Inheritance Tax on pensions - budget announcement and consultation

zagfles

marycanary said:

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. 

I've probably not "talked" to anybody, but loads of discussions here and one of the strong motivations for using DD at a worse rate than IL annuities was leaving a legacy. 100% of something is better than 60%, and there'll be plenty of ways of passing money on without paying any IHT. With a bit of planning, and luck. 

Mind you I've never understood the logic of "if we die young the kids should get a whacking great inheritance, but if we live to 100 they should get nothing (or far less)". I'd prefer it if my kids had an incentive for us to live to a ripe old age rather than die young 

zagfles

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

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!

Someone wants to leave the kids something, but aggrieved at having to pay tax that reduces the kids inheritance, takes an annuity instead that leaves the kids nothing?  Am I missing something because that sounds counter productive?

They could use other assets for the kids. ISAs, property etc. Or they could give the kids part of the annuity income. There've been plenty of threads here where people have talked about drawing down at a rate of well under what an index linked annuity would pay them, so they'll have spare income. And gifting from income is IHT free usually. Or, with a guaranteed income, they may be more willing to gift early from ISAs etc, so they can hopefully survive 7 years so they pass IHT free. 

As I said above to someone else, drawdown from the SIPP and gift from that.  Might still be funds left in the SIPP at death for inheritance.  Might die early before an annuity pays back the original investment and nothing for inheritance on death.

Or they could run out of money in the SIPP at 80 and live to 100. Unless they drawdown at such a safe rate that that is unlikely - in which case may as well buy an annuity which will pay a much higher income, and gift from that. 

So nothings really changed after all 🤷‍♂️

Eh? Of course it has - we're both suggesting ways people might change the way they pass money on!

Yes, the same suggestions that have been made for years even before this budget.

Any examples of threads suggesting that before the budget? I don't remember any. 

noitsnotme

Notepad_Phil said:

noitsnotme said:

zagfles said:

noitsnotme said:

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!

Someone wants to leave the kids something, but aggrieved at having to pay tax that reduces the kids inheritance, takes an annuity instead that leaves the kids nothing?  Am I missing something because that sounds counter productive?

They could use other assets for the kids. ISAs, property etc. Or they could give the kids part of the annuity income. There've been plenty of threads here where people have talked about drawing down at a rate of well under what an index linked annuity would pay them, so they'll have spare income. And gifting from income is IHT free usually. Or, with a guaranteed income, they may be more willing to gift early from ISAs etc, so they can hopefully survive 7 years so they pass IHT free. 

As I said above to someone else, drawdown from the SIPP and gift from that.  Might still be funds left in the SIPP at death for inheritance.  Might die early before an annuity pays back the original investment and nothing for inheritance on death.

You seem to suggest running the sipp down to as close to zero as possible, 

Nope, not my suggestion.  I’d still like to think there is lots left in the SIPP to leave the kids even after I’ve drawn down at a sensible rate and gifted some of that.  As someone else said above, on the second death they’re better off getting 40-60% of something (remaining SIPP after IHT/income tax) than 100% of nothing (annuity).  

To avoid all that we’ll do our best to spend it on an amazing retirement and hope to leave <£1million overall so IHT won’t be an issue anyway.

noitsnotme

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

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!

Someone wants to leave the kids something, but aggrieved at having to pay tax that reduces the kids inheritance, takes an annuity instead that leaves the kids nothing?  Am I missing something because that sounds counter productive?

They could use other assets for the kids. ISAs, property etc. Or they could give the kids part of the annuity income. There've been plenty of threads here where people have talked about drawing down at a rate of well under what an index linked annuity would pay them, so they'll have spare income. And gifting from income is IHT free usually. Or, with a guaranteed income, they may be more willing to gift early from ISAs etc, so they can hopefully survive 7 years so they pass IHT free. 

As I said above to someone else, drawdown from the SIPP and gift from that.  Might still be funds left in the SIPP at death for inheritance.  Might die early before an annuity pays back the original investment and nothing for inheritance on death.

Or they could run out of money in the SIPP at 80 and live to 100. Unless they drawdown at such a safe rate that that is unlikely - in which case may as well buy an annuity which will pay a much higher income, and gift from that. 

So nothings really changed after all 🤷‍♂️

Eh? Of course it has - we're both suggesting ways people might change the way they pass money on!

Yes, the same suggestions that have been made for years even before this budget.

Any examples of threads suggesting that before the budget? I don't remember any. 

Are you saying people never debated the pros and cons of SIPPs vs annuity before the budget?  Maybe we’re talking cross purposes.

zagfles

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

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!

Someone wants to leave the kids something, but aggrieved at having to pay tax that reduces the kids inheritance, takes an annuity instead that leaves the kids nothing?  Am I missing something because that sounds counter productive?

They could use other assets for the kids. ISAs, property etc. Or they could give the kids part of the annuity income. There've been plenty of threads here where people have talked about drawing down at a rate of well under what an index linked annuity would pay them, so they'll have spare income. And gifting from income is IHT free usually. Or, with a guaranteed income, they may be more willing to gift early from ISAs etc, so they can hopefully survive 7 years so they pass IHT free. 

As I said above to someone else, drawdown from the SIPP and gift from that.  Might still be funds left in the SIPP at death for inheritance.  Might die early before an annuity pays back the original investment and nothing for inheritance on death.

Or they could run out of money in the SIPP at 80 and live to 100. Unless they drawdown at such a safe rate that that is unlikely - in which case may as well buy an annuity which will pay a much higher income, and gift from that. 

So nothings really changed after all 🤷‍♂️

Eh? Of course it has - we're both suggesting ways people might change the way they pass money on!

Yes, the same suggestions that have been made for years even before this budget.

Any examples of threads suggesting that before the budget? I don't remember any. 

Are you saying people never debated the pros and cons of SIPPs vs annuity before the budget?  Maybe we’re talking cross purposes.

Err, the point is the pros and cons have changed! The suggestions are now different. You said "the same suggestions that have been made for years even before this budget". Can you find any? 

noitsnotme

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

zagfles said:

noitsnotme said:

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!

Someone wants to leave the kids something, but aggrieved at having to pay tax that reduces the kids inheritance, takes an annuity instead that leaves the kids nothing?  Am I missing something because that sounds counter productive?

They could use other assets for the kids. ISAs, property etc. Or they could give the kids part of the annuity income. There've been plenty of threads here where people have talked about drawing down at a rate of well under what an index linked annuity would pay them, so they'll have spare income. And gifting from income is IHT free usually. Or, with a guaranteed income, they may be more willing to gift early from ISAs etc, so they can hopefully survive 7 years so they pass IHT free. 

As I said above to someone else, drawdown from the SIPP and gift from that.  Might still be funds left in the SIPP at death for inheritance.  Might die early before an annuity pays back the original investment and nothing for inheritance on death.

Or they could run out of money in the SIPP at 80 and live to 100. Unless they drawdown at such a safe rate that that is unlikely - in which case may as well buy an annuity which will pay a much higher income, and gift from that. 

So nothings really changed after all 🤷‍♂️

Eh? Of course it has - we're both suggesting ways people might change the way they pass money on!

Yes, the same suggestions that have been made for years even before this budget.

Any examples of threads suggesting that before the budget? I don't remember any. 

Are you saying people never debated the pros and cons of SIPPs vs annuity before the budget?  Maybe we’re talking cross purposes.

Err, the point is the pros and cons have changed! The suggestions are now different. You said "the same suggestions that have been made for years even before this budget". Can you find any? 

The pros and cons might have changed but the choices haven’t.  Drawdown and gift or annuity and gift.  You do you.  I know what I’ll be doing 👍 (until one of next budgets mix it all up again!)

zagfles

Albermarle said:

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!

That could be the case for people with a good level of assets.
I have never been minded towards an annuity ( helps that I have some DB provision) but will think about it more now, but no rush.
 However for people of more modest assets, they could still in many cases leave a pot after drawdown with no IHT to pay.

Indeed, and those a bit above could partly annuitise, or gift early when they're likely to likely to survive 7 years, to get down to the IHT free level. It'll be a good target for people to aim at!

ader42

I’m currently mulling over the idea of withdrawing all profit each positive investment return year and thereby not touching the principal “capital” as it were.

Following a loss not withdrawing anything until the pot is back over the “base” principal capital limit. Surely that would constitute “income” and as such excess could be gifted.

It would require a cash reserve to see us through negative years of course - so might need to front load that into ISAs meaning the requirement to live a little more than 7 years to be safe from the worst of IHT and over time inflation will help too

poseidon1

Notepad_Phil said:

noitsnotme said:

zagfles said:

noitsnotme said:

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!

Someone wants to leave the kids something, but aggrieved at having to pay tax that reduces the kids inheritance, takes an annuity instead that leaves the kids nothing?  Am I missing something because that sounds counter productive?

They could use other assets for the kids. ISAs, property etc. Or they could give the kids part of the annuity income. There've been plenty of threads here where people have talked about drawing down at a rate of well under what an index linked annuity would pay them, so they'll have spare income. And gifting from income is IHT free usually. Or, with a guaranteed income, they may be more willing to gift early from ISAs etc, so they can hopefully survive 7 years so they pass IHT free. 

As I said above to someone else, drawdown from the SIPP and gift from that.  Might still be funds left in the SIPP at death for inheritance.  Might die early before an annuity pays back the original investment and nothing for inheritance on death.

Possibly, but wouldn't you need to keep a lot of records to prove that the drawdown hadn't come from capital - so if you're only drawing down the dividends from the sipp funds then a record of that would be fine, but if you're drawing down by selling units then I'd have thought that could be an issue.

You seem to suggest running the sipp down to as close to zero as possible, but I would think that surely would be counted by the hmrc as dipping into capital, and hence is not income. 

I have done some investigation on another thread with regard to the gifts out of income exemption and flexi access drawdown ( UFPLSs). See link.

https://forums.moneysavingexpert.com/discussion/comment/81082944#Comment_81082944

Some may find the outcome a little surprising with regard to HMRC's current stance.

ukdw

JayRitchie said:

ukdw said:

Linton said:

JustJ12345 said:

I wonder how a DB benefit pension will be valued for IHT.

I would inherit a final salary pension entitlement from my partner if she died. We are not married  currently. But I am down as a dependent with her db pension scheme, so would get a small pension if she died.

So what value would be put on the pension income for IHT? 

A DB pension is not an asset that can be inherited.  It really is no different to an annuity, just an ongoing income that comes under income tax. The DB pension may include a pension for the spouse of the deceased, but that again is just a separate taxable income stream that a spouse receives in their own right not an inherited asset.

Guaranteed annuities can be inherited if the purchaser dies before the guarantee has expired. Fairly long guarantees such as 30 years are available.

The extended guarantees sound interesting. How might I go about looking into them?

You can get fairly accurate rates, quotes and a fair bit of info on the Hargreaves Lansdown site.  Plus the IHT exposure can be worked out by filling in the calculator from the gov website - I think someone posted a link to that.

Worth considering purchasing through an IFA.

Rates are fairly good at the moment for 30 yr guaranteed , single life, level  - quite similar to the levels just after the Luz Truss budget.