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

DRS1

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?

I think these changes are only going to apply where people die after April 2027.

Aretnap

CaptainWales said:

NedS said:

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.

The way I see it now, is why should I bother continue saving most of my income in to a pension, buy an annuity and risk living long enough to have got back what I put into my pension pot? I would probably be better off not paying into a pension, give money away to friends and family (not spouse or children/grandchildren) now, live 7 years so gifts exempt from IHT, and then let the state pay pick up the tab for my retirement. 

The state won't pick up the tab for your retirement. It will pay you a basic state pension whether you have any savings or not. If you want a better lifestyle than whatever the basic state pension buys you, then it's up to you to save - in a pension or otherwise.. If you're happy to spend your retirement sitting at home with the heating switched off eating jacket potato and baked beans every evening then go right ahead, it's no skin off anybody else's nose.

Basically this is the danger logic as the permanently angry bloke in my local pub who tells everybody he's an idiot for working for a living and is going to go to France, come back on a dinghy, get out up in a five star hotel and live like a king for the rest of his days. He doesn't ever do it if course, because even he can actually see why it would be a stupid idea.

LHW99

I can see things getting messy if the PRs (or HMRC's IT, or the PA) makes an undetected error, leading to HMRC coming back, maybe many years later, and demanding an additional payment.

From various threads here, neither HMRC or PA's are error free in their calculations, and may well take decades to realise a mistake - and this proposal adds PRs into the equation.

Will only take one publicised case and the campaigners will be out.

SnowMan

LHW99 said:

I can see things getting messy if the PRs (or HMRC's IT, or the PA) makes an undetected error, leading to HMRC coming back, maybe many years later, and demanding an additional payment.

From various threads here, neither HMRC or PA's are error free in their calculations, and may well take decades to realise a mistake - and this proposal adds PRs into the equation.

Will only take one publicised case and the campaigners will be out.

The consultation sets out the position in relation to amendments after inheritance tax has been paid in 2.32.

Interestingly 12 months after the death of a member, their beneficiaries will become jointly liable with the pension scheme for further inheritance tax due on unused pension funds after death.

I can see many issues. Consider an estate where there are significant assets in the estate that aren't identified until long after the inheritance tax has been paid and estate administration has been completed. By then the pension scheme death benefits have been paid out after their inheritance tax share and any income tax. Now let's suppose that the beneficiary under the pension scheme is not a beneficiary under the will. And the beneficiary has spent all the pension paid out to them and has not a penny to their name. Further inheritance tax is due on the pension. What they seem to be suggesting in the consultation is the pension scheme would be liable for the pension share of the extra inheritance tax although they've done nothing wrong, because the pension beneficiary has no money for HMRC to go after. But when they say 'beneficiaries' do they mean beneficiaries of the pension or beneficiaries of the non-pensions, so would the beneficiaries of the rest of the estate become liable instead for the extra pension inheritance tax from their share of the extra assets, so they'd lose out instead because of the 'omission'. And if the pension scheme then sues the executor they could become liable. At the moment it isn't an issue because extra assets just means extra money to some/all of the beneficiaries net of extra inheritance tax.

From the pension scheme perspective they are going to be concerned about being liable in the 12 months after death, but also subsequently after 12 months for money they don't have and because of errors that were not caused by their own negligence. The pension scheme also has a strong vested interest in ensuring the pension/non-pension split of inheritance tax is right, because of the consequences to them of it being wrong. It's all very well for the consultation to say 'as PSAs [pension schemes administrators] are liable for the Inheritance Tax, if they are able to make the further Inheritance Tax payments or pass repayments onto the beneficiaries, HMRC will work with them to resolve the Inheritance Tax position' What if there are no funds left in the pension to make the additional pension inheritance tax payments?

It's a bit of an edge case of course, and 9 times out of 10 it all should work fine. But these are the sort of outlier scenarios they need to consider.

SouthCoastBoy

I think the IHT on pensions has brought me closer to retirement. On current projections if I live to 100 I will have approx £1m in my pensions in today's money. My plan was for my beneficiaries to benefit from this tax free. This obviously is now at risk especially once you factor in the house. 

So maybe this new legislation has given me the impetus to stop working. I think I need to get that £1m at 100 to around £550k at 100 (assuming I live that long, which I probably wont). I also dont want to give the hassle to my beneficiaries of paying and calculating the IHT.

Albermarle

SouthCoastBoy said:

I think the IHT on pensions has brought me closer to retirement. On current projections if I live to 100 I will have approx £1m in my pensions in today's money. My plan was for my beneficiaries to benefit from this tax free. This obviously is now at risk especially once you factor in the house. 

So maybe this new legislation has given me the impetus to stop working. I think I need to get that £1m at 100 to around £550k at 100 (assuming I live that long, which I probably wont). I also dont want to give the hassle to my beneficiaries of paying and calculating the IHT.

From the details seen so far, the beneficiaries of a pension will not be involved in the IHT process,
It will be sorted out between the estate executor and the pension provider. The pension beneficiary will receive a pension pot like now, but minus any IHT already taken out.

Otherwise yes the change will change behaviour/decisions. I have just been flicking through a Lamborghini brochure 

SouthCoastBoy

Albermarle said:

SouthCoastBoy said:

I think the IHT on pensions has brought me closer to retirement. On current projections if I live to 100 I will have approx £1m in my pensions in today's money. My plan was for my beneficiaries to benefit from this tax free. This obviously is now at risk especially once you factor in the house. 

So maybe this new legislation has given me the impetus to stop working. I think I need to get that £1m at 100 to around £550k at 100 (assuming I live that long, which I probably wont). I also dont want to give the hassle to my beneficiaries of paying and calculating the IHT.

From the details seen so far, the beneficiaries of a pension will not be involved in the IHT process,
It will be sorted out between the estate executor and the pension provider. The pension beneficiary will receive a pension pot like now, but minus any IHT already taken out.

Otherwise yes the change will change behaviour/decisions. I have just been flicking through a Lamborghini brochure 

In my experience dealing with pension administrators can at times be very cumbersome and time consuming, I think this adds another level of complexity. The pension administrators won't know the liability without somebody informing them of all the assets in the estate. Initially this will be an estimation until assets are sold etc., lead times could be significant, whereas today it should be relatively easy and quick to access an inherited pension. I can just see it being an additional complexity, that could have many pitfalls. Hopefully I'm wrong, and it will all be straight forward.

Sea_Shell

SouthCoastBoy said:

I think the IHT on pensions has brought me closer to retirement. On current projections if I live to 100 I will have approx £1m in my pensions in today's money. My plan was for my beneficiaries to benefit from this tax free. This obviously is now at risk especially once you factor in the house. 

So maybe this new legislation has given me the impetus to stop working. I think I need to get that £1m at 100 to around £550k at 100 (assuming I live that long, which I probably wont). I also dont want to give the hassle to my beneficiaries of paying and calculating the IHT.

I wonder how many doctors and dentists and other "needed" professionals will make the same assessment and retirement decisions.

🤔

More unintended consequences?

Sarahspangles

Sea_Shell said:

SouthCoastBoy said:

I think the IHT on pensions has brought me closer to retirement. On current projections if I live to 100 I will have approx £1m in my pensions in today's money. My plan was for my beneficiaries to benefit from this tax free. This obviously is now at risk especially once you factor in the house. 

So maybe this new legislation has given me the impetus to stop working. I think I need to get that £1m at 100 to around £550k at 100 (assuming I live that long, which I probably wont). I also dont want to give the hassle to my beneficiaries of paying and calculating the IHT.

I wonder how many doctors and dentists and other "needed" professionals will make the same assessment and retirement decisions.

🤔

More unintended consequences?

Though many NHS professionals have NHS pensions, not DC pensions. The Annual Allowance limits our scope to pay into an additional pension.

PaulVickerstaff

Couldn’t it be said that the decision to charge IHT on existing pension pots is subject to a legal challenge? Surely, those of us who have been encouraged to save for retirement in the belief that the residue of our pension is already ring-fenced from IHT have a case?