the backside and incur considerable additional cost. 

Brie

Is there any option that you not be paid monthly now and wait until you are in a lower tax bracket?  Or mitigate the tax by paying it into a pension?

SunnysideBeach

GDB2222 said:

An income stream may be taxable under IHT as in interest in possession, so there may be a tax charge on the underlying fund. How that works when the fund is outside the UK jurisdiction is beyond me. 

And, yes, the income would be taxed in your hands. 

You say the alternative lump sum is greatly reduced. How do you work that out?

If this is a couple of hundred pounds a year, then maybe seeking advice here makes sense. If the annuity is serious money, you need professional advice.

Re the smaller sum that’s what the choices are, small sum now or larger sum over longer period. I think it must be that they hold onto the money and have it invested. But overall if have to pay two lots of tax then it’s not worth taking the larger sum.

SunnysideBeach

Hoenir said:

How would a regular payment be made to you. The US banking system is very different to here in the UK. If it's by $ cheque would be a pain in the backside and incur considerable additional cost. 

Can they not do international bank transfer? I’ve done that to Italy via my bank, no charge. Just gets converted at the prevailing rate from sterling to euros. But maybe USA don’t do international transfers. That’s an interesting point though I will check with my bank re charge for USA check.

SunnysideBeach

Brie said:

Is there any option that you not be paid monthly now and wait until you are in a lower tax bracket?  Or mitigate the tax by paying it into a pension?

That’s an interesting suggestion. Thanks

Marcon

SunnysideBeach said:

Brie said:

Is there any option that you not be paid monthly now and wait until you are in a lower tax bracket?  Or mitigate the tax by paying it into a pension?

That’s an interesting suggestion. Thanks

Would the amount on offer be covered by your 'relevant earnings' in the UK? Otherwise you are limited to paying £2,880 with your UK pension provider topping it up with basic rate tax relief to £3,600.

Marcon

SunnysideBeach said:

Hi I appear to be the named beneficiary on an inherited annuity - there is a choice to receive a lump sum payment (greatly reduced) or a monthly sum. It is from usa and we understood it was to be paid out with the estate. Our relative who died had lived here in uk for last two years so the solicitor is considering if this should be part of iht calculation - if it is, we would end up paying 40% tax (Iht) and 45% income tax on every payment until the money is all paid out. Is this correct? And if so how is the product valued for iht?
I’ve read all the HMRC info but I don’t fully comprehend why we would be liable for 85% tax on something. Feeling very sad. 

Maybe wait to see what the solicitor says in this respect? They have the full facts, whereas everyone else here is working on next to no information, so relying heavily on guesswork.

SunnysideBeach

[Deleted User] said:

If the annuity comes from, say, a US pension scheme, it may be worth pointing your solicitor to this if they have not already seen it.

If the scheme provider can choose which type of death benefit to pay and the member cannot make a binding nomination of all the different possible death benefits, the death benefits will not treated as part of the member’s estate on death.

Thanks. There are certain options not open to me as a non U.S. citizen, don’t think that is enough though for the scheme provider to have a choice..
why would they have a choice though or in what situation would a scheme provider chose not to pay the beneficiary if the deceased had named people? They also wont disclose to me if there are other beneficiaries. I assume for confidentiality reasons. And how would I know of the scheme provider can chose? Thanks and I will point out your info to the solicitor. 

Hoenir

SunnysideBeach said:

Hoenir said:

How would a regular payment be made to you. The US banking system is very different to here in the UK. If it's by $ cheque would be a pain in the backside and incur considerable additional cost. 

Can they not do international bank transfer? I’ve done that to Italy via my bank, no charge. Just gets converted at the prevailing rate from sterling to euros. But maybe USA don’t do international transfers. That’s an interesting point though I will check with my bank re charge for USA check.

The US banking sector is highly fragmented. Not as automated.