Inheritance Tax on pensions - budget announcement and consultation

artyboy

DRS1 said:

Bolt1234 said:

Yes.  In the will the pension pot is left to the wife tax free.  She then uses a deed of variation to give some of the proceeds to her son within 2 years

The will doesn't govern the pension pot's destination after death.  That is still down to the discretion or the scheme trustees/administrators and the expression of wishes from the member.  None of that is being changed only the tax law.

So would the trustees be required to withhold the appropriate amount to cover IHT on the estate? I don't see how an executor could be liable for reclaiming it off whoever the pension got paid out to - and there will doubtless be situations where the pension pot is sufficiently big that the resultant IHT liability will exceed the value of the rest of the estate...

Who'd want to be an executor ever again?

Qyburn

6022tivo said:

I'm just going to get all my pension, pay the penalty and enjoy it for 10 years. 
Then when it comes to it, I'll get pension credit, and housing benefit until I'm too old to be useful and I'll head off and go the assisting dying route. 
I don't see the point to save and have a pension anymore. 

What would you have done if the change hadn't been made? If your pension is only going to last you 10 years, what would you have lived on if you were saving the pension as a legacy? 

RogerPensionGuy

coey said:

So at age 66 after planning my old age carefully my estate [ partner and childrens future ] will suddenly be liable to £120k IHT from 2027......the current IHT rules were the driving force for my decision to transfer my DB pension to a DC pot when retiring early 7 years ago.

I know many people who vented out of great DB pensions into DC pots as a balanced decision under the current rules, but from 2027 just another change to the football pension rules.

Just makes it so hard to plan.

Juno_Moneta

Having thought about all this overnight - I would summarise my current thoughts as:

Previously I wanted to die with my riches squirrelled away in my 7 figure SIPP, which fortuitously for me currently yields 50k+ in dividends (not guaranteed), drawing down only what I needed to live on. Yes this was shameless estate planning using a retirement vehicle - I can’t apologise to HMRC enough. 

Now I will maximise my drawings either up to either the lower rate limit of 50270 or upper rate limit of 100,000 a year - depending on how the gods of SIPP capital and dividend growth smile on my SIPP going forward. 

And I will make large annual gifts (well beyond the £3k gift limit), with formal ‘given without reservation’ letters, to each of my 3 children every year in a rolling fashion so that at least some of them beat the 7 year rule hopefully. 

In summary then - from today my SIPP only needs to contain enough to live on, which is of course incredibly difficult to estimate over perhaps the 15 or 25 years I have left.

Sarahspangles

Juno_Moneta said:

In summary then - from today my SIPP only needs to contain enough to live on, which is of course incredibly difficult to estimate over perhaps the 15 or 25 years I have left.

Would there be a downside to an inflation-proofed annuity? 

GunJack

Doesn't this thread (and others similar) just go to prove that the entire tax system in the UK needs simplifying not making more complex???

If you're worried about your estate having to pay IHT then you're way too rich anyway 🤣🤣

Juno_Moneta

[Deleted User] : “Great.  But if the "normal expenditure out of income" exemption can be satisfied, there is no need to survive seven years.”

Thanks - that’s an interesting angle that I will look into more. 

A quick search suggests there is a certain ‘burden of proof’ to be hurdled but entirely possible…

https://rjp.co.uk/effective-iht-planning-making-gifts-outside-your-estate/

Juno_Moneta

GunJack said:

Doesn't this thread (and others similar) just go to prove that the entire tax system in the UK needs simplifying not making more complex???

If you're worried about your estate having to pay IHT then you're way too rich anyway 🤣🤣

I can’t apologise enough for being successful.

But actually a 7 figure pension is well within the realms of most people with a professional career who eg start saving in their 20s and make good investment choices. 

Society needs to stop assuming anyone with a 7 figure pension is the owner of a football club. 

Lorian

How is an executor going to know there is an expression of wish let alone what was paid out based on it. There is no mention of it in the will....

Qyburn

Juno_Moneta said: 

Society needs to stop assuming anyone with a 7 figure pension is the owner of a football club. 

But setting aside the politics of envy, they're the wealthiest 10% or so. Maybe that figure's wrong, but a quick look suggests average pension value at retirement age is around £200k.(Not stated whether that "average" is mean or median)