The Death Lottery, Double Taxation and the Leaky Tax Bucket

Fluffysheep7

Confirmation from Welsh Minister that those who die between April 2027 and November 2031 cannot avoid paying the new Inheritance Taxes. Dying before April 2027 creates no IHT liability and surviving 7 years after creating Potentially Exempt Transfers now to offset assets liable from April 2027 avoids the tax also.
Those beneficiaries losing in the Death Lottery i.e. the deceased dying after 75 will face the Double Taxation where a DC pension is taxed as both an Inheritance (asset) and as Income. Eyewatering maximum effective tax rate of 67% on inherited pension.
So as much less tax will be raised than claimed where will the next attacks on DC pensions come to fill the gap?
Early Death Income Tax Exemption (75 year arbitrary cliff edge abolished)
Potentially Exempt Transfers. (abolished or 7 year term increased)
Tax Free Lump Sums (reduction in maximum £268,275, 25% reduced or simply abolished)
Tax Refunds on Contributions (restricted to 20% relief and reduced £60k limit)
It is generally accepted that most tax is raised not from taxing the "rich few" but the "poor masses".

Marcon

Fluffysheep7 said:

Confirmation from Welsh Government that only those who die between April 2027 and November 2031 will willingly pay the new Inheritance Taxes i.e those who do not create Potentially Exempt Transfers now to offset assets liable from April 2027.

That assumes they have the funds to make PETs in the first place.

Fluffysheep7 said:

Those beneficiaries losing in the Death Lottery i.e. the deceased dying before 75 will face the Double Taxation where a DC pension is taxed as both an Inheritance (asset) and as Income. Eyewatering maximum effective tax rate of 67% on inherited pension. It may be a few isolated cases but how will this influence end of life decisions?

Nobody yet knows what the final legislation will look like. Are you suggesting people are going to kill themselves to minimise the IHT paid by their estate? You don't think there might be more than a touch of hysteria about such a view?

Fluffysheep7

Marcon
Since there are IHT allowances, there are obviously funds but perhaps not enough and perhaps not in the right form. The principle is the point and since this is a discussion forum it is valid to raise potential flaws in any proposed legislation and perhaps stronger voices could highlight them to the Consultation
You suggesting people might kill themselves is hysterical and very insensitive. End of life situations are very difficult - switching off life support, assisted dying etc. Try a bit of empathy for those who may find themselves having to make such decisions.

Linton

Fluffysheep7 said:

Marcon
Since there are IHT allowances, there are obviously funds but perhaps not enough and perhaps not in the right form. The principle is the point and since this is a discussion forum it is valid to raise potential flaws in any proposed legislation and perhaps stronger voices could highlight them to the Consultation
You suggesting people might kill themselves is hysterical and very insensitive. End of life situations are very difficult - switching off life support, assisted dying etc. Try a bit of empathy for those who may find themselves having to make such decisions.

The situation now is that if the deceased cashes in their pension prior to death they pay income tax on the withdrawal and any inheritance tax is charged when the proceeds are inherited.  It is difficult to see why extracting the  same taxes if the death comes before withdrawal should be a major matter of principle.

What is a matter of principle is that the objective of pensions is to support the pension owner in retirement, not to act as a tax avoidance wheeze.

End of life situations are very difficult but tax avoidance surely should not be a consideration.  By closing off a tax avoidance loophole wont the changes actually reduce the chances that the decision to end someones life is influenced by  financial considerations by potential beneficiaries or the pension owner themselves?

Marcon

Fluffysheep7 said:

Marcon
Since there are IHT allowances, there are obviously funds but perhaps not enough and perhaps not in the right form. The principle is the point and since this is a discussion forum it is valid to raise potential flaws in any proposed legislation and perhaps stronger voices could highlight them to the Consultation
You suggesting people might kill themselves is hysterical and very insensitive. End of life situations are very difficult - switching off life support, assisted dying etc. Try a bit of empathy for those who may find themselves having to make such decisions.

If you read your own post you'll find you made the suggestion with your comment: 'It may be a few isolated cases but how will this influence end of life decisions?'.

Linton obviously read it the same way:

Linton said:

End of life situations are very difficult but tax avoidance surely should not be a consideration.  By closing off a tax avoidance loophole wont the changes actually reduce the chances that the decision to end someones life is influenced by  financial considerations by potential beneficiaries or the pension owner themselves?

so possibly you need to be a little more careful how you word things. Posts on a forum are blunt instruments...and you have no idea of my situation or the situation of those around me.

Cobbler_tone

IMO reading this forum since the budget, far too many people are worrying too much about after they die. Being tax efficient beyond the grave is one thing but the life lesson I have always taught my kids is to be strong and independent, not relying on anyone else…of course supporting them emotionally and financially where required. Maybe I am a product of my parents and how I have navigated life. The current generation certainly seem more entitled than most.
I personally spend most of my energy living in the moment. It has to be a better use of energy…as I said IMO.
I respect my parents and the financial decisions they choose to make, encouraging them to have the best life possible.
If anyone did actually bring the financial landscape into potential end of life situations, that’s really sad.

Just remember in 100 years no one will remember you and certainly not your tax strategy! 

DRS1

Fluffysheep7 said:

Those beneficiaries losing in the Death Lottery i.e. the deceased dying before 75 will face the Double Taxation where a DC pension is taxed as both an Inheritance (asset) and as Income. 


It is generally accepted that most tax is raised not from taxing the "rich few" but the "poor masses".

I think you may have got your befores mixed up with your afters.

If the last sentence is true why is anyone worried about attacks on pensions?  You should be more worried about taxes on booze and fags.

Fluffysheep7

OK I've removed the difficult  moral and legal questions that will arise IRL and gotten my afters. I choose not to drink or smoke but like many want to give my children and grand children a bit of financial security. My plans for that have been seriously damaged. Regardless of anything else I cannot think of any reason why when I die should affect the taxes my beneficiaries pay. Answers on a postcard to Rachel Reiver (a Borders joke). Thought this would be a platform for moneysaving ideas or serious considered discussion. Personally I will give any inheritance over my available allowances to charities than any Reiver.

DRS1

To be fair to her the age differential was there before she decided to impose IHT on pension pots.  It is all to do with the income tax due and has been there for years.
If you give enough to charity perhaps they will name something after you and then your memory will still be around in 100 years!
I always thought Reivers were Scots?

Bobziz

Is £1m not enough to provide a little bit of financial security to your children and grandchildren? Perhaps your situation means you won't have up to £1m IHT free allowances ?

Grumpy_chap

Fluffysheep7 said:

Those beneficiaries losing in the Death Lottery i.e. the deceased dying after 75 will face the Double Taxation where a DC pension is taxed as both an Inheritance (asset) and as Income. Eyewatering maximum effective tax rate of 67% on inherited pension.

I think this only equalises the inherited pension with an inherited ISA.

HR tax payer above IHT threshold earns £100 extra.
Taken as salary that is subject to 40% IT plus 2% NI, so £58 received.
Place into ISA.
Pass on the next day, so IHT applies to the £58 at 40%.
Beneficiaries receive £34.80 after all taxes.

Another HR tax payer above IHT threshold earns £100 extra.
Pays into employer's pension, so no IT and no NI, so £100 in the pension.
Pass on the next day, so IHT applies to the £100 at 40%, meaning £60 is inherited.
Beneficiaries pay IT at marginal rate (could be lower or higher than 40%, but using 40% to make the comparison).  
Beneficiaries do not pay NI on the amount drawn from the inherited pension.
£60 less 40% IT.
Beneficiaries receive £36 after all taxes.