ISA vs SIPP - impact of IHT change

Juno_Moneta

"up to now I’ve been generally a frugal person but not anymore."

"What that means is that we will now be embarking on a gift spree "

"Interesting, your thoughts are in line with a behavioural change I identified "



I too am planning to accelerate SIPP withdrawals and increase gifts, so count me in.

On one hand a lot of people, myself included, are not happy with the IHT change ... but ... there is no denying that it is economy positive as the noted behavioural changes multiplied across thousands of pensioners will inject huge sums into goods and services (assuming mainly UK based) - when perhaps without the 'spending incentive' it would have just sat on a dusty Hargreaves Lansdown (or similar) ledger...!

So "Pensioners Spending Spree" should really be the newspaper headlines - but sadly the mainstream press prefer focusing on the little things in the budget - and have missed the elephant hiding in plain sight.

Juno_Moneta

P.S. Is a secondary impact a noticeable reduction over time in the Assets Under Management by platforms such as Hargreaves Lansdown, AJ Bell, ii (ABRDN) etc as SIPP drawdown accelerates for the forseeable future?

I wonder if shareholders have considered this possibility...

artyboy

Juno_Moneta said:

P.S. Is a secondary impact a noticeable reduction over time in the Assets Under Management by platforms such as Hargreaves Lansdown, AJ Bell, ii (ABRDN) etc as SIPP drawdown accelerates for the forseeable future?

I wonder if shareholders have considered this possibility...

Could mean even bigger cashback incentives to transfer pension funds in... (I'm trying to find a positive out of this whole debacle...)

MeteredOut

Juno_Moneta said:

"up to now I’ve been generally a frugal person but not anymore."

"What that means is that we will now be embarking on a gift spree "

"Interesting, your thoughts are in line with a behavioural change I identified "



I too am planning to accelerate SIPP withdrawals and increase gifts, so count me in.

On one hand a lot of people, myself included, are not happy with the IHT change ... but ... there is no denying that it is economy positive as the noted behavioural changes multiplied across thousands of pensioners will inject huge sums into goods and services (assuming mainly UK based) - when perhaps without the 'spending incentive' it would have just sat on a dusty Hargreaves Lansdown (or similar) ledger...!

So "Pensioners Spending Spree" should really be the newspaper headlines - but sadly the mainstream press prefer focusing on the little things in the budget - and have missed the elephant hiding in plain sight.

Will it really happen though? MSE forumites are a special breed, and i'd suggest not representative of the general population, many of whom have no interest in their pensions, even if they are of a significant value.

It would be interesting to hear if the IFAs here expect to give "withdraw sooner to avoid IHT" advice to their clients though.

AshleyH576

I haven’t seen anything written yet about the interaction of making unused pension pots subject to IHT and the taper of Residential Nil Rate tax allowance.  As I understand it…(I hope Martin L can pick this up!)
The calculation of the taper starts at the point that your ‘estate for taper purposes’ (my words) reaches either
£1m for a single parent leaving property to a descendent, or
£2m for a surviving spouse who dies, having inherited a transferred residential nil rate band from deceased spouse.
(both assuming no lifetime gifts reduce the IHT allowance(s) ).

[if you bought a house/flat 30+ years ago in London, the house/flat + an unused pension pot could well exceed these figures, especially on an early death.] 

The value of the ‘estate for taper purposes’ is like the IHT estate value but doesn’t include eg gifts made in last 7 years.
the point is when this value exceeds £2m for a surviving spouse, the total RNRB get tapered away at £1 for every £2 of estate taper value.  In effect , now , for a surviving spouse who dies, the estate is being taxed at 60% marginal rate in the range of £2m-£2.7m.
so it appears that (according to the gov consultation paper), the pension scheme administrators could take off, if there is no IHT allowance left after everything else, say £60k IHT from a £100k pension pot, leaving £40k . What’s left is then available for the beneficiaries, who still have to pay income tax on what they drawdown at their marginal rate (0/20/40%).

so die at age 76, your child is now say 46 , maybe at near-peak earnings at £50k, and anything they touch now gets hit by 40% or more. Even spread over several years , that means in the above example , £16k of £40k left goes in income tax. Wow. Not much left. 

I hope these calcs are wrong… but I suspect the actual tax position could be worse.

NB as noted above though re gifts in last 7 years, if you can gift it away early, at least you could reduce this additional tax due to the taper.  

artyboy

AshleyH576 said:

I haven’t seen anything written yet about the interaction of making unused pension pots subject to IHT and the taper of Residential Nil Rate tax allowance.  As I understand it…(I hope Martin L can pick this up!)
The calculation of the taper starts at the point that your ‘estate for taper purposes’ (my words) reaches either
£1m for a single parent leaving property to a descendent, or
£2m for a surviving spouse who dies, having inherited a transferred residential nil rate band from deceased spouse.
(both assuming no lifetime gifts reduce the IHT allowance(s) ).

[if you bought a house/flat 30+ years ago in London, the house/flat + an unused pension pot could well exceed these figures, especially on an early death.] 

The value of the ‘estate for taper purposes’ is like the IHT estate value but doesn’t include eg gifts made in last 7 years.
the point is when this value exceeds £2m for a surviving spouse, the total RNRB get tapered away at £1 for every £2 of estate taper value.  In effect , now , for a surviving spouse who dies, the estate is being taxed at 60% marginal rate in the range of £2m-£2.7m.
so it appears that (according to the gov consultation paper), the pension scheme administrators could take off, if there is no IHT allowance left after everything else, say £60k IHT from a £100k pension pot, leaving £40k . What’s left is then available for the beneficiaries, who still have to pay income tax on what they drawdown at their marginal rate (0/20/40%).

so die at age 76, your child is now say 46 , maybe at near-peak earnings at £50k, and anything they touch now gets hit by 40% or more. Even spread over several years , that means in the above example , £16k of £40k left goes in income tax. Wow. Not much left. 

I hope these calcs are wrong… but I suspect the actual tax position could be worse.

NB as noted above though re gifts in last 7 years, if you can gift it away early, at least you could reduce this additional tax due to the taper.  

Yes this has been mentioned quite a few times (including by me), although these threads are so noisy right now it's easy to miss. 

The point really is that anyone with a reasonably big pension pot is quite likely to also leave a reasonably big estate. In my case, without a fundamental change of approach, the inclusion of pension pot residue is all but certain to fully taper away our RNRB. 

So 60% effective IHT. And that's before the extra marginal tax on withdrawals by the beneficiary. This budget just keeps on taking eh... 

Albermarle

Juno_Moneta said:

"up to now I’ve been generally a frugal person but not anymore."

"What that means is that we will now be embarking on a gift spree "

"Interesting, your thoughts are in line with a behavioural change I identified "



I too am planning to accelerate SIPP withdrawals and increase gifts, so count me in.

On one hand a lot of people, myself included, are not happy with the IHT change ... but ... there is no denying that it is economy positive as the noted behavioural changes multiplied across thousands of pensioners will inject huge sums into goods and services (assuming mainly UK based) - when perhaps without the 'spending incentive' it would have just sat on a dusty Hargreaves Lansdown (or similar) ledger...!

So "Pensioners Spending Spree" should really be the newspaper headlines - but sadly the mainstream press prefer focusing on the little things in the budget - and have missed the elephant hiding in plain sight.

As mentioned in one of the similar threads.
It could also increase charitable giving, which of course immediately reduces your IHT liability in the same way spending more does.
Also under current rules it can in the right circumstances reduce the 40% rate to 36% on the remainder of your estate.
Although of course too early days as to how this might interact with your pension pot paying IHT to HMRC.

fuzzzzy

Juno_Moneta said:

"up to now I’ve been generally a frugal person but not anymore."

"What that means is that we will now be embarking on a gift spree "

"Interesting, your thoughts are in line with a behavioural change I identified "



I too am planning to accelerate SIPP withdrawals and increase gifts, so count me in.

On one hand a lot of people, myself included, are not happy with the IHT change ... but ... there is no denying that it is economy positive as the noted behavioural changes multiplied across thousands of pensioners will inject huge sums into goods and services (assuming mainly UK based) - when perhaps without the 'spending incentive' it would have just sat on a dusty Hargreaves Lansdown (or similar) ledger...!

So "Pensioners Spending Spree" should really be the newspaper headlines - but sadly the mainstream press prefer focusing on the little things in the budget - and have missed the elephant hiding in plain sight.

After initially reeling at the pension IHT change on Wednesday I am finding myself today having little glimmers of excitement at the thought of spending money. I even found myself today in Waitrose rather than Tescos. Maybe this change will be a good thing for those of us who are too frugal to learn to live a little.

Albermarle

fuzzzzy said:

Juno_Moneta said:

"up to now I’ve been generally a frugal person but not anymore."

"What that means is that we will now be embarking on a gift spree "

"Interesting, your thoughts are in line with a behavioural change I identified "



I too am planning to accelerate SIPP withdrawals and increase gifts, so count me in.

On one hand a lot of people, myself included, are not happy with the IHT change ... but ... there is no denying that it is economy positive as the noted behavioural changes multiplied across thousands of pensioners will inject huge sums into goods and services (assuming mainly UK based) - when perhaps without the 'spending incentive' it would have just sat on a dusty Hargreaves Lansdown (or similar) ledger...!

So "Pensioners Spending Spree" should really be the newspaper headlines - but sadly the mainstream press prefer focusing on the little things in the budget - and have missed the elephant hiding in plain sight.

After initially reeling at the pension IHT change on Wednesday I am finding myself today having little glimmers of excitement at the thought of spending money. I even found myself today in Waitrose rather than Tescos. Maybe this change will be a good thing for those of us who are too frugal to learn to live a little.

I feel a bit the same.
Although I was in Waitrose today and this one had a sushi counter.
It all looked very nice and fresh and I thought it would make a nice change for lunch.
£8.50 for a bit of fish and rice. Daylight robbery.
Old habits die hard……

fuzzzzy

Albermarle said:

fuzzzzy said:

Juno_Moneta said:

"up to now I’ve been generally a frugal person but not anymore."

"What that means is that we will now be embarking on a gift spree "

"Interesting, your thoughts are in line with a behavioural change I identified "



I too am planning to accelerate SIPP withdrawals and increase gifts, so count me in.

On one hand a lot of people, myself included, are not happy with the IHT change ... but ... there is no denying that it is economy positive as the noted behavioural changes multiplied across thousands of pensioners will inject huge sums into goods and services (assuming mainly UK based) - when perhaps without the 'spending incentive' it would have just sat on a dusty Hargreaves Lansdown (or similar) ledger...!

So "Pensioners Spending Spree" should really be the newspaper headlines - but sadly the mainstream press prefer focusing on the little things in the budget - and have missed the elephant hiding in plain sight.

After initially reeling at the pension IHT change on Wednesday I am finding myself today having little glimmers of excitement at the thought of spending money. I even found myself today in Waitrose rather than Tescos. Maybe this change will be a good thing for those of us who are too frugal to learn to live a little.

I feel a bit the same.
Although I was in Waitrose today and this one had a sushi counter.
It all looked very nice and fresh and I thought it would make a nice change for lunch.
£8.50 for a bit of fish and rice. Daylight robbery.
Old habits die hard……

Yes but factoring in the saved IHT that is £5.10 sushi, perhaps even cheaper if your pension pot beneficiary is a high rate tax payer. Bargain.