ISA vs SIPP - impact of IHT change

Qyburn

Sea_Shell said:

Is 1.5% of deaths, actually 3% of households, as if married, first death doesn't attract IHT, so skews the figures 😉

It's going to be less. Not everyone is married or in a civil partnership.

bjorn_toby_wilde

Albermarle said:

SnowMan said:

And following on my previous post had the inheritance tax position of pensions not changed, I suggest the majority of people with total assets above the inheritance tax threshold in the very long term would intentionally or unintentionally have been avoiding inheritance tax by way of the inheritance tax free nature of pension pots.
After all in the very long term, defined benefit pensions will have completely disappeared outside the public sector, few would have chosen to use all of their pensions to buy an annuity, and few would not have been using pensions to meet their main retirement needs.
I understand those affected are disappointed by this and face a significant new tax bill on death, but leaving aside thoughts on inheritance tax generally, who thinks things could have continued as they were with pension retaining beneficial treatment on death?

As someone who regularly mentioned on the forum pre budget, that targeting of this rather illogical loophole was likely, I was still surprised by the rather brutal way the door was banged shut. By that I mean the full amount of any unused pot being included in the estate for IHT purposes. I was expecting some kind of levy, nil rate band for pensions etc. Although I guess implementation could have been difficult, just like with the current proposals.
I think this would have still largely deterred people deliberately building up large pots just to avoid IHT, but not punished so much those who did it more by accident than design. 

Agreed. I was also surprised by the similarly brutal way the door was slammed on agricultural inheritance.

There was definitely a loophole there and it was clearly being exploited by the Clarksons and Dysons, but it seems to me that a tapering allowance would have been fairer.  It would have helped the family farms who will be hit hard.  These enterprises are generally asset rich and cash poor.

A bit of a sledgehammer/nut budget in some ways.

RogerPensionGuy

The government had just allowed DC pensions to be very convenient vessels for personal wealth and some nice tax and IHT treatments.

DB schemes are becoming less & less and DC schemes obviously growing. 

The government Just to decided a simple way of getting easy tax is to just pick on DC pensions and play a bit more football like been done since 2006.

Although the overall amount of government tax take is currently small and currently only affects say 5% of estates, these will both ramp up over the future years and basically food for the gods(gov)

I won't be surprised if them rumours about ISA limits will be included in future budgets the next few years as another straw for gov tax receipts.

All this makes planning very awkward unfortunately. 

Sea_Shell

Qyburn said:

Sea_Shell said:

Is 1.5% of deaths, actually 3% of households, as if married, first death doesn't attract IHT, so skews the figures 😉

It's going to be less. Not everyone is married or in a civil partnership.

But won't it be worse for those who aren't?

As they don't have the transferable allowance.   Child free households even moreso.

As has been said.  With the move towards DC pensions generally, this will catch more and more estates in its net.

Chickereeeee

Albermarle said:

SnowMan said:

And following on my previous post had the inheritance tax position of pensions not changed, I suggest the majority of people with total assets above the inheritance tax threshold in the very long term would intentionally or unintentionally have been avoiding inheritance tax by way of the inheritance tax free nature of pension pots.
After all in the very long term, defined benefit pensions will have completely disappeared outside the public sector, few would have chosen to use all of their pensions to buy an annuity, and few would not have been using pensions to meet their main retirement needs.
I understand those affected are disappointed by this and face a significant new tax bill on death, but leaving aside thoughts on inheritance tax generally, who thinks things could have continued as they were with pension retaining beneficial treatment on death?

As someone who regularly mentioned on the forum pre budget, that targeting of this rather illogical loophole was likely, I was still surprised by the rather brutal way the door was banged shut. By that I mean the full amount of any unused pot being included in the estate for IHT purposes. I was expecting some kind of levy, nil rate band for pensions etc. Although I guess implementation could have been difficult, just like with the current proposals.
I think this would have still largely deterred people deliberately building up large pots just to avoid IHT, but not punished so much those who did it more by accident than design. 

I support the closing of the IHT loophole in general, but a lot of people had based their post-retirement strategy of the rules that existed at the time. For example, running down ISA and other savings in preference to their SIPP. For some, it will be difficult to change strategy without hitting HRT on SIPP drawdown.

Surely, a simple solution would be for the new IHT limits to only apply to pensions that are not currently  in payment (or to only apply to those currently below state pension age)?

I am, though, a bit miffed that, living in the South, my house alone (quite modest in size) exceeds the IHT allowance (when combined with wife's). Meaning ALL my remaining SIPP will be hit with 40% tax.

Albermarle

I am, though, a bit miffed that, living in the South, my house alone (quite modest in size) exceeds the IHT allowance (when combined with wife's). Meaning ALL my remaining SIPP will be hit with 40% tax.

I am in a similar position. Having thought about it for a while, I am a bit more sanguine.
 As we are both mid 60's , the second death when IHT actually becomes due is quite possibly/hopefully 20,25, 30 years away.

A lot can happen in that time.....

In the meantime will just make sure all the TFLS is out in the next few years, and probably gift/spend more than previously planned. Could be worse !

SouthCoastBoy

I don't see myself as wealthy, but due to combination of investments and housing I am currently in IHT territory, if counting DC pension values, by over £1m. If IHT allowances don't keep pace with inflation the situation will only get worse. 

I am bit of a quandary as I was continuing work to mainly build up the amount I can pass on as inheritance, and at the same time create a nice safety net for me and my wife, I think I now have one of two options.

Start gifting more now (but what happens if we have a 50 to 60% adjustment on the markets, I could be left short of money)

or simply stop work.

Currenty I am thinking stopping work June/July next year, and gift more over the net 10 years than I was originally planning, it's all become a bit tricky.

RogerPensionGuy

I fully agree the sudden sledge~hammer IHT on DC pensions is horrible and very cliff edge, I guess trying to have any protections or blends would of just caused many more issues and problems.

This sudden sledge~hammer football just reconfirms that on occasions it could be best to plan with flexibility and don't plan for todays rules, the people I know who CETV'd good DB to DC SIPPs were by and large advised this route could indeed have great IHT advantageous family outcomes, I'm aware they will of been of need advised rules can change, however many of the people I know weren't aware of the LTA, they appeard completely oblivious, but guess they were advised, thankfully the LTA has gone for now.

Thinking down the road and the quirk that house owners get a special deal like farmers on IHT, plonk on a few years, inflation and fiscal dragg, plus more tax changes, we will of course see more estates over 1M & 2M and see thr house ownership perk getting removed, I'm sure the HMRC have all the data expectations down thd road. 

***

https://www.wealthclub.co.uk/iht-rules/

Pat38493

SouthCoastBoy said:

I don't see myself as wealthy, but due to combination of investments and housing I am currently in IHT territory, if counting DC pension values, by over £1m. If IHT allowances don't keep pace with inflation the situation will only get worse. 

I am bit of a quandary as I was continuing work to mainly build up the amount I can pass on as inheritance, and at the same time create a nice safety net for me and my wife, I think I now have one of two options.

Start gifting more now (but what happens if we have a 50 to 60% adjustment on the markets, I could be left short of money)

or simply stop work.

Currenty I am thinking stopping work June/July next year, and gift more over the net 10 years than I was originally planning, it's all become a bit tricky.

Fair concerns, but I think there has only ever been a couple of 50-60% adjustments in markets and they always recovered within some years afterwards, so it depends how much risk you are carrying in your decumulation approach.  My thinking is that unless the whole economy completely crashes, markets must always recover sooner or later.

For the stopping work part - we should keep in mind that there is no proposal for 100% tax on anything, so a lower percentage of something is still better than nothing.

Also I heard one of those people who study social attitudes once say that for the most part, nobody considers themselves to be wealthy, but they tend to believe that everyone who is a bit richer than them is wealthy, but they are not.  Even if they double their net worth, they just redefine their definition of wealthy so that they are not  

MallyGirl

SouthCoastBoy said:

I don't see myself as wealthy, but due to combination of investments and housing I am currently in IHT territory, if counting DC pension values, by over £1m. If IHT allowances don't keep pace with inflation the situation will only get worse. 

I am bit of a quandary as I was continuing work to mainly build up the amount I can pass on as inheritance, and at the same time create a nice safety net for me and my wife, I think I now have one of two options.

Start gifting more now (but what happens if we have a 50 to 60% adjustment on the markets, I could be left short of money)

or simply stop work.

Currenty I am thinking stopping work June/July next year, and gift more over the net 10 years than I was originally planning, it's all become a bit tricky.

Same here. The house alone takes us over £1m (first world, south east England problem) and then we both have decent DC pensions and ISAs built up plus a bit of savings from when OH crystallised some pension to mitigate the LTA (hey ho). I have one tiny DB pension so the rest needs to last us both through the retirement we have worked for, with any care needs covered, but hopefully not be too generous to the taxman when the second of us passes. Our only child will get everything that is left.