pension cashing out

DRS1

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free [Yes but only if he dies before age 75 and before they change the law on IHT and pensions - probably April 2027.  If he dies after 75 but before they change the law whatever the offspring beneficiary draws is subject to income tax at that person's marginal rate.  If he dies after 75 and after the law changes then you will have two lots of tax IHT and income tax.  Most people's plans to draw more money out of their pension pots earlier than they otherwise would have planned are driven by the IHT changes but of course those changes aren't law yet], and offspring has to wait until retirement age to use it [No]? and does that 25% tax free cashout reset [The 25% tax free lump sum is just for your parent. It does not pass on to the offspring beneficiary.  And for your parent once he has taken the 25% TFLS at any time the rest of the pension pot will be subject to income tax at his marginal rate whenever he draws it.  So if the pot is £100k and he takes £25k TFLS the rest is taxable when paid out to him even if it has grown to £150k in the meantime.]?

 Some answers in bold.

I am assuming your parent has no spouse or civil partner who would of course be the logical person to "inherit" the pension(s) before offspring.

You may also want to check what if any lump sum he took from the other pension to make sure he is not exceeding the Lump Sum Allowance

brehom5

DRS1 said:

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free [Yes but only if he dies before age 75 and before they change the law on IHT and pensions - probably April 2027.  If he dies after 75 but before they change the law whatever the offspring beneficiary draws is subject to income tax at that person's marginal rate.  If he dies after 75 and after the law changes then you will have two lots of tax IHT and income tax.  Most people's plans to draw more money out of their pension pots earlier than they otherwise would have planned are driven by the IHT changes but of course those changes aren't law yet], and offspring has to wait until retirement age to use it [No]? and does that 25% tax free cashout reset [The 25% tax free lump sum is just for your parent. It does not pass on to the offspring beneficiary.  And for your parent once he has taken the 25% TFLS at any time the rest of the pension pot will be subject to income tax at his marginal rate whenever he draws it.  So if the pot is £100k and he takes £25k TFLS the rest is taxable when paid out to him even if it has grown to £150k in the meantime.]?

 Some answers in bold.

I am assuming your parent has no spouse or civil partner who would of course be the logical person to "inherit" the pension(s) before offspring.

You may also want to check what if any lump sum he took from the other pension to make sure he is not exceeding the Lump Sum Allowance

will check total lump sum allowance.

For cashing out options, as pension company has a few different options and different payout times, is cashing out fairly quick and possible before end of this tax year? and is there specific terms to ask for when cashing out so they dont over charge on tax etc? as there is the mention of the 40% emergency tax which I want to avoid, should they allow splitting up the cashout options to keep within the tax bracket or they are forced to do it all in one go? e.g. 25% tax free and then half of the 75% taxable this year, and the rest after april just as an example?

QrizB

brehom5 said:

For cashing out options, as pension company has a few different options and different payout times, is cashing out fairly quick and possible before end of this tax year?

From accounts on this forum, some companies are slow, others are very slow. Considering that it'll be February in a week, I think you should be getting a move on if you want a first payment this tax year.

Dazed_and_C0nfused

brehom5 said:

DRS1 said:

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free [Yes but only if he dies before age 75 and before they change the law on IHT and pensions - probably April 2027.  If he dies after 75 but before they change the law whatever the offspring beneficiary draws is subject to income tax at that person's marginal rate.  If he dies after 75 and after the law changes then you will have two lots of tax IHT and income tax.  Most people's plans to draw more money out of their pension pots earlier than they otherwise would have planned are driven by the IHT changes but of course those changes aren't law yet], and offspring has to wait until retirement age to use it [No]? and does that 25% tax free cashout reset [The 25% tax free lump sum is just for your parent. It does not pass on to the offspring beneficiary.  And for your parent once he has taken the 25% TFLS at any time the rest of the pension pot will be subject to income tax at his marginal rate whenever he draws it.  So if the pot is £100k and he takes £25k TFLS the rest is taxable when paid out to him even if it has grown to £150k in the meantime.]?

 Some answers in bold.

I am assuming your parent has no spouse or civil partner who would of course be the logical person to "inherit" the pension(s) before offspring.

You may also want to check what if any lump sum he took from the other pension to make sure he is not exceeding the Lump Sum Allowance

will check total lump sum allowance.

For cashing out options, as pension company has a few different options and different payout times, is cashing out fairly quick and possible before end of this tax year? and is there specific terms to ask for when cashing out so they dont over charge on tax etc? as there is the mention of the 40% emergency tax which I want to avoid, should they allow splitting up the cashout options to keep within the tax bracket or they are forced to do it all in one go? e.g. 25% tax free and then half of the 75% taxable this year, and the rest after april just as an example?

If you take a first (taxable) payment of £4,190 or more there is nothing you can do to avoid some 40% tax being deducted by the pension company.

But if when you final position is reviewed for that tax year you paid too much tax you would get any overpayment back.  You don't even have to apply for a refund, HMRC will do it automatically later this summer/autumn (for 2024-25).

The above is assuming you don't file a tax return for some reason.

Linton

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free, and offspring has to wait until retirement age to use it? and does that 25% tax free cashout reset?

We can say what the rules are now but they are planned to change on 6th April 2027. 

In all cases the beneficiaries receive the deceased pension tax free with no IHT reduction but do not 
benefit from 25% rax free on withdrawal.

If the deceased dies before 75 the pot is is free of any income tax on withdrawal.and and can be cashed in at any age.

If the deceased dies when over 75 withdrawals are taxed at the same rate as if it they were the beneficiary's own pots and are subject to the same age restrictions.  

We know that in the future pension pots will be liable for inheritance tax but the details have yet to be published.

brehom5

Dazed_and_C0nfused said:

brehom5 said:

DRS1 said:

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free [Yes but only if he dies before age 75 and before they change the law on IHT and pensions - probably April 2027.  If he dies after 75 but before they change the law whatever the offspring beneficiary draws is subject to income tax at that person's marginal rate.  If he dies after 75 and after the law changes then you will have two lots of tax IHT and income tax.  Most people's plans to draw more money out of their pension pots earlier than they otherwise would have planned are driven by the IHT changes but of course those changes aren't law yet], and offspring has to wait until retirement age to use it [No]? and does that 25% tax free cashout reset [The 25% tax free lump sum is just for your parent. It does not pass on to the offspring beneficiary.  And for your parent once he has taken the 25% TFLS at any time the rest of the pension pot will be subject to income tax at his marginal rate whenever he draws it.  So if the pot is £100k and he takes £25k TFLS the rest is taxable when paid out to him even if it has grown to £150k in the meantime.]?

 Some answers in bold.

I am assuming your parent has no spouse or civil partner who would of course be the logical person to "inherit" the pension(s) before offspring.

You may also want to check what if any lump sum he took from the other pension to make sure he is not exceeding the Lump Sum Allowance

will check total lump sum allowance.

For cashing out options, as pension company has a few different options and different payout times, is cashing out fairly quick and possible before end of this tax year? and is there specific terms to ask for when cashing out so they dont over charge on tax etc? as there is the mention of the 40% emergency tax which I want to avoid, should they allow splitting up the cashout options to keep within the tax bracket or they are forced to do it all in one go? e.g. 25% tax free and then half of the 75% taxable this year, and the rest after april just as an example?

If you take a first (taxable) payment of £4,190 or more there is nothing you can do to avoid some 40% tax being deducted by the pension company.

But if when you final position is reviewed for that tax year you paid too much tax you would get any overpayment back.  You don't even have to apply for a refund, HMRC will do it automatically later this summer/autumn (for 2024-25).

The above is assuming you don't file a tax return for some reason.

thanks both, but the pension company can't stop me from for example taking half taxable out this year, and half next year so the hmrc review hopefully keeps it within the same tax bracket?  Just dont want to take the wrong decision that suits the pension company e.g. they say all of it needs taking in 1 go regardless if it goes into the next tax bracket.

Dazed_and_C0nfused

brehom5 said:

Dazed_and_C0nfused said:

brehom5 said:

DRS1 said:

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free [Yes but only if he dies before age 75 and before they change the law on IHT and pensions - probably April 2027.  If he dies after 75 but before they change the law whatever the offspring beneficiary draws is subject to income tax at that person's marginal rate.  If he dies after 75 and after the law changes then you will have two lots of tax IHT and income tax.  Most people's plans to draw more money out of their pension pots earlier than they otherwise would have planned are driven by the IHT changes but of course those changes aren't law yet], and offspring has to wait until retirement age to use it [No]? and does that 25% tax free cashout reset [The 25% tax free lump sum is just for your parent. It does not pass on to the offspring beneficiary.  And for your parent once he has taken the 25% TFLS at any time the rest of the pension pot will be subject to income tax at his marginal rate whenever he draws it.  So if the pot is £100k and he takes £25k TFLS the rest is taxable when paid out to him even if it has grown to £150k in the meantime.]?

 Some answers in bold.

I am assuming your parent has no spouse or civil partner who would of course be the logical person to "inherit" the pension(s) before offspring.

You may also want to check what if any lump sum he took from the other pension to make sure he is not exceeding the Lump Sum Allowance

will check total lump sum allowance.

For cashing out options, as pension company has a few different options and different payout times, is cashing out fairly quick and possible before end of this tax year? and is there specific terms to ask for when cashing out so they dont over charge on tax etc? as there is the mention of the 40% emergency tax which I want to avoid, should they allow splitting up the cashout options to keep within the tax bracket or they are forced to do it all in one go? e.g. 25% tax free and then half of the 75% taxable this year, and the rest after april just as an example?

If you take a first (taxable) payment of £4,190 or more there is nothing you can do to avoid some 40% tax being deducted by the pension company.

But if when you final position is reviewed for that tax year you paid too much tax you would get any overpayment back.  You don't even have to apply for a refund, HMRC will do it automatically later this summer/autumn (for 2024-25).

The above is assuming you don't file a tax return for some reason.

thanks both, but the pension company can't stop me from for example taking half taxable out this year, and half next year so the hmrc review hopefully keeps it within the same tax bracket?  Just dont want to take the wrong decision that suits the pension company e.g. they say all of it needs taking in 1 go regardless if it goes into the next tax bracket.

The pension company will report the income against whichever tax year you choose to take it out of the pension.  And HMRC will then calculate your actual tax liability on that basis as well.  Setting any tax deducted at source against the overall liability.

What you need to be careful about is not applying to the pension company so late in the tax year then first payment ends up being paid after 5 April.  That would complicate matters and means you either waited a year for the other half or took the hit on some higher rate tax.

DRS1

One thought - we don't know what vintage your parent's pension is.  People are talking as if it is a modern scheme which allows drawdown - ie where your parent can control how much he takes out of the pension at any given time.  Some older pension schemes do not cater for drawdown because it did not exist when the pension scheme was set up.  In that case a transfer to a more modern scheme will be needed which will add time to the process so your parent ought to get on to the pension company sooner rather than later to check timescales.

Albermarle

brehom5 said:

Dazed_and_C0nfused said:

brehom5 said:

DRS1 said:

brehom5 said:

DRS1 said:

brehom5 said:

brehom5 said:

DRS1 said:

Why are you thinking of doing this?
Is it IHT planning?  Is IHT going to be relevant to your parent's estate when he dies?
Is it likely your parent will live the 7 years?  Are you thinking of doing this now because he is in good health and will likely survive the 7 years?  
Do you appreciate that if your parent dies before he is 75 then as things stand the pension would be "inherited" by his nominated beneficiaries totally tax free?
If he dies after 75 then the nominated beneficiaries will pay income tax at their marginal rates (so the tax free lump sum is lost and they may have a higher tax rate than he does)
The law change bringing pension pots into the charge to IHT is planned for 2027 and the tax situation will be worse then but if you take money out of the pension now you bring it into the scope of IHT now

this is a second pension pot not the main one for the parent, and the funds are not required. The offspring can then be gifted this. Do you think the plan does not sound good? or any other ideas or benefits of making the offspring a beneficiary?

Any further advice and points welcome so we understand all possible options and best way forward

Also I dont think theres any concern of parent dying in 7 years that just seems to be a scenario to be aware of so the family can be clear on potential risk ahead. But if 7 years pass then IHT is clear?

Well here's hoping he makes it to 81 or at least past age 75.

if 25% tax free is cashed out, then rest kept in the pot, and the offspring is added as a beneficiary, is it basically then inherited tax free [Yes but only if he dies before age 75 and before they change the law on IHT and pensions - probably April 2027.  If he dies after 75 but before they change the law whatever the offspring beneficiary draws is subject to income tax at that person's marginal rate.  If he dies after 75 and after the law changes then you will have two lots of tax IHT and income tax.  Most people's plans to draw more money out of their pension pots earlier than they otherwise would have planned are driven by the IHT changes but of course those changes aren't law yet], and offspring has to wait until retirement age to use it [No]? and does that 25% tax free cashout reset [The 25% tax free lump sum is just for your parent. It does not pass on to the offspring beneficiary.  And for your parent once he has taken the 25% TFLS at any time the rest of the pension pot will be subject to income tax at his marginal rate whenever he draws it.  So if the pot is £100k and he takes £25k TFLS the rest is taxable when paid out to him even if it has grown to £150k in the meantime.]?

 Some answers in bold.

I am assuming your parent has no spouse or civil partner who would of course be the logical person to "inherit" the pension(s) before offspring.

You may also want to check what if any lump sum he took from the other pension to make sure he is not exceeding the Lump Sum Allowance

will check total lump sum allowance.

For cashing out options, as pension company has a few different options and different payout times, is cashing out fairly quick and possible before end of this tax year? and is there specific terms to ask for when cashing out so they dont over charge on tax etc? as there is the mention of the 40% emergency tax which I want to avoid, should they allow splitting up the cashout options to keep within the tax bracket or they are forced to do it all in one go? e.g. 25% tax free and then half of the 75% taxable this year, and the rest after april just as an example?

If you take a first (taxable) payment of £4,190 or more there is nothing you can do to avoid some 40% tax being deducted by the pension company.

But if when you final position is reviewed for that tax year you paid too much tax you would get any overpayment back.  You don't even have to apply for a refund, HMRC will do it automatically later this summer/autumn (for 2024-25).

The above is assuming you don't file a tax return for some reason.

thanks both, but the pension company can't stop me from for example taking half taxable out this year, and half next year so the hmrc review hopefully keeps it within the same tax bracket?  Just dont want to take the wrong decision that suits the pension company e.g. they say all of it needs taking in 1 go regardless if it goes into the next tax bracket.

As said above, older pension schemes are normally more inflexible in how you can withdraw the pension. Many were set up long before the current rules applied.
So what is legally OK, with pension rules/HMRC for example, may just not be possible with an older pension. 

RogerPensionGuy

brehom5 said:

in the UK, please can someone confirm if this method is correct if parent has a untouched pension pot that needs passing to an offspring

example:

73 years old, untouched pension amount total 60k

This needs going to offspring as gift

Withdraw 25% tax free, transfer straight to offspring

withdrawn 75% which is taxable, transfer straight to offspring

Is there any other way to cash in on this to reduce the 75% tax, and as it will be gifted, should offspring be aware of any tax implications or the parent gifting it e.g. if using it to buy a home or any other investment?

Also if theres an alternative method which makes more sense e.g. cash out 25% tax free but then set the offspring as a beneficiary, and the offspring withdraws it after that?

Any advice appreciated

Why does pension pot need to be passed on offspring?

Is it possible the person whos pension it is may need this cash in the future, maybe they need a new car, house maintenance or possibly need a hip replacement and want to go privately as they don't want to wait 5 or more years?

When offspring get the cash, what are they doing with it?

Why isn't the pension holder asking these questions?

Any feedback will be interesting. 

Cheers Roger.