Inheritance Tax Confusion

Fluffysheep7

The new effective rate of tax on my bequeathed pension will be 52% with the loss of housing allowance post April 2027. My concern is with Pension Trustees who will after 2027 be making blind decisions on beneficiaries which could create tax liability. With pensions no longer outside of an Estate why do they have any role in deciding who gets my pension on my death. SIPP providers really need to change their restrictive Expression of Wishes forms to allow for contingent Expressions of Wishes on beneficiaries that reflect my tax efficient Will. In the interim I have simply uploaded my own document to cover the different beneficiaries when the law changes as I cannot be assured of my continuing health and mental capacity. Little point in skipping a generation if liable to Inheritance Tax.

Albermarle

Unused DC pension pots will continue to remain outside your estate, but will be counted alongside your estate for inheritance tax purposes. That is how the new legislation is proposed for now anyhow.
Presume you are aware that there will only be IHT on your pension pot if your estate + pension pot adds up to more than your nil rate bands?
Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

Hal17

Can I ask a question which I think is relevant to this post subject. I am planning to amend my Expressions of Wishes on beneficiaries on my main pension fund. I am 70 years old and currently have my wife as the only beneficiary.

I have read that it would be better to also include my children and grandchildren as beneficiaries in case I die before 75 to allow better use of IHT allowances.

Then just before April 2027, amend the Expressions of Wishes on beneficiaries back to 100% for my wife. Does this make sense?

squirrelpie

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

And what's your definition of a LOT? For a single person with no children, AIUI the allowance is £325k, which might easily be taken up by a house let alone any savings at all, so the pension will all be at 40% will it not?

MetaPhysical

squirrelpie said:

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

And what's your definition of a LOT? For a single person with no children, AIUI the allowance is £325k, which might easily be taken up by a house let alone any savings at all, so the pension will all be at 40% will it not?

That's correct.  This is a tax raid of monumental proportions that has generally been glossed over because people think it applies to "rich people".  They are wrong.....

Let's say that you have a house of 325k and a a modest 200k DC pot left when you die.  Beforehand you would have got away without IHT.  Now (or in 2027), you face a 40% charge on that 200k pot in IHT because your IHT allowance is "used up" by your house.  I would have expected the government to put in an allowance of £x - say 100k - over which tax would be charged on the pension.  But no, you are taxed on the whole shebang on your pension if your allowance is used up by your home.

I can't understand why a huge noise hasn't been made of this. (Removed by Forum Team)

MallyGirl

squirrelpie said:

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

according to the consultation it will be proportioned across the 2 based on value

penners324

People also seem to ignore that tis proposal removes the 75 age limit on pensions being transferable tax free

Marcon

MetaPhysical said:

squirrelpie said:

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

And what's your definition of a LOT? For a single person with no children, AIUI the allowance is £325k, which might easily be taken up by a house let alone any savings at all, so the pension will all be at 40% will it not?

That's correct.  This is a tax raid of monumental proportions that has generally been glossed over because people think it applies to "rich people".  They are wrong.....


I can't understand why a huge noise hasn't been made of this.  (Removed by Forum Team).

Mob hysteria. I'm with Paul Lewis on this one: https://www.telegraph.co.uk/money/tax/inheritance/rachel-reeves-every-right-pensions-inheritance-tax/

Sarahspangles

Marcon said:

MetaPhysical said:

squirrelpie said:

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

And what's your definition of a LOT? For a single person with no children, AIUI the allowance is £325k, which might easily be taken up by a house let alone any savings at all, so the pension will all be at 40% will it not?

That's correct.  This is a tax raid of monumental proportions that has generally been glossed over because people think it applies to "rich people".  They are wrong.....


I can't understand why a huge noise hasn't been made of this.  It is a rape and pillage of middle England.

Mob hysteria. I'm with Paul Lewis on this one: https://www.telegraph.co.uk/money/tax/inheritance/rachel-reeves-every-right-pensions-inheritance-tax/

I agree, though I’m not clicking on the Torygraph!

We’re currently sitting in a hotel bar in Dublin and the only other customers are talking loudly about UK pensions and IHT…

AlanP_2

MetaPhysical said:

squirrelpie said:

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

And what's your definition of a LOT? For a single person with no children, AIUI the allowance is £325k, which might easily be taken up by a house let alone any savings at all, so the pension will all be at 40% will it not?

That's correct.  This is a tax raid of monumental proportions that has generally been glossed over because people think it applies to "rich people".  They are wrong.....

Let's say that you have a house of 325k and a a modest 200k DC pot left when you die.  Beforehand you would have got away without IHT.  Now (or in 2027), you face a 40% charge on that 200k pot in IHT because your IHT allowance is "used up" by your house.  I would have expected the government to put in an allowance of £x - say 100k - over which tax would be charged on the pension.  But no, you are taxed on the whole shebang on your pension if your allowance is used up by your home.

I can't understand why a huge noise hasn't been made of this. (Removed by Forum Team)

Why should £s in a pension wrapper be treated differently to £s in an ISA wrapper when it comes to calculating inheritance tax?

artyboy

AlanP_2 said:

MetaPhysical said:

squirrelpie said:

Albermarle said:

Even then normally only a portion of the pot will incur 40% tax, unless you are leaving a LOT of money.

How will it be decided how much tax is due on the pension and how much on the estate?

And what's your definition of a LOT? For a single person with no children, AIUI the allowance is £325k, which might easily be taken up by a house let alone any savings at all, so the pension will all be at 40% will it not?

That's correct.  This is a tax raid of monumental proportions that has generally been glossed over because people think it applies to "rich people".  They are wrong.....

Let's say that you have a house of 325k and a a modest 200k DC pot left when you die.  Beforehand you would have got away without IHT.  Now (or in 2027), you face a 40% charge on that 200k pot in IHT because your IHT allowance is "used up" by your house.  I would have expected the government to put in an allowance of £x - say 100k - over which tax would be charged on the pension.  But no, you are taxed on the whole shebang on your pension if your allowance is used up by your home.

I can't understand why a huge noise hasn't been made of this.  It is a rape and pillage of middle England.

Why should £s in a pension wrapper be treated differently to £s in an ISA wrapper when it comes to calculating inheritance tax?

Because those were the rules for many years, and people, myself included, planned our finances on that basis. You might as well ask why interest in an ISA wrapper should be treated any differently to interest outside one. Maybe they'll raid that next...

But as things stand, thems the rules. It's not unreasonable to have a go at relying on them, whether or not you agree with them.

So please excuse me if I am mightily p@ssed off right now.