Inheritance Tax on pensions - budget announcement and consultation

HUMBUG

I'm assuming I can leave the country before I die (maybe emigrate to Portugal that has no IHT) , take all my savings and not have to pay any extra taxes or penalties to the HMRC?

Quidditch

Thanks for this thread.
Can I check my understanding of these new rules please:

- is there still no IHT bill due if there is a surviving partner? Irrespective of death age of partner 1 or size of estate (including DC pension fund)?
- upon the second spouse passing, if the estate is being inherited by the children and includes £1mio residence and £1mio of DC Pension Pot, do the children immediately pay 40% IHT on £1mio (I think the combined IHT allowance for married couples is £1mio when property is included?)
- do the children then also pay their marginal rate of tax on withdrawals from the pension fund or receive this as a cash pot?
- finally, if I am 25 years away from retirement, what do I make of this announcement, given that there will be many more changes and if a Conservative government comes back, they will revert it back to being outside the estate - quite likely.

I would welcome your validation of the above and any thoughts you have on the final point. 

Thanks in advance.

Emmia

Quidditch said:

Thanks for this thread.
Can I check my understanding of these new rules please:

- is there still no IHT bill due if there is a surviving partner? Irrespective of death age of partner 1 or size of estate (including DC pension fund)?
- upon the second spouse passing, if the estate is being inherited by the children and includes £1mio residence and £1mio of DC Pension Pot, do the children immediately pay 40% IHT on £1mio (I think the combined IHT allowance for married couples is £1mio when property is included?)
- do the children then also pay their marginal rate of tax on withdrawals from the pension fund or receive this as a cash pot?
- finally, if I am 25 years away from retirement, what do I make of this announcement, given that there will be many more changes and if a Conservative government comes back, they will revert it back to being outside the estate - quite likely.

I would welcome your validation of the above and any thoughts you have on the final point. 

Thanks in advance.

I think it's a partner who the deceased was married to or in civil partnership with, where there is a legal certificate recording this either marriage or CP.

Not people who live together or describe themselves as "common law" partners/spouses where there is no legal document.

What a future government of any colour might do or not do is complete speculation - conservatives might bring it back, or they might not. I'd not use this idea as any sort of basis for planning.

Quidditch

Emmia said:

Quidditch said:

Thanks for this thread.
Can I check my understanding of these new rules please:

- is there still no IHT bill due if there is a surviving partner? Irrespective of death age of partner 1 or size of estate (including DC pension fund)?
- upon the second spouse passing, if the estate is being inherited by the children and includes £1mio residence and £1mio of DC Pension Pot, do the children immediately pay 40% IHT on £1mio (I think the combined IHT allowance for married couples is £1mio when property is included?)
- do the children then also pay their marginal rate of tax on withdrawals from the pension fund or receive this as a cash pot?
- finally, if I am 25 years away from retirement, what do I make of this announcement, given that there will be many more changes and if a Conservative government comes back, they will revert it back to being outside the estate - quite likely.

I would welcome your validation of the above and any thoughts you have on the final point. 

Thanks in advance.

I think it's a partner who the deceased was married to or in civil partnership with, where there is a legal certificate recording this either marriage or CP.

Not people who live together or describe themselves as "common law"partners where there is no legal document.

It’s a marriage in the above scenario. 

Is my understanding correct on this basis?

MK62

Quidditch said:

Thanks for this thread.
Can I check my understanding of these new rules please:

- is there still no IHT bill due if there is a surviving partner? Irrespective of death age of partner 1 or size of estate (including DC pension fund)?
- upon the second spouse passing, if the estate is being inherite children and includes £1mio residence and £1mio of DC Pension Pot, do the children immediately pay 40% IHT on £1mio (I think the combined IHT allowance for married couples is £1mio when property is included?)
- do the children then also pay their marginal rate of tax on withdrawals from the pension fund or receive this as a cash pot?
- finally, if I am 25 years away from retirement, what do I make of this announcement, given that there will be many more changes and if a Conservative government comes back, they will revert it back to being outside the estate - quite likely.

I would welcome your validation of the above and any thoughts you have on the final point. 

Thanks in advance.

The above scenario depends on everything being inherited by the surviving spouse after the death of the first partner. However, my understanding is that this may not be the best approach, especially if the first partner was under 75, assuming the tax treatment of inherited pensions remains as it is now (not a given). This type of situation could get quite messy in the future unfortunately........

As for what might happen over the next 25 years......who knows! I would plan according to what you do know, and be prepared to alter those plans should things change, if possible.

Quidditch

MK62 said:

Quidditch said:

Thanks for this thread.
Can I check my understanding of these new rules please:

- is there still no IHT bill due if there is a surviving partner? Irrespective of death age of partner 1 or size of estate (including DC pension fund)?
- upon the second spouse passing, if the estate is being inherite children and includes £1mio residence and £1mio of DC Pension Pot, do the children immediately pay 40% IHT on £1mio (I think the combined IHT allowance for married couples is £1mio when property is included?)
- do the children then also pay their marginal rate of tax on withdrawals from the pension fund or receive this as a cash pot?
- finally, if I am 25 years away from retirement, what do I make of this announcement, given that there will be many more changes and if a Conservative government comes back, they will revert it back to being outside the estate - quite likely.

I would welcome your validation of the above and any thoughts you have on the final point. 

Thanks in advance.

The above scenario depends on everything being inherited by the surviving spouse after the death of the first partner. However, my understanding is that this may not be the best approach, especially if the first partner was under 75, assuming the tax treatment of inherited pensions remains as it is now (not a given). This type of situation could get quite messy in the future unfortunately........

As for what might happen over the next 25 years......who knows! I would plan according to what you do know, and be prepared to alter those plans should things change, if possible.

Why do you feel this isn’t the best approach when the first partner is under 75? Based on the current (and proposed?) rules, this is when the pension pot is inherited by the surviving partner as a cash pot I.e. no marginal tax. This is where the surviving partner could gift the money to the children and thereby take it out of the estate they will inherit?
Clearly, lots of life assumptions in the above!

artyboy

HUMBUG said:

I'm assuming I can leave the country before I die (maybe emigrate to Portugal that has no IHT) , take all my savings and not have to pay any extra taxes or penalties to the HMRC?

Portugal had an exceptionally benign golden visa scheme that allowed you to take your pension income tax free for 10 years. Sadly that's now wound down, and there are (I believe) no QROPS options there so it's not quite such the slam dunk location it once was.

Ive decided though there's no point in investigating further right now, given I've got another 5 years before I can even touch my pensions...

zagfles

Sterlingtimes said:

marycanary said:

The book reviews who are the millionaire in the USA, and their attitudes to money. One of their findings concerned parents gifting their adult children money, or what is termed "Economic Outpatient Care". The authors found that such a strategy can produce significant negative impacts on the recipients' future wealth.  

It depends upon the behaviour of the behaviour of the adult children.

Three young adult men received a payout of £40,000 each from the Sterlingtimes Family Trust a few years ago.

The first son [my brother's] took a break from work for a couple of years, quickly depleting his money.

The second son [my brother's] used his money for general living expenses.

The third son [mine] invested £30,000 of his money in cryptocurrency, much to his father's anger, and ended up with £600,000 and a substantial CGT bill. Recently, he divested the lot and invested proceeds in technology stocks.

Yes, gifting money may be risky, but it isn't easy to give a gift and then prescribe that it must be used wisely.

Yup - parents should know the personalities of their kids and their attitude to money well enough to have a good idea what they'd do with the money. I'm pretty sure I know what mine would do. 

Gifting can definitely have a negative effect on some people. It can also change the dynamic of the relationship, create a dependency effect or a sense of loss of financial control/power that can even cause the recipient to resent the donor. Sometimes the expectation of more, or "that wasn't enough", you're richer than me, using your power to control me. Often subconscious.

I see that sort of attitude in some people I know who live off others, for instance adult kids living at home without contributing anything towards the bills, benefit claimants who resent the state and even resent family/friends who give/lend them money. 

marycanary

Sterlingtimes said:

marycanary said:

The book reviews who are the millionaire in the USA, and their attitudes to money. One of their findings concerned parents gifting their adult children money, or what is termed "Economic Outpatient Care". The authors found that such a strategy can produce significant negative impacts on the recipients' future wealth.  

It depends upon the behaviour of the behaviour of the adult children.

Three young adult men received a payout of £40,000 each from the Sterlingtimes Family Trust a few years ago.

The first son [my brother's] took a break from work for a couple of years, quickly depleting his money.

The second son [my brother's] used his money for general living expenses.

The third son [mine] invested £30,000 of his money in cryptocurrency, much to his father's anger, and ended up with £600,000 and a substantial CGT bill. Recently, he divested the lot and invested proceeds in technology stocks.

Yes, gifting money may be risky, but it isn't easy to give a gift and then prescribe that it must be used wisely.

 Three very different young men but I think we can all agree that number 1 made the sensible choice.

 As I recall the book deals with repeated Economic Outpatient Care not one off gifts.

Albermarle

 finally, if I am 25 years away from retirement, what do I make of this announcement, given that there will be many more changes and if a Conservative government comes back, they will revert it back to being outside the estate - quite likely.


Putting up taxes is painful for any political party, so if the other side has already done it and took the flak, then unlikely another will unwind it. Especially as it was a loophole.
Maybe there will be an increase in the nil rate bands one day.