Pension 25% tax free lump sum

Russ56765

I agree regarding the additional tax of inflation effect on CGT, maybe thats how HMRC look at it and thats why CGT was at a lower level than income tax in general.  

On IHT if it was 10% or 20% I'm sure more people would be content to pay it and they would possibly raise more funds.    40% is huge on money you already paid tax on and worth spending significant sums on complex schemes to reduce. 

ali_bear

Whatever you feel about the current government and how they are attempting to bring the countries finances to a more sustainable footing. It seems the taxation rules are likely to see some loosening in about four years time, no? That is something you could plan for now. 

jaypers

I am in a similar position to you, but a couple of years older so I’m already drawing pension etc. I did take the 25% tax free cash and what’s left is still in excess of what was the lifetime allowance. My strategy is as follows……

1) I transferred £250k into a 10 year annuity that will pay me £30k p/a for that period. This is to give me a guarantee against what does/doesn’t happen in the markets, and wanted to take advantage of rates while attractive.
2) Taking an addition amount each month as drawdown from the main pot.
3) I am a 40% tax payer.
4) I do not want the value of what’s left in my pot to reduce. It is slowly increasing at present. I am aware of inflation and what that means against actual future ‘value’ etc.
5) Now the kicker….IHT. I wanted to leave a nice inheritance for my children and the pension pot was ideal. New rules are brutal and could actually mean a 67% tax if I die after age 75 (based on their own taxation too). Important though not to knee jerk. Future governments are bound to change this all again so a bit of a moving target. I will be discussing options with my IFA, but suspect gifting may be a good option to at least offset something, plus it gives me the opportunity to see them enjoy the benefits while I’m still here too. There is something you can do from ‘excess income’ but it must be regular and not impact your own lifestyle so perhaps even increase my drawdown more and do something along those lines?

Russ56765

jaypers said:

I am in a similar position to you, but a couple of years older so I’m already drawing pension etc. I did take the 25% tax free cash and what’s left is still in excess of what was the lifetime allowance. My strategy is as follows……

1) I transferred £250k into a 10 year annuity that will pay me £30k p/a for that period. This is to give me a guarantee against what does/doesn’t happen in the markets, and wanted to take advantage of rates while attractive.
2) Taking an addition amount each month as drawdown from the main pot.
3) I am a 40% tax payer.
4) I do not want the value of what’s left in my pot to reduce. It is slowly increasing at present. I am aware of inflation and what that means against actual future ‘value’ etc.
5) Now the kicker….IHT. I wanted to leave a nice inheritance for my children and the pension pot was ideal. New rules are brutal and could actually mean a 67% tax if I die after age 75 (based on their own taxation too). Important though not to knee jerk. Future governments are bound to change this all again so a bit of a moving target. I will be discussing options with my IFA, but suspect gifting may be a good option to at least offset something, plus it gives me the opportunity to see them enjoy the benefits while I’m still here too. There is something you can do from ‘excess income’ but it must be regular and not impact your own lifestyle so perhaps even increase my drawdown more and do something along those lines?

Thanks,  I’ll ponder the annuity option.    Its impossible second guessing what might happen but good to have a plan.   I liked the spend my ISA/GIA  to live and the backup of the pension if needed but if not the ability to pass it on.    Now i am thinking of reversing that and spending the pension ,  the non pension funds can be the backup until the point i gift from them.   As you say its a different plan but it does mean i can watch my kids have some benefit earlier.   I will be looking at other IHT options too. 

Russ56765

Not sure if i am able to post this video here but it covers options on the issue discussed in this thread.   Worth a watch. 

https://youtu.be/_6L2EoLM28U?si=U5K9Q-9ms_dDnwIi

MeteredOut

jaypers said:

I am in a similar position to you, but a couple of years older so I’m already drawing pension etc. I did take the 25% tax free cash and what’s left is still in excess of what was the lifetime allowance. My strategy is as follows……

1) I transferred £250k into a 10 year annuity that will pay me £30k p/a for that period. This is to give me a guarantee against what does/doesn’t happen in the markets, and wanted to take advantage of rates while attractive.
2) Taking an addition amount each month as drawdown from the main pot.
3) I am a 40% tax payer.
4) I do not want the value of what’s left in my pot to reduce. It is slowly increasing at present. I am aware of inflation and what that means against actual future ‘value’ etc.
5) Now the kicker….IHT. I wanted to leave a nice inheritance for my children and the pension pot was ideal. New rules are brutal and could actually mean a 67% tax if I die after age 75 (based on their own taxation too). Important though not to knee jerk. Future governments are bound to change this all again so a bit of a moving target. I will be discussing options with my IFA, but suspect gifting may be a good option to at least offset something, plus it gives me the opportunity to see them enjoy the benefits while I’m still here too. There is something you can do from ‘excess income’ but it must be regular and not impact your own lifestyle so perhaps even increase my drawdown more and do something along those lines?

I've seen a few people state that they now intend to gift or spend money they otherwise would have left as an inheritance. If the intent behind the IHT change was to bolster the economy by encouraging/forcing people to spend rather than save, based on the anecdotal evidence here, it sounds like it might be successful in driving that behaviour. 

ali_bear

Speaking as a person who was once young. Receiving a modest gift from an older relative around the age of 30, when I was buying my first house, would have made a huge difference to my outlook at that time. 

Now I am older it would make little difference to receive a relatively large inheritance. 

Just saying that, unless your children are too feckless or idiotic to handle the money, it's probably better to pass some wealth on to them sooner rather than later, if you can. 

Albermarle

ali_bear said:

Speaking as a person who was once young. Receiving a modest gift from an older relative around the age of 30, when I was buying my first house, would have made a huge difference to my outlook at that time. 

Now I am older it would make little difference to receive a relatively large inheritance. 

Just saying that, unless your children are too feckless or idiotic to handle the money, it's probably better to pass some wealth on to them sooner rather than later, if you can. 

As the old saying goes - the only people who pay inheritance tax are those that trust HMRC more than their own family. 

bjorn_toby_wilde

ali_bear said:

Speaking as a person who was once young. Receiving a modest gift from an older relative around the age of 30, when I was buying my first house, would have made a huge difference to my outlook at that time. 

Now I am older it would make little difference to receive a relatively large inheritance. 

Just saying that, unless your children are too feckless or idiotic to handle the money, it's probably better to pass some wealth on to them sooner rather than later, if you can. 

My feelings exactly.

I have no idea what I might inherit but always worked on the basis it would be nothing so anything would be a bonus.

If I do inherit I won’t need it and would rather pass it to my children. They’re not feckless and would get a great deal of benefit from having the money earlier.

Russ56765

bjorn_toby_wilde said:

ali_bear said:

Speaking as a person who was once young. Receiving a modest gift from an older relative around the age of 30, when I was buying my first house, would have made a huge difference to my outlook at that time. 

Now I am older it would make little difference to receive a relatively large inheritance. 

Just saying that, unless your children are too feckless or idiotic to handle the money, it's probably better to pass some wealth on to them sooner rather than later, if you can. 

My feelings exactly.

I have no idea what I might inherit but always worked on the basis it would be nothing so anything would be a bonus.

If I do inherit I won’t need it and would rather pass it to my children. They’re not feckless and would get a great deal of benefit from having the money earlier.

My feelings and intent exactly,    although the desire to not give 40% of our eventual estate to the Gov is naturally a strong driver too. :--)

Also one more question any feelings on the likelihood of the 25% tax free sum being taken away at some point?    Clearly only speculation but I would be interested in you guys take on that?