Inheriting a pension: what happens and is there tax to pay?

pwe

Marcon said:

pwe said:

Hello everyone 

I listened last week to Martin’s podcast about pensions
In it, he was in discussion with Charlotte Jackson from the Money & Pension Service.

At one point she mentioned something concerning inheriting a DC pension, relating to taxation, which was contrary to my (and others’) understanding 

She said that if the deceased person had accessed their pension before they died, the person inheriting the pension would be liable to pay tax when they withdrew cash from it (regardless of the age of the deceased) 

Prior to hearing this, I had not realised about the ‘previously accessed’ point, and digging around on the .gov website, I can’t find anything that confirms the point that Charlotte made. 

I’ve emailed the MPS to seek confirmation/clarification, but have had no reply 

I’d be grateful if anyone here is able to offer any thoughts 

I suspect you can't give a link as you are a relatively new poster, but please could you give a rough time of when in the podcast this was said - it would be helpful to hear the context.

Yes indeed, it’s late on in the pod, from around 36’ 30”…

Marcon

pwe said:

Hello everyone 

I listened last week to Martin’s podcast about pensions
In it, he was in discussion with Charlotte Jackson from the Money & Pension Service.

At one point she mentioned something concerning inheriting a DC pension, relating to taxation, which was contrary to my (and others’) understanding 

She said that if the deceased person had accessed their pension before they died, the person inheriting the pension would be liable to pay tax when they withdrew cash from it (regardless of the age of the deceased) 

Prior to hearing this, I had not realised about the ‘previously accessed’ point, and digging around on the .gov website, I can’t find anything that confirms the point that Charlotte made. 

I’ve emailed the MPS to seek confirmation/clarification, but have had no reply 

I’d be grateful if anyone here is able to offer any thoughts 

I've just listened to the relevant section of the podcast (thank you for giving the time at which it was discussed), and I don't think she did say quite that - have another listen. The recording is a bit unclear for a few seconds because it sounds as if all 3 participants are chipping in, but there's a lot of emphasis on 'if you've not touched it...' This isn't quite the same thing as saying if they had accessed it there would be tax payable, but I completely understand why it could cause confusion and I'd be interested to know what the MPS finally replies.

pwe

Marcon said:

pwe said:

Hello everyone 

I listened last week to Martin’s podcast about pensions
In it, he was in discussion with Charlotte Jackson from the Money & Pension Service.

At one point she mentioned something concerning inheriting a DC pension, relating to taxation, which was contrary to my (and others’) understanding 

She said that if the deceased person had accessed their pension before they died, the person inheriting the pension would be liable to pay tax when they withdrew cash from it (regardless of the age of the deceased) 

Prior to hearing this, I had not realised about the ‘previously accessed’ point, and digging around on the .gov website, I can’t find anything that confirms the point that Charlotte made. 

I’ve emailed the MPS to seek confirmation/clarification, but have had no reply 

I’d be grateful if anyone here is able to offer any thoughts 

I've just listened to the relevant section of the podcast (thank you for giving the time at which it was discussed), and I don't think she did say quite that - have another listen. The recording is a bit unclear for a few seconds because it sounds as if all 3 participants are chipping in, but there's a lot of emphasis on 'if you've not touched it...' This isn't quite the same thing as saying if they had accessed it there would be tax payable, but I completely understand why it could cause confusion and I'd be interested to know what the MPS finally replies.

Many thanks for taking the time to listen and reply, much appreciated. And if I get an answer from MPS, I’ll post it here

thanks again 

Marcon

There's now a transcript on the MSE website: https://www.moneysavingexpert.com/savings/discount-pensions/#pensionpod. Relevant section reads as follows:

Charlotte: It is, so you're looking at anything less than £16,000, your money safe net, it's not really going to be counted against you. The other key consideration that a lot of people have is, is that pensions are a way of passing on wealth to your dependents, so your spouse or your children. So what we're seeing more of now is, is people saving in even in later years, and not accessing that pot, because it comes with tax relief, and you can pass that on. And that's a really big consideration.

Martin: What's the tax relief, the inheritance tax?

Charlotte: So you don't pay tax, you don't pay tax on it at all. So if you don't access that pension pot.

Martin: At any age?

Charlotte: And you were then to die, that pension pot gets passed to your spouse or your children after you.

Martin: So if you've never touched your pension, it can be passed down without tax, without capital gains tax.

Charlotte: Yes.

Martin: They'll still pay income tax on even if they...

Charlotte: Yeah, yeah.

Martin: But the lump sum was passed across as long as they've not touched it.

Charlotte: So if you can afford to save something, then what we're seeing more people do now is looking at that as a way of passing it on without inheritance tax. And a lot of people want to be able to do something for their families afterwards.

pwe

Marcon said:

There's now a transcript on the MSE website: https://www.moneysavingexpert.com/savings/discount-pensions/#pensionpod. Relevant section reads as follows:

Charlotte: It is, so you're looking at anything less than £16,000, your money safe net, it's not really going to be counted against you. The other key consideration that a lot of people have is, is that pensions are a way of passing on wealth to your dependents, so your spouse or your children. So what we're seeing more of now is, is people saving in even in later years, and not accessing that pot, because it comes with tax relief, and you can pass that on. And that's a really big consideration.

Martin: What's the tax relief, the inheritance tax?

Charlotte: So you don't pay tax, you don't pay tax on it at all. So if you don't access that pension pot.

Martin: At any age?

Charlotte: And you were then to die, that pension pot gets passed to your spouse or your children after you.

Martin: So if you've never touched your pension, it can be passed down without tax, without capital gains tax.

Charlotte: Yes.

Martin: They'll still pay income tax on even if they...

Charlotte: Yeah, yeah.

Martin: But the lump sum was passed across as long as they've not touched it.

Charlotte: So if you can afford to save something, then what we're seeing more people do now is looking at that as a way of passing it on without inheritance tax. And a lot of people want to be able to do something for their families afterwards.

Crikey, I’d not thought about there being a transcript! Thank you for putting this up

Though tbh, I’m not sure that makes it any clearer to me, the words ‘don’t access’, ‘don’t touch’, ‘don’t pay tax’ are all mentioned in practically the same breath…I think most people encountering this for the first time would read/hear it as I (and others) did

Unfortunately, the MPS has not yet responded to me email enquiry, but I will continue to press

again, thank you, I am most grateful 

Marcon

pwe said:

Marcon said:

There's now a transcript on the MSE website: https://www.moneysavingexpert.com/savings/discount-pensions/#pensionpod. Relevant section reads as follows:

Charlotte: It is, so you're looking at anything less than £16,000, your money safe net, it's not really going to be counted against you. The other key consideration that a lot of people have is, is that pensions are a way of passing on wealth to your dependents, so your spouse or your children. So what we're seeing more of now is, is people saving in even in later years, and not accessing that pot, because it comes with tax relief, and you can pass that on. And that's a really big consideration.

Martin: What's the tax relief, the inheritance tax?

Charlotte: So you don't pay tax, you don't pay tax on it at all. So if you don't access that pension pot.

Martin: At any age?

Charlotte: And you were then to die, that pension pot gets passed to your spouse or your children after you.

Martin: So if you've never touched your pension, it can be passed down without tax, without capital gains tax.

Charlotte: Yes.

Martin: They'll still pay income tax on even if they...

Charlotte: Yeah, yeah.

Martin: But the lump sum was passed across as long as they've not touched it.

Charlotte: So if you can afford to save something, then what we're seeing more people do now is looking at that as a way of passing it on without inheritance tax. And a lot of people want to be able to do something for their families afterwards.

Crikey, I’d not thought about there being a transcript! Thank you for putting this up

Though tbh, I’m not sure that makes it any clearer to me, the words ‘don’t access’, ‘don’t touch’, ‘don’t pay tax’ are all mentioned in practically the same breath…I think most people encountering this for the first time would read/hear it as I (and others) did

Unfortunately, the MPS has not yet responded to me email enquiry, but I will continue to press

again, thank you, I am most grateful 

Completely agree - it doesn't make it any clearer! The interruptions from Martin Lewis don't help, especially when you're listening live.

pwe

I’ve just had a reply from Charlotte at the MPS (see below) which clarifies things 

‘’Thank you for flagging the point on pot access after death. I have listened back to the recording and you are correct I did not articulate this correctly; regardless of whether the post has been accessed prior to death it can be taken tax free.  I am sorry for the confusion and any inconvenience caused from my mis-speak on the podcast. If it helps all our material on the Money Helper website is much clearer.

 

Kind regards

 

Charlotte

Tax_Slave

I was getting confused on this also.

As someone who will die prior to my 75th (unless a cure is found in next 5 years) and aged 62 I have a pension pot that is invested and untouched.
1) I take out 25% tax free - Die prior to 75 and wife inherits remaining 75% of pension pot tax free.
2) I leave 100% of pension pot untouched ,die prior to 75 and wife inherits entire pension pot tax free.

I presume both of above are correct assumptions?

Marcon

Tax_Slave said:

I was getting confused on this also.

As someone who will die prior to my 75th (unless a cure is found in next 5 years) and aged 62 I have a pension pot that is invested and untouched.
1) I take out 25% tax free - Die prior to 75 and wife inherits remaining 75% of pension pot tax free.
2) I leave 100% of pension pot untouched ,die prior to 75 and wife inherits entire pension pot tax free.

I presume both of above are correct assumptions?

3) you take tax free cash AND draw some taxable income from your pension, and die prior to age 75.

Under current legislation, your wife would inherit the whole of the whatever is in the pot tax free in any of the above scenarios.

onomatopoeia99

Marcon said:

Tax_Slave said:

I was getting confused on this also.

As someone who will die prior to my 75th (unless a cure is found in next 5 years) and aged 62 I have a pension pot that is invested and untouched.
1) I take out 25% tax free - Die prior to 75 and wife inherits remaining 75% of pension pot tax free.
2) I leave 100% of pension pot untouched ,die prior to 75 and wife inherits entire pension pot tax free.

I presume both of above are correct assumptions?

3) you take tax free cash AND draw some taxable income from your pension, and die prior to age 75.

Under current legislation, your wife would inherit the whole of the whatever is in the pot tax free in any of the above scenarios.

Can you clarify that if the benficiary takes money out of the inherited pension pot, that would be subject to income tax in the normal way though?  It's only tax free at the point it's inherited but treated like any other SIPP thereafter?

Reason I ask is that I've been trying to figure this stuff our as well related to where the money in my own SIPP goes when I die.