Inheritance Tax on pensions - budget announcement and consultation

leosayer

artyboy said:

leosayer said:

By my estimation, based on our current assets, if my wife and I die now then our estate would attract a £80k IHT bill.

After the change announced in the budget, the IHT bill would increase to £340k due to our pension pots.

Of course, if we deplete our pension pots during retirement as planned, then this will reduce the IHT bill. However if we die young then the full £340k will be payable.

I'm sure some will see this as a tax on dying young, but of course the reason would be that by dying young, we would leave a much larger inheritance.

Meh... based on some fairly reasonable assumptions, these changes are likely to cost our estate a 7 figure sum  in additional IHT, unless we fundamentally change tack (which could mean heading off somewhere sunnier).

The problem is we're a very soft target given the argument that pensions are for retirement, not inheritance. But when you've been planning your estate for 10 years based on a legitimate set of rules, it's pretty galling when this happens.

As I've said elsewhere, successive governments are doing great damage to the idea of getting people to start planning early for their retirement. Who can have any confidence at all that further raids and restrictions aren't in the pipeline.

Soft target indeed.

Pensions are a political football and the press and public recognise this which can only be a bad thing for encouraging prudent saving regardless of your level of wealth.

Personally, I don't think the government will be able to implement a regime that combines an individual's estate with pension trusts. My guess is they'll end up with a separate nil rate band for pensions.

RogerPensionGuy

german_keeper said:

RogerPensionGuy said:

https://www.forbes.com/uk/advisor/investing/average-pension-pot-in-uk/#:~:text=Unbiased.co.uk-,Overall average,20,077 as of May 2024.

***

Posted the above on here as a point of reference about average pension pots at various stages of life/age.

The article mentions average and median picks a value, great information, I have friends & family from fairly similar backgrounds, jobs, kids, pay and houses in the current 50 to 70 years range, a few have no pension, maybe 40% have the average, maybe 40% double the average and 10/15% have 4, 5 or more times the average mostly because they became engaged in pension & AVC feeding early on by family or trusted friends and picked the pension extra route and stuck to it by and large and the last few or 5 years of paid employment filled pensions at maximum possible inputs reference their living needs and spare cash, they weren't getting anywhere near the AA or LTA limits, however with time and low cost pensions, a few have sailed past that last LTA figure that was essentially removed April 2024 and just the 268 25% LTA remains. 

Blimey, you must have very different conversations with friends and family than I do. I don't know anything like that amount of information. The only one that comes near is a good mate, a former work colleague and now my retirement walking partner, who I have helped over the last 10 years or so with his Civil Service pension and retirement planning in general.

A lot of our walking conversation centres around retirement and pension related stuff but not at the cost of the usual beer, women and football nonsense. I use that phrase as a colloquialism as he is actually teetotal!! 

The family & friends I talk about are aware that I take more than a passing interest in pensions, similar and trying to achieve a life and financial experience that maybe conducive to a relaxing lifestyle with safe margins in place, so yes these guys often ask about stuff, I just sign post them and explain they can use IFAs or the like, do their own research etc.

I know plenty of friends & family who are very less interested in having an interest in their futures, they just amble by and learn about Waspi, NI opting out shortfalls, lack of pension wealth, long mortgages that were kicked down the road, a few being interest only, no ISAs or GIAs, still renting accommodation at plus 60 and it goes in. 

My viewpoint is many UK people in their 60s now probably maybe have good old pensions, savings and paid off any mortgage well pre 60 as that's the way it was.

As we now slide down todays age demographics to 50s and below, the picture is way different.

Use 40s and this is very different, yes many of these have new cars every two years, great holidays and maybe more chance they rent or live at home. 

Reference all the spill above, the UK looks like we will have a lesser economic environment the next 20/30 years than we enjoyed in the preceeding period, especially the 80s,90s & 00s.

Rolled in the above I can fully understand why people who were expecting pots of tax free inheritance appear most upset that 40% plus will be getting diverted and blended with this, I can see lots more DC Pots buying annuties and/or just taking it out and spending it, personally I was going to leave my DC coppers as source of last resort for cash and saw the advantage of no IHT, but now my plans will adjust and using DC cash very early on.

It will be interesting to see the rise of new annuities these next few years. 

Taking of annuities, I am also revisiting purchased annuties currently. 

Cheers Roger. 

fcandmp

Lots of chat about leaving unused SIPP to dependents etc, but nothing I have seen regards to leaving them as a charitable donation? If trustees were to permit those wishes I would assume no IHT to pay ?

RogerPensionGuy

fcandmp said:

Lots of chat about leaving unused SIPP to dependents etc, but nothing I have seen regards to leaving them as a charitable donation? If trustees were to permit those wishes I would assume no IHT to pay ?

Yes, I think if charities get inherited wealth, then zero tax removed.

I must say I'm enjoying reading and watching people/children who were expecting to be getting tax free or low taxed wealth out of parents & grandparents estates, some feel hard done by that only the 1st million pounds will be tax free now. 

eskbanker

RogerPensionGuy said:

I must say I'm enjoying reading and watching people/children who were expecting to be getting tax free or low taxed wealth out of parents & grandparents estates, some feel hard done by that only the 1st million pounds will be tax free now. 

Charming!

To be fair, those on here objecting to the change are largely (exclusively?) those already with the pension pots and planning to leave them, rather than greedy offspring looking forward to receiving them, so I'm not sure your rather unpleasant schadenfreude is directed accurately in any case....

Albermarle

fcandmp said:

Lots of chat about leaving unused SIPP to dependents etc, but nothing I have seen regards to leaving them as a charitable donation? If trustees were to permit those wishes I would assume no IHT to pay ?

It is a good point.
Charitable donations in a will are not counted for IHT. I am guessing though it is not legally possible to leave money in a pension to a charity, as pension beneficiaries are not sent just cash as such, but in the form of a pension.

The current rules are ( I think)  that if just 10% of the amount above the nil rate bands in the estate is given to charity then the tax rate falls to 36%.

How would that apply to any IHT taken for a pension. Another complication.....

DRS1

I am pretty sure you can nominate a charity to get your pension pot when you die.

DRS1

From Abdn

Nominating a charity

Death benefits can only be paid to a charity if the member has nominated one. The scheme administrator cannot use their discretionary powers to pay money to a charity - discretion can only be used to pay to individuals or trusts.

Lorian

RogerPensionGuy said:

fcandmp said:

Lots of chat about leaving unused SIPP to dependents etc, but nothing I have seen regards to leaving them as a charitable donation? If trustees were to permit those wishes I would assume no IHT to pay ?

Yes, I think if charities get inherited wealth, then zero tax removed.

I must say I'm enjoying reading and watching people/children who were expecting to be getting tax free or low taxed wealth out of parents & grandparents estates, some feel hard done by that only the 1st million pounds will be tax free now. 

they might realise the problem goes away if we die before 2027....

DRS1

Lorian said:

RogerPensionGuy said:

fcandmp said:

Lots of chat about leaving unused SIPP to dependents etc, but nothing I have seen regards to leaving them as a charitable donation? If trustees were to permit those wishes I would assume no IHT to pay ?

Yes, I think if charities get inherited wealth, then zero tax removed.

I must say I'm enjoying reading and watching people/children who were expecting to be getting tax free or low taxed wealth out of parents & grandparents estates, some feel hard done by that only the 1st million pounds will be tax free now. 

they might realise the problem goes away if we die before 2027....

Just remind them they can't profit from their own crime!