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

Albermarle

Temeraire said:

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. 

No, the SIPP will pass to you tax free.
If you withdraw from it then these withdrawals could be subject to income tax.
When you die, all assets including what is left in this SIPP ( if anything) will be counted to work out your estates IHT liability.
For married couples/civil partners, normally IHT is only due on the second death.

Albermarle

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

There are three different ways of calculating averages in this respect.

The mean average gives the highest figure, as it is skewed by very high earners.
The mode average gives the lowest figure.
The median average is inbetween and is the one most often quoted. It was typically around the low 30's for a while, but I guess with inflation it could have reached £36K

seasonsx5

Does this apply to pensions already being claimed? My dad died in 2021 and I receive a monthly payment from his pension (until 2028 I think). Am I going to be taxed on payments from April 2027?

NedS

Although I may potentially be affected by this policy, I do not think it is at all unreasonable.

Pensions are meant to provide a way to fund your own retirement. They can be passed free of IHT to a spouse.

Pensions were never designed to be a mechanism for people to stuff tax free cash into and avoid inheritance tax to build inter-generational wealth, as attractive as that may be.

The fact I can effectively leave up to £1m to my child/children free from IHT is not unreasonable IMHO, although I appreciate those with residences in London may feel the threshold does not adequately reflect house prices (but that is an entirely different issue).

Andy_L

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. 

because most estates are leaving something to a spouse, so no IHT, or to their kids after the 2nd death so get a £1m allowance 

Andy_L

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?

AIUI benefits like that are outside the estate as they are discretionary payments by the scheme trustees.

CaptainWales

Fed up with this "few pay IHT because you need to have assets over £1m" rationale which gets banded about by the media (including Martin Lewis!!).

Not everyone has a spouse or children / grandchildren to leave things to. And IMO there are other people outside these definitions lots of people would like to leave money to when I die, but without then triggering any IHT implications. Social engineering at its very worst and an outdated approach for modern society IMO.  

Andy_L

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 ? 

Donations to charity reduce the value of you estate for IHT calculations 

https://www.gov.uk/donating-to-charity/leaving-gifts-to-charity-in-your-will

NedS

CaptainWales said:

Fed up with this "few pay IHT because you need to have assets over £1m" rationale which gets banded about by the media (including Martin Lewis!!).

Not everyone has a spouse or children / grandchildren to leave things to. And IMO there are other people outside these definitions lots of people would like to leave money to when I die, but without then triggering any IHT implications. Social engineering at its very worst and an outdated approach for modern society IMO.  

I get your point, but with respect to pensions (the change being discussed herein), they are not designed as vehicles to pass on wealth - they are to provide for YOUR retirement. If you are concerned you may breech the IHT threshold because of a pension, buy an annuity and the issue is solved.

Albermarle

seasonsx5 said:

Does this apply to pensions already being claimed? My dad died in 2021 and I receive a monthly payment from his pension (until 2028 I think). Am I going to be taxed on payments from April 2027?

This only applies in practice to people with DC pensions, where some of the pot remains unused.
It sounds like you are receiving a DB pension.
Definitions here
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