IHT on DC pensions

SpeedSouth

This is a long way from affecting any real decisions at my age, but one of my drivers for the pension was always to leave money to the kids in my DC.

I was listening to a Martin Lewis podcast and the advisor said that pensions are only free from IHT if they have not been touched.  They didn't explain on what touched meant really, but I took it to mean if you've started drawdown or taken your 25 %.

Looking on Google I can't find any definition on this point, but are they only free from IHT if you've never touched them?

As a way to avoid touching them could you do a partial transfer so by creating multiple DC pots to get around it?

Or have I misunderstood?

Keep_pedalling

I think you have misunderstood, your pension will not be subject to IHT (at least under the current rules) That does not mean they are tax free as the beneficiaries are going to be paying Income tax on money taken out.

Linton

Keep_pedalling said:

I think you have misunderstood, your pension will not be subject to IHT (at least under the current rules) That does not mean they are tax free as the beneficiaries are going to be paying Income tax on money taken out.

Under current rules, if you die before age 75 the pension pot will be passed to the beneficiaries free of IHT and any future income tax.  It is considered likely by many people that this remarkably generous deal will be stopped in the short/medium term future.

SpeedSouth said:

This is a long way from affecting any real decisions at my age, but one of my drivers for the pension was always to leave money to the kids in my DC.

I was listening to a Martin Lewis podcast and the advisor said that pensions are only free from IHT if they have not been touched.  They didn't explain on what touched meant really, but I took it to mean if you've started drawdown or taken your 25 %.

Looking on Google I can't find any definition on this point, but are they only free from IHT if you've never touched them?

As a way to avoid touching them could you do a partial transfer so by creating multiple DC pots to get around it?

Or have I misunderstood?

I think the confusion comes from the idea that when you take a pension you have the binary choice of immediately buying an annuity or moving into drawdown.  So "touched" means effectively that you have used the money to buy an annuity.  My belief is that whether you have actually drawn down any money from the pension pot is irrelevent.

If some-one knows better pls correct me.

Marcon

SpeedSouth said:

This is a long way from affecting any real decisions at my age, but one of my drivers for the pension was always to leave money to the kids in my DC.

I was listening to a Martin Lewis podcast and the advisor said that pensions are only free from IHT if they have not been touched.  They didn't explain on what touched meant really, but I took it to mean if you've started drawdown or taken your 25 %.

Looking on Google I can't find any definition on this point, but are they only free from IHT if you've never touched them?

As a way to avoid touching them could you do a partial transfer so by creating multiple DC pots to get around it?

Or have I misunderstood?

The podcast was quite simply misleading. See https://forums.moneysavingexpert.com/discussion/comment/80891928#Comment_80891928?utm_source=community-search&utm_medium=organic-search&utm_term= in particular pie's post of 18 July.

dunstonh

I was listening to a Martin Lewis podcast and the advisor said that pensions are only free from IHT if they have not been touched.  They didn't explain on what touched meant really, but I took it to mean if you've started drawdown or taken your 25 %.

That is not correct.    
a) they are virtually always exempt from IHT  (there is a very small exception in rare circumstances)
b) the residual fund left, whether you have touched it or not, is free from IHT.
c) current rules are that if you die before 75, it is tax-free to your beneficiaries (touched or not)
d) over 75, the beneficiaries receive the pension fund as a beneficiary pension tax free.   However, once they draw on it, whatever they draw will be subject to income tax using their tax bands.

The age 75 bit is believed to be a target for removal by Labour.
IHT doesn't come into it. Income tax does.

Albermarle

dunstonh said:

I was listening to a Martin Lewis podcast and the advisor said that pensions are only free from IHT if they have not been touched.  They didn't explain on what touched meant really, but I took it to mean if you've started drawdown or taken your 25 %.

That is not correct.    
a) they are virtually always exempt from IHT  (there is a very small exception in rare circumstances)
b) the residual fund left, whether you have touched it or not, is free from IHT.
c) current rules are that if you die before 75, it is tax-free to your beneficiaries (touched or not)
d) over 75, the beneficiaries receive the pension fund as a beneficiary pension tax free.   However, once they draw on it, whatever they draw will be subject to income tax using their tax bands.

The age 75 bit is believed to be a target for removal by Labour.
IHT doesn't come into it. Income tax does.

Maybe I am a pessimist but I think the IHT exemption for DC pensions, will not survive the next 5 years.
Not in the form of a 100% exemption anyway. I could be wrong of course.

SpeedSouth

Thanks all.  Seems I wasn't the only one confused. If they remove the carrot it won't affect me anyway.