Inheritance Tax Confusion

Fluffysheep7

Albermarle said:

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.

That's the central point. Why will DC pots not be simply part of one's Estate with the change? Why won't Executor's pay all IHT due rather than beneficiaries having to pay with already taxed monies (see Consultation)? Why will Trustees still have allocation powers that could over-rule my Will and screw up my financial planning. It's the massive change in rules with such short notice that hurts financial planning.
Yes, the change generally only affects Estates worth more than £1m passing to spouse and then to children - for the moment!!. 
Cashing in the 25% tax free lump sum of my SIPP now and giving it away under 7 year rule and the balance of my pension that would have gone to my children (from other resources). Just hoping I last that long and before those rules change. Don't get me started on the increased unfairness of tax reliefs on DC pensions (except if you saved with higher tax relief).

Fluffysheep7

Hal17 said:

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.

That is the criticism of SIPP providers not changing to contingent Expressions of Wishes. Not giving advice but our pensions were always for our children's inheritance. We would be affected by Inheritance Tax changes. I have only children as beneficiaries now but my spouse becomes 100% beneficiary from 5th April 2027 as tax efficiency disappears. She will then give it to charity.

squirrelpie

Fluffysheep7 said:

Why will DC pots not be simply part of one's Estate with the change? Why won't Executor's pay all IHT due rather than beneficiaries having to pay with already taxed monies (see Consultation)?

Why do you say this? The consultation says the pension scheme administrators will pay any IHT on pensions. The beneficiaries are not involved. Why do you claim otherwise?

artyboy

squirrelpie said:

Fluffysheep7 said:

Why will DC pots not be simply part of one's Estate with the change? Why won't Executor's pay all IHT due rather than beneficiaries having to pay with already taxed monies (see Consultation)?

Why do you say this? The consultation says the pension scheme administrators will pay any IHT on pensions. The beneficiaries are not involved. Why do you claim otherwise?

Well the beneficiaries will (possibly... likely...) have to also pay income tax on withdrawals from inherited pensions, AFTER the executors have paid IHT.

Open season on pensions...

Fermion

squirrelpie said:

Fluffysheep7 said:

Why will DC pots not be simply part of one's Estate with the change? Why won't Executor's pay all IHT due rather than beneficiaries having to pay with already taxed monies (see Consultation)?

Why do you say this? The consultation says the pension scheme administrators will pay any IHT on pensions. The beneficiaries are not involved. Why do you claim otherwise?

I'm confused about this. We have Wills which leave 10% of our Net Estate to charity, thus reducing our IHT rate from 40% to 36%. Does the consultation say whether the rate the scheme administrators will use will be 40% or 36% viz. If the former then it's not being treated as a full component of the estate. 

On a related point, I had assumed that bringing pension pots into the full scope of IHT as part of the estate then this would mean it would not be subject to tax at the beneficiaries marginal rate. Is this incorrect? I had assumed that the tax situation for pension pots when the deceased is post 75 will be neutral if the beneficiaries are higher rate tax payers?

tim9333

penners324 said:

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

Why are you assuming the 75 age limit will be changed?

Annex B of the consultation says 

"In most cases the Income Tax treatment of the benefit will depend on the age of the member when they died". 

squirrelpie

artyboy said:

squirrelpie said:

Fluffysheep7 said:

Why will DC pots not be simply part of one's Estate with the change? Why won't Executor's pay all IHT due rather than beneficiaries having to pay with already taxed monies (see Consultation)?

Why do you say this? The consultation says the pension scheme administrators will pay any IHT on pensions. The beneficiaries are not involved. Why do you claim otherwise?

Well the beneficiaries will (possibly... likely...) have to also pay income tax on withdrawals from inherited pensions, AFTER the executors have paid IHT.

Yes, but there's no change there. I was specifically questioning the assertion about IHT, and again, it's the administrator, not the executor.

penners324

tim9333 said:

penners324 said:

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

Why are you assuming the 75 age limit will be changed?

Annex B of the consultation says 

"In most cases the Income Tax treatment of the benefit will depend on the age of the member when they died". 

Because I've been to a tax seminar on this and the pensions expert advised that the 75 year age limit will disappear under the new rules (if they become law as published). Many website from IHT and pensions experts also say this.

MallyGirl

penners324 said:

tim9333 said:

penners324 said:

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

Why are you assuming the 75 age limit will be changed?

Annex B of the consultation says 

"In most cases the Income Tax treatment of the benefit will depend on the age of the member when they died". 

Because I've been to a tax seminar on this and the pensions expert advised that the 75 year age limit will disappear under the new rules (if they become law as published). Many website from IHT and pensions experts also say this.

the consultation doesn't currently say that the 75 rule will change

tim9333

"While the Budget announced pensions will lose their inheritance tax exempt status from 6 April 2027, no clarity has been given just yet over the finer details of such legislation and implementation.

Our understanding is that the income tax rules would remain unchanged for the beneficiaries after the pensions are no longer exempt from inheritance tax and so you may be able to continue the withdrawal free of income tax.

Similarly, if you pass away before the age of 75, your son may also be able to draw this tax free, although inheritance tax would still be charged."

https://www.thisismoney.co.uk/money/pensions/article-14059025/Inherited-tax-free-pension-husband-Budget.html