Inheritance Tax on pension pots

Tax_Slave

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Keep_pedalling

Any asset you own that IHT applies to also gets spousal exemption so even if they do bring this in it won’t impact a spouse or civil partner. 

Marcon

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

Sterlingtimes

So, after a husband and wife die, the child would expect 40% for IHT plus 20%, 40% or 45% income tax; respective net values of 48%, 36% or 33%. Is this correct?

Marcon

Sterlingtimes said:

So, after a husband and wife die, the child would expect 40% for IHT plus 20%, 40% or 45% income tax; respective net values of 48%, 36% or 33%. Is this correct?

Depends what legislative changes, if any, are made.

Tax_Slave

Marcon said:

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

No mention in the kings speech.
However wouldn’t this just be a budget thing and mentioned in that?
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on it. In fact as I’m under the 40% tax level, it would make sense to draw lumps out after the 25% tax free lump and pay 20% tax on it and avoid wife paying 40% IHT rate.

Albermarle

Tax_Slave said:

Marcon said:

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

No mention in the kings speech.
However wouldn’t this just be a budget thing and mentioned in that?
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on it. In fact as I’m under the 40% tax level, it would make sense to draw lumps out after the 25% tax free lump and pay 20% tax on it and avoid wife paying 40% IHT rate.

There are two different issues ( at least)
The first is that if you leave a DC pension pot to a beneficiary, then if you have died before age 75, they can withdraw from it  and pay no income tax at all. After 75 they will pay income tax on any withdrawals. It has been floated to make all beneficiaries pay income tax regardless at what age the donor dies. This would be relatively uncontroversial as the age 75 cut off makes no real sense.
The second is that DC pension pots on death are not included in your estate when calculating any IHT liability.
It is a kind of loophole that some people would like to see closed, or partly closed.
Various possibilities have been floated, such as those mentioned in IFS reports on the subject.
Death and taxes and pensions | Institute for Fiscal Studies (ifs.org.uk)
I think there might be a later update as well. 
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on .

Your estate outside a pension is already potentially subject to IHT, so drawing out the 25% tax free or taxable income would have no impact even if pensions were subject to IHT . 

Tax_Slave

Albermarle said:

Tax_Slave said:

Marcon said:

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

No mention in the kings speech.
However wouldn’t this just be a budget thing and mentioned in that?
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on it. In fact as I’m under the 40% tax level, it would make sense to draw lumps out after the 25% tax free lump and pay 20% tax on it and avoid wife paying 40% IHT rate.

There are two different issues ( at least)
The first is that if you leave a DC pension pot to a beneficiary, then if you have died before age 75, they can withdraw from it  and pay no income tax at all. After 75 they will pay income tax on any withdrawals. It has been floated to make all beneficiaries pay income tax regardless at what age the donor dies. This would be relatively uncontroversial as the age 75 cut off makes no real sense.
The second is that DC pension pots on death are not included in your estate when calculating any IHT liability.
It is a kind of loophole that some people would like to see closed, or partly closed.
Various possibilities have been floated, such as those mentioned in IFS reports on the subject.
Death and taxes and pensions | Institute for Fiscal Studies (ifs.org.uk)
I think there might be a later update as well. 
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on .

Your estate outside a pension is already potentially subject to IHT, so drawing out the 25% tax free or taxable income would have no impact even if pensions were subject to IHT . 

Yes I understand if I took out 25% tax free and remainder over a few drawdowns low enough that I pay 20% tax on then the money would be part of my estate. Let’s say I had £200k in savings and after various taxes my pension pot money (now sat in a savings account) was worth £170k….so savings account had £370k in it.
I die at age of 65 and my estate is left to my wife aka House (my half) and all my savings £370k.
My wife if inheriting surely doesn’t pay IHT aka she is exempt?

If I had left my pension pot intact then she would pay 40% on inheriting it and zero IHT on my savings and half of house.

Tax_Slave

Albermarle said:

Tax_Slave said:

Marcon said:

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

No mention in the kings speech.
However wouldn’t this just be a budget thing and mentioned in that?
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on it. In fact as I’m under the 40% tax level, it would make sense to draw lumps out after the 25% tax free lump and pay 20% tax on it and avoid wife paying 40% IHT rate.

There are two different issues ( at least)
The first is that if you leave a DC pension pot to a beneficiary, then if you have died before age 75, they can withdraw from it  and pay no income tax at all. After 75 they will pay income tax on any withdrawals. It has been floated to make all beneficiaries pay income tax regardless at what age the donor dies. This would be relatively uncontroversial as the age 75 cut off makes no real sense.
The second is that DC pension pots on death are not included in your estate when calculating any IHT liability.
It is a kind of loophole that some people would like to see closed, or partly closed.
Various possibilities have been floated, such as those mentioned in IFS reports on the subject.
Death and taxes and pensions | Institute for Fiscal Studies (ifs.org.uk)
I think there might be a later update as well. 
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on .

Your estate outside a pension is already potentially subject to IHT, so drawing out the 25% tax free or taxable income would have no impact even if pensions were subject to IHT . 

That’s interesting , unless I have miss understood. Not that this will impact me because the chances of me seeing 75 are near to zero.
So is this saying …(currently).
I have a pension pot of £200k never touched (uncrystallised)  …I die at 65 and wife inherits this tax free.
I have a pension pot or £200k, I have taken out say £50k via draw down, by a miracle of science I hold out until I’m 77 and die …because pot has been touched my wife inherits tax free.

From IFS report below..

”Where an individual dies before age 75, funds remaining in their pension escape income tax entirely – there was income tax relief when the money was paid into the pension and no income tax when the money is taken out. Furthermore, any funds that remain in a pension at death (at any age) are not subject to inheritance tax. ”

Albermarle

Tax_Slave said:

Albermarle said:

Tax_Slave said:

Marcon said:

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

No mention in the kings speech.
However wouldn’t this just be a budget thing and mentioned in that?
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on it. In fact as I’m under the 40% tax level, it would make sense to draw lumps out after the 25% tax free lump and pay 20% tax on it and avoid wife paying 40% IHT rate.

There are two different issues ( at least)
The first is that if you leave a DC pension pot to a beneficiary, then if you have died before age 75, they can withdraw from it  and pay no income tax at all. After 75 they will pay income tax on any withdrawals. It has been floated to make all beneficiaries pay income tax regardless at what age the donor dies. This would be relatively uncontroversial as the age 75 cut off makes no real sense.
The second is that DC pension pots on death are not included in your estate when calculating any IHT liability.
It is a kind of loophole that some people would like to see closed, or partly closed.
Various possibilities have been floated, such as those mentioned in IFS reports on the subject.
Death and taxes and pensions | Institute for Fiscal Studies (ifs.org.uk)
I think there might be a later update as well. 
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on .

Your estate outside a pension is already potentially subject to IHT, so drawing out the 25% tax free or taxable income would have no impact even if pensions were subject to IHT . 

Yes I understand if I took out 25% tax free and remainder over a few drawdowns low enough that I pay 20% tax on then the money would be part of my estate. Let’s say I had £200k in savings and after various taxes my pension pot money (now sat in a savings account) was worth £170k….so savings account had £370k in it.
I die at age of 65 and my estate is left to my wife aka House (my half) and all my savings £370k.
My wife if inheriting surely doesn’t pay IHT aka she is exempt?

If I had left my pension pot intact then she would pay 40% on inheriting it and zero IHT on my savings and half of house.

You are misunderstanding. The speculation is that pension pots will be included in your estate, so will be added to your other assets when calculating potential IHT liability. Or if you died first, then your wife's estate
Nobody is saying that a pension pot will be liable for 40% IHT on its own, or when it passes to a spouse.( not as far as I am aware anyway) 
So if it did happen, then it would not matter if you had money in savings or in a pension.

So for example if you were a single person just with a nil rate band of £325K and you had savings of £50K and a DC pot of £250K there would be no IHT to pay.

In any case it is all speculation so probably a bit of a waste of time getting into too much detail.

Albermarle

Tax_Slave said:

Albermarle said:

Tax_Slave said:

Marcon said:

Tax_Slave said:

The Daily Mail today have recirculated the hint that inheritance tax could be applied to pension pots where spouse inherited if you died prior to age 75.
They say the government could after a few years be taking £2 billion a year in tax on this.

This opens a few questions:
If I have a pension pot when I die prior to 75 (very likely to die before I’m 65 due to myeloma) I’d say £275,000. 

On death my wife will inherit my half of house outside of inheritance tax and any monies I have.
Would she then get an inheritance tax relief on the first £325,000 of my pension pot if it’s now taxable?
in this case pay no tax on it?

I have a feeling this Labour government will implement this change on taxation of pension pots.
They are desperate for more tax income.

Wait and see what the King's Speech brings...

It could impact, depending on what the change (if any) is. A spouse's pension from a DB scheme is taxable, so no reason why a pension pot couldn't be brought into a similar regime (ie income tax whatever age the pension holder dies), regardless of the usual IHT-related spousal exemptions.

No mention in the kings speech.
However wouldn’t this just be a budget thing and mentioned in that?
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on it. In fact as I’m under the 40% tax level, it would make sense to draw lumps out after the 25% tax free lump and pay 20% tax on it and avoid wife paying 40% IHT rate.

There are two different issues ( at least)
The first is that if you leave a DC pension pot to a beneficiary, then if you have died before age 75, they can withdraw from it  and pay no income tax at all. After 75 they will pay income tax on any withdrawals. It has been floated to make all beneficiaries pay income tax regardless at what age the donor dies. This would be relatively uncontroversial as the age 75 cut off makes no real sense.
The second is that DC pension pots on death are not included in your estate when calculating any IHT liability.
It is a kind of loophole that some people would like to see closed, or partly closed.
Various possibilities have been floated, such as those mentioned in IFS reports on the subject.
Death and taxes and pensions | Institute for Fiscal Studies (ifs.org.uk)
I think there might be a later update as well. 
If it does happen then there will be a flurry of people like me who will draw out 25% tax free to protect that from wife paying IHT on .

Your estate outside a pension is already potentially subject to IHT, so drawing out the 25% tax free or taxable income would have no impact even if pensions were subject to IHT . 

That’s interesting , unless I have miss understood. Not that this will impact me because the chances of me seeing 75 are near to zero.
So is this saying …(currently).
I have a pension pot of £200k never touched (uncrystallised)  …I die at 65 and wife inherits this tax free.
I have a pension pot or £200k, I have taken out say £50k via draw down, by a miracle of science I hold out until I’m 77 and die …because pot has been touched my wife inherits tax free.

From IFS report below..

”Where an individual dies before age 75, funds remaining in their pension escape income tax entirely – there was income tax relief when the money was paid into the pension and no income tax when the money is taken out. Furthermore, any funds that remain in a pension at death (at any age) are not subject to inheritance tax. ”

No she would pay income tax when withdrawing the remaining pot.