Inheritance Tax on pensions - budget announcement and consultation

Andy_L

SkylineExplorer said:

It seems this change could simplify things for those leaving pensions to spouses, but it definitely raises concerns for non-traditional family structures.

It will be interesting to see if further clarifications or amendments address unmarried partners and other modern family dynamics, especially as so many fall outside the 'married spouse' model. A lot of us are hoping for more flexibility in the final guidance

Since they haven't done anything for unmarried couples re IHT in the past I can't see them doing anything now. Especially since those couples who were idealogically opposed to "marriage" now have the option of civil partnership instead

zagfles

I suspect this will lead to the slow death of drawdown and a boom in annuities. Particularly with gilt prices falling (ie yields increasing), they're getting close to the bottom of the dip during the Truss farce! So annuities have become better value. 

What is now the point of using drawdown with a "SWR" of 4%, or even 3.5% or less as some believe, when you can get an index linked annuity at 4.7% at 65. The usual answer you'd get in the past was "I want to leave the kids an inheritance". Well that motivation has been pretty much decimated!

Andy_L

Qyburn said:

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)

Presumably there's a lot of people with no provision beyond the state pension dragging the average down?

Andy_L

Workerdrone said:

DairyQueen said:

Madeinireland101 said:

I've currently got an expression of wish on my 2 DC pensions saying 50% to my wife and 25% to each of the children.

1. if I’m reading this all correctly it appears I’d be better off combining the schemes and changing the EOW to put 100% to my wife. Is that correct?

2. Also it appears to me that there is no point in keeping the money in a pension at all now - may as well start by extracting the tax free 25% by £40k a year and putting it in two ISA’s for me and the wife. Then extracting the rest gradually up to the 40% limit to wind the pensions down completely if I can. Might be worth keeping anything that might result in 40% tax as if I pass it eventually to kids then they might have a lower tax bracket to use.

3. Will now also look to use gifting to give away as much as possible to the kids too. Pensions appear to be finished from my point of view unless someone can tell me the benefit of keeping one? ISA’s will be more flexible.

We are thinking along the same lines.

Problem being that unwrapping the pension will likely incur income tax, and that ISAs will still form part of your estate. Whether to leave wrapped will depend on the identity of the beneficiary and whether you/they would incur more tax.

For example, if you are under 75 and spouse is 100% beneficiary then s/he will inherit free of IHT and income tax if you die before your 75th birthday. If, OTOH, you are a widow/er/single and are over 75 then your pension could be subject to a heinous IHT tax charge and then subject to additional (income) tax on-top by beneficiaries when they drawdown.

Our inheritance plans are totally screwed by this budget. We are not wealthy but we were hoping to leave a reasonable sum to my nephews and to OH's daughters and grandson. They are the generation that will suffer. 

Socialists hate inherited wealth but, Lord's sake, is it really necessary to destroy Millennials and Gen Z's inheritance in this way? 

The real losers from this are the children of wealthy boomers.

Wouldn't boomers be from the era of DB schemes so wouldn't have been leaving any pension to their, adult, children?

bjorn_toby_wilde

Not necessarily. I’m a boomer (1962) but the last ten years of my working life were DC.  They’re also the ten years when I was probably earning the most.

Sarahspangles

Andy_L said:

Workerdrone said:

The real losers from this are the children of wealthy boomers.

Wouldn't boomers be from the era of DB schemes so wouldn't have been leaving any pension to their, adult, children?

I checked the dates and ‘Boomers’ are currently 60 to 78 so the older ones would certainly be from the era of DB pensions.

We mostly have DB pension provision, as did both our fathers. I never expected to inherit any pension, or to leave any pension to my children once they were adults. But until they were adults they were covered by a jigsaw of death in service cover, life insurance policies and dependents’ pension provision. And my OH and I will have spouses’ pension when one of us goes.

A version of all of those protections can be arranged with a DC pot if the owner is prepared to spend some of it.

Acromion

zagfles said:

I suspect this will lead to the slow death of drawdown and a boom in annuities. Particularly with gilt prices falling (ie yields increasing), they're getting close to the bottom of the dip during the Truss farce! So annuities have become better value. 

What is now the point of using drawdown with a "SWR" of 4%, or even 3.5% or less as some believe, when you can get an index linked annuity at 4.7% at 65. The usual answer you'd get in the past was "I want to leave the kids an inheritance". Well that motivation has been pretty much decimated!

The old joke about “spending the kids’ inheritance” becomes a rational choice, IF you don’t want to finance Labour lunacy with an IHT heavy legacy.

RogerPensionGuy

Sea_Shell said:

RogerPensionGuy said:

Reference the pensioners cold weather allowance, it wasn't well targeted previously, a cash needy government just made very very blunt changes and must of done no thinking, I'm guessing these new changes to it will at best be cist neutral or more likely cost negative overall and a total PR disaster with bells on.

In my head the way in which they treated the cold weather allowance is just a sign how they will treat people, espically older people who can be soft targets. 

As for the pensions IHT loophole door, with frozen thresholds and inflation, it was very very unlikely it would remain for ever, it was just when they closed it and if they would blend it like the farms IHT or do a cliff edge.

The pension IHT loophole tempted many people to transfer good DB schemes to DC SIPP schemes and in my experience, IFAs told me it was a great ploy.

As other posters have mentioned, the super rich or poor don't pay much % tax overall, the masses pay and with frozen allowances and inflation, house prices and healthy DC SIPP pots, IHT take will just grow and grow as time slides by.

Reference all the rumours of the last budget, I was a bit surprised ISAs were left alone, I think we will see ISAs getting tweeking in the future. 

That old phrase about we can only plan under the current rules and requlations may not be so goldplated and maybe using historical information/changes and balance can be considered as indeed pension IHT shows us. 

And so if this does go ahead as planned, and turns out to be a very lucrative cash cow for the government, the chances become greater that any future change to said government are unlikely to revert back.    Do they ever?

All that lovely £££ flowing into the coffers, what's not to like!  


However, it sounds like it could be an administrative nightmare for the unwary executor.  Or even a clued up one!

Yes indeed, the UK tax system is complex and they keep tinkering with it, but it sure allows governments to have many hoover points to extract tax and that's why it won't be really reviewed or revised, it offers lots of choice, makes winners and loosers.

Makes planning not simple and indeed it can be very very unfair depending on a persons situation and planning by guessing more that todays rules. 

I think the last budget is good news for the IFA community, many more people now understand it's probably better to employ them to try protecting or growing lifestyle positions. 

marycanary

zagfles said:

I suspect this will lead to the slow death of drawdown and a boom in annuities. Particularly with gilt prices falling (ie yields increasing), they're getting close to the bottom of the dip during the Truss farce! So annuities have become better value. 

What is now the point of using drawdown with a "SWR" of 4%, or even 3.5% or less as some believe, when you can get an index linked annuity at 4.7% at 65. The usual answer you'd get in the past was "I want to leave the kids an inheritance". Well that motivation has been pretty much decimated!

You could be right, you have obviously talked to a lot of people about this if you know the "usual answer." However, isn't 60% of something better than 100% of nothing? Many people have an extremely strong urge to pass something on to their children and grandchildren. even at their own detriment. 

bjorn_toby_wilde

Mmmmm

I’m not sure annuities are any more appealing even now. I feel drawdown will still be dominant, with increased gifting more likely.

Others have said increased spending is likely a result (maybe from the government perspective a desired result) and certainly that’s the drift of conversations amongst friends of mine. Spend it or give it to the children early is what I’m hearing.