Change of tac, dying below the IHT threshold

Workerdrone

With all this talk of chopping and changing pension allowances it's very difficult to plan. When I first joined this forum 3 years ago, I had a simple goal in mind. I wanted to be at 1.1m by 60, Buy a silly car, pull down around 3.5%pa, reduce that draw down when the state pension kicked in and leave a good chunk for the kids when I snuff it.

I'll never be a 40% taxpayer so I reasoned why pay higher tax as a pensioner when I didn't benefit from it on the way in. My needs are/will be fairly modest, the other half will have a decent DB pension.

Then I changed my plan slightly. Why have the running costs of a silly car when I can take that extra 100k and have a few years membership of a club like auto vivendi and drive a variety of silly cars as and when I want, same draw down, same plan for the kids but just not hitting the tax free lump sum as hard in the early years.

Now it all feels very up in the air. I accept I can't make any proper plans until the budget, but I very much suspect some of the things I've relied on in my planning are likely to change.

Please don't jump on me for speculating as others have. I know we must wait and see. That's not the crux of the question.

Firstly let's assume there will be some sort of change. I'm fairly certain the current government are rubbing their hands at the prospect of being in power during the great wealth transfer years.

So

1.) There may be a reduction in the tax free amount to say 100k
2.) Pensions may be subject to IHT
3.) Means tested state pension, but I am not going to even think about that one in this question.

I am not by nature a socialist. It's my money, I chose my investments, I took those risks, I forwent spending it in the moment, therefore I have no intention of letting a government get their hands on 40% of it.

So I find myself thinking about parallel plans. Let's assume I hit my 1.1m pension pot, and that Rachel Reeves has cut the tax free amount to 100k, and that my estate is worth say £300k. So £1.4m total.

In the 5 years past 60, I I spend my £100k tax free on the silly car club. That leaves me with a total estate of £1.3m (For simplicities sake I am assuming my assets continue to grow at the same rate I take them out, i.e £35kpa)

At 67 I reduce my drawdown by the state pension amount.

Life continues on, I slow down, and I die with pretty much the same £1.3m. Now here's the bit I really hate. I don't want the government to get any of it. I simply don't want that to happen. AT ALL! Not one brass farthing.

So I'm looking for suggestions. I'm being blunt. If my kids can't have it all without the government having a slice, I need another plan.

My current thinking is, pull an extra 6k or so a year from 60, give 3k to the wife as a spousal transfer and then we both use our annual 3k IHT allowance to give that to the kids for the next say 24 years. That takes £60k each out of the pot, not much but a bit.

So now I am at 84, and dead, and for simplicities sake my estate is worth £1.18m, that's left to my wife. She doesn't really need it and isn't likely to cut into it much, lets kill her off 6 months later (Of a broken heart :-(

So I've got a potential problem. (Reasonably) Big estate with an IHT charge for the kids to pay. Can I a chuck a chunk of my pension to a worthy charity using the charity lump sum exemption benefit to bring the total of my estate (including pension) under whatever the prevailing IHT threshold is, then leave the rest to the kids IHT free. Or alternatively, depending on how curmudgeonly I am in future do the same sort of thing to the political party most diametrically opposed to the current lot so they can have a champagne and hooker blowout on me.

Tongue planted firmly in cheek when writing this, but in all honesty I am just looking at ways of sticking it to the (current) man from my grave. If they kids get something that's ok too, If not, they've had the financial education and support from me, so it's on them.

Suggestions please.

tacpot12

Giving away to charity what you cannot give to your children is the best you can achieve. Pick one or two charities you feel an affinity for and enjoy "sticking it to the man". They will do something good with it. 

ader42

Quite simply give to your kids earlier even if it means the money not going into your pension, but theirs (or their LISA).

That way it will have even longer to grow and provide a bigger finger to the politicians. 

Albermarle

Life continues on, I slow down, and I die with pretty much the same £1.3m. Now here's the bit I really hate. I don't want the government to get any of it. I simply don't want that to happen. AT ALL! Not one brass farthing.

You might be 'lucky' and find that it is all gone to the care home(s) in fees, so no tax to pay as it is all gone, which I guess would be a result of sorts.
Personally I would not organise my affairs solely around not paying some tax when I am dead, but everybody is different.

GunJack

Suck it up, pay some tax which is the cost of you and your surviving family living in a reasonably civilised country.... you've only amassed that much with tax relief, you've got to pay some sometime

Brie

Don't forget that this is all only ££ on an internet file as you're not holding more than a tiny percentage of that in anything worth looking at should there be a nuclear holocaust.  At which point all the £££ will be gone and you'll be trading on the fact that you happened to buy some old non electric tools and gardening stuff at a boot sale and have a big enough property to grow your own beetroot.  So you'll die and the wife will be smiling nicely to the young gardener who's been helping out with your veg plot.  You'll be mulch.

Bostonerimus1

Right now your pension won't be included in your estate for IHT purposes. You only have a problem if IHT does start to be charged on DC pension balances and well have to wait to see what changes, if any, happen.

If you want to reduce the size of your estate you can give to charities and family members etc. You are not limited in the size of those family gifts, but you will pro-rate how much is excluded from your estate over 7 years, assuming you live that long after the gift. So give generously and early, but you'll have to pay income tax on your drawdown....death and taxes - eh.

ader42

Just like in the 80s when people said State Pensions wouldn’t exist when I hit 50. 

Keep_pedalling

We hope to die and still be in IHT territory as it will mean we have not had to spend a large chunk of or latter year in care costs. 

zagfles

Why not just buy an annuity, after you've spent the TFLS on the silly car club or whatever. Then there is zero left for "the man" (or "the woman" ) when you and your wife (assuming you get a joint one) pop your clogs. If you're only going to draw down 3.5% you could probably get an index linked annuity for more than that at 60. 

Aretnap

zagfles said:

Why not just buy an annuity, after you've spent the TFLS on the silly car club or whatever. Then there is zero left for "the man" (or "the woman" ) when you and your wife (assuming you get a joint one) pop your clogs. If you're only going to draw down 3.5% you could probably get an index linked annuity for more than that at 60. 

Good idea, but the risk is that if they both die relatively young, the insurance company (who is also, presumably, "the man") might get some of his money, and we can't have that can we?

Safest option is probably just to burn a load of cash - then there's no risk of anyone you disapprove of getting it.