Autumn Budget 2024: Pensions subject to Inheritance Tax from April 2027 – but most still won't pay

HUMBUG

CSL0183 said:

Keep_pedalling said:

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

If you have children the with the RNRB that rises to £500k or £1M for a married couple. £1M of tax free unearned wealth is not something most people get. 

Yes I suppose. I never thought about it like this. 

How does the £1m married couple scenario work?

I die, leave everything to my wife, she then dies and because the 2 of us have gone, there’s now a £1m threshold. The £500k would only relate to me if I was single and leaving a house yes?

I'm single, own my own 1 bedroom maisonette  and only get the £325k IHT allowance, not £500k.  

There another allowance called RNRB (Residence Nil Rate Band) which applies only to 'married couples/civil partners'  living in a property (owned by either or both) who can each get an extra £175k.  So if you die , your 325k + 175k =500k  allowance can be passed to your wife. When she dies her total IHT (325k) + RNRB (175k) = 500k  + the 500k passed over to her from you = £1m .

Note :  Anything the deceased leaves to their spouse or civil partner will be exempt from inheritance tax. This applies regardless of the estimated value of the deceased's estate.

I think any unused IHT/RNRB can be used to offset against the value of your other assets left to others (apart from your wife or civil partner).

I don't have a wife or kids , therefore I will need to spend my savings asap before I push up the daisies and then give £325k (ie. probably what my 1 bedroom maisonnette is worth) in my will to charity if possible.  

My question is whether a SIPP is now included as part of the estate for IHT ? 

gm0

The sense seems to be - it is included in the calculation.  Without being estate as such.  It stays as pension wrapped.

So overall assets - house, sipp - will be allocated proportionate shares of the applicable to your family and housing situation nil rate band.  Until exhausted.  Then IHT is then payable in each asset stack net of its nil rate band disregard.

And where payable from the pension the SIPP admin does it to avoid the income tax complexity of any other method where the money leaves the pension.  The current consultation is about exactly that mechanism and the various edge cases and issues as arise.

Current understanding - on budget day. More details to come I expect.

CSL0183

kimwp said:

CSL0183 said:

What about death in service life assurance benefits? 

Everyone paying into a DC scheme I suspect will have some sort of death in service life assurance policy attached? 

My own pays a 5x multiple of my pensionable salary plus the contents of my pension pot at the time of my death. 

I am 40yrs old and still have a long way to retirement but my current pension pot plus 5 x my salary is worth around £700k today, right now. (£80k pensionable salary x 5 = £400k + £300k in pension pot) 

I appreciate I am a fairly high earner but surely it wouldn’t take much for anyone on a decent salary to breach £325k if death in service benefits are also included in the maths for IHT?

Someone on a more average £40-£50k pa at a reasonably young age would break this £325k no problem with (5x salary) life assurance benefits?

Or am I misunderstanding death benefits?

I wouldn't have thought DIS would count as part of your estate, as you'd never personally benefit, but I don't know for sure.

"Someone on a more average £40-£50k pa at a reasonably young age"
- I think you need to educate yourself on what averages ages are. The median was £27k, all ages, not very long ago.

Thanks, I hope DIS is not calculated as part of the estate, if so, I suspect large numbers will fall foul of the £325k threshold if they are getting 5 x pensionable salary payable on top of their pension pot.

I think you are quite a bit down on your average salary estimations. A quick google now puts that at a median £36k (wage inflation has rocketed over the last few years)

From April 2025, a minimum wage salary will be over £25k

£12.21ph x 40 x 52.14wks = £25,465 (Will be illegal to earn less). Currently this figure is £11.44ph or £23,860. 

It’s not surprising the average is now £36k

zagfles

HUMBUG said:

CSL0183 said:

Keep_pedalling said:

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

If you have children the with the RNRB that rises to £500k or £1M for a married couple. £1M of tax free unearned wealth is not something most people get. 

Yes I suppose. I never thought about it like this. 

How does the £1m married couple scenario work?

I die, leave everything to my wife, she then dies and because the 2 of us have gone, there’s now a £1m threshold. The £500k would only relate to me if I was single and leaving a house yes?

I'm single, own my own 1 bedroom maisonette  and only get the £325k IHT allowance, not £500k.  

There another allowance called RNRB (Residence Nil Rate Band) which applies only to 'married couples/civil partners'  living in a property (owned by either or both) who can each get an extra £175k.  So if you die , your 325k + 175k =500k  allowance can be passed to your wife. When she dies her total IHT (325k) + RNRB (175k) = 500k  + the 500k passed over to her from you = £1m .

Note :  Anything the deceased leaves to their spouse or civil partner will be exempt from inheritance tax. This applies regardless of the estimated value of the deceased's estate.

I think any unused IHT/RNRB can be used to offset against the value of your other assets left to others (apart from your wife or civil partner).

I don't have a wife or kids , therefore I will need to spend my savings asap before I push up the daisies and then give £325k (ie. probably what my 1 bedroom maisonnette is worth) in my will to charity if possible.  

My question is whether a SIPP is now included as part of the estate for IHT ? 

Where do you get the idea that the RNRB only applies to married couples/civil partners??

kimwp

CSL0183 said:

kimwp said:

CSL0183 said:

What about death in service life assurance benefits? 

Everyone paying into a DC scheme I suspect will have some sort of death in service life assurance policy attached? 

My own pays a 5x multiple of my pensionable salary plus the contents of my pension pot at the time of my death. 

I am 40yrs old and still have a long way to retirement but my current pension pot plus 5 x my salary is worth around £700k today, right now. (£80k pensionable salary x 5 = £400k + £300k in pension pot) 

I appreciate I am a fairly high earner but surely it wouldn’t take much for anyone on a decent salary to breach £325k if death in service benefits are also included in the maths for IHT?

Someone on a more average £40-£50k pa at a reasonably young age would break this £325k no problem with (5x salary) life assurance benefits?

Or am I misunderstanding death benefits?

I wouldn't have thought DIS would count as part of your estate, as you'd never personally benefit, but I don't know for sure.

"Someone on a more average £40-£50k pa at a reasonably young age"
- I think you need to educate yourself on what averages ages are. The median was £27k, all ages, not very long ago.

Thanks, I hope DIS is not calculated as part of the estate, if so, I suspect large numbers will fall foul of the £325k threshold if they are getting 5 x pensionable salary payable on top of their pension pot.

I think you are quite a bit down on your average salary estimations. A quick google now puts that at a median £36k (wage inflation has rocketed over the last few years)

From April 2025, a minimum wage salary will be over £25k

£12.21ph x 40 x 52.14wks = £25,465 (Will be illegal to earn less). Currently this figure is £11.44ph or £23,860. 

It’s not surprising the average is now £36k

It's always good to be up to date. My point was that *half the adult population would have been at that £27k salary or less for most of their careers so far, it would be very difficult to be hitting the thresholds on those wages. 

*Presumably more than half, given the people whose wages increased due to career growth.

There's many ways to play with the numbers, my point is that along with others in a similarly privileged position to yourself, we are in the minority.

p00hsticks

HUMBUG said:

CSL0183 said:

Keep_pedalling said:

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

If you have children the with the RNRB that rises to £500k or £1M for a married couple. £1M of tax free unearned wealth is not something most people get. 

Yes I suppose. I never thought about it like this. 

How does the £1m married couple scenario work?

I die, leave everything to my wife, she then dies and because the 2 of us have gone, there’s now a £1m threshold. The £500k would only relate to me if I was single and leaving a house yes?

There another allowance called RNRB (Residence Nil Rate Band) which applies only to 'married couples/civil partners'  living in a property (owned by either or both) who can each get an extra £175k. 

No it doesn't - it potentially applies to anyone who leaves their residential property to direct descendants ..

af1963

 I hope DIS is not calculated as part of the estate, if so, I suspect large numbers will fall foul of the £325k threshold if they are getting 5 x pensionable salary payable on top of their pension pot.

Death in service benefits are cheap for employers to provide because few people actually die in service.

Keep_pedalling

HUMBUG said:

CSL0183 said:

Keep_pedalling said:

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

If you have children the with the RNRB that rises to £500k or £1M for a married couple. £1M of tax free unearned wealth is not something most people get. 

Yes I suppose. I never thought about it like this. 

How does the £1m married couple scenario work?

I die, leave everything to my wife, she then dies and because the 2 of us have gone, there’s now a £1m threshold. The £500k would only relate to me if I was single and leaving a house yes?

I'm single, own my own 1 bedroom maisonette  and only get the £325k IHT allowance, not £500k.  

There another allowance called RNRB (Residence Nil Rate Band) which applies only to 'married couples/civil partners'  living in a property (owned by either or both) who can each get an extra £175k.  So if you die , your 325k + 175k =500k  allowance can be passed to your wife. When she dies her total IHT (325k) + RNRB (175k) = 500k  + the 500k passed over to her from you = £1m .

Note :  Anything the deceased leaves to their spouse or civil partner will be exempt from inheritance tax. This applies regardless of the estimated value of the deceased's estate.

I think any unused IHT/RNRB can be used to offset against the value of your other assets left to others (apart from your wife or civil partner).

I don't have a wife or kids , therefore I will need to spend my savings asap before I push up the daisies and then give £325k (ie. probably what my 1 bedroom maisonnette is worth) in my will to charity if possible.  

My question is whether a SIPP is now included as part of the estate for IHT ? 

If you are planning on leaving your unspent wealth to charity all of it will be exempt from IHT. 

Temeraire

Sorry if this has been asked before. I do not have pension other than state pension. However my husband does have a SIPP. When he dies will I now be hit with 40% IHT on his SIPP moment he dies. We live in SE and after years of massive mortgage now own our house c £1.1m. 

MK62

Not as I understand the way things stand........assets still pass to a spouse free of IHT.