Can IHT on pension pot be avoided if I nominate my son as primary beneficiary in Expressions of Wish

Ebkent

If I predecease my husband there will be no IHT on the estate until he dies,

If I nominate my son as sole primary beneficiary of my substantial pension, what is his tax position ? 

I  assume he would pay income tax , when he draws it, but is it subject to IHT ? As there is no IHT applicable on the1st death of a married couple 

Keep_pedalling

We don’t know exactly how it will work yet, but it it not going to be that simple, I suspect it will simply use up you NRB in the same way as any other asset currently does.

zagfles

What do you mean "there is no IHT applicable on the1st death of a married couple"?

Obviously there isn't if everything is left to the surviving spouse because of the spousal exemption, but if left to anyone else of course IHT is potentially applicable. Currently no IHT on pensions but due to change in a couple of years. 

Marcon

Ebkent said:

If I predecease my husband there will be no IHT on the estate until he dies,

If I nominate my son as sole primary beneficiary of my substantial pension, what is his tax position ? 

I  assume he would pay income tax , when he draws it, but is it subject to IHT ? As there is no IHT applicable on the1st death of a married couple 

How old are you?

Emmia

Ebkent said:

If I predecease my husband there will be no IHT on the estate until he dies,

If I nominate my son as sole primary beneficiary of my substantial pension, what is his tax position ? 

I  assume he would pay income tax , when he draws it, but is it subject to IHT ? As there is no IHT applicable on the1st death of a married couple 

You can't be married to your son, so the spousal exemption cannot apply. I don't see what relevance the spousal exemption has to this situation?

Ebkent

I am 72, husband is 78.  Good health. I understand pensions aren’t within IHT yet. 2027 ? 

I was just thinking if I named my son as the beneficiary of my pension , and IF I died first, it would bring this inheritance forward as part of my estate. As the rest of it would go to my husband, (IHT free)  could my son’s part, the pension , be used agains the NRB, £325k.
I don’t need the income from my Sipp, it being treated as part of my IHT free estate
just a long shot. Trying to mitigate the damage the latest budget made to my IHT planning.  

Marcon

Ebkent said:

I am 72, husband is 78.  Good health. I understand pensions aren’t within IHT yet. 2027 ? 

I was just thinking if I named my son as the beneficiary of my pension , and IF I died first, it would bring this inheritance forward as part of my estate. As the rest of it would go to my husband, (IHT free)  could my son’s part, the pension , be used agains the NRB, £325k.

just a long shot. Trying to mitigate the damage the latest budget made to my IHT planning.  

Under current legislation, if you die before the age of 75 and the recipients of your pension pot* are at the discretion of the trustees, neither IHT nor income tax are payable provided that happens within two years of your death.

*You've referred to a 'substantial pension' but not confirmed it is a defined contribution scheme? If it's a defined benefit pension (final salary or CARE), then the rules of the scheme will dictate who receives a survivor's pension - and that'll be your husband, as your son will be too old to qualify as an 'eligible child'. Edit - I see you've now edited your post to confirm it's a SIPP.

It would probably make sense to formalise your plans once the final proposals for 2027 are known.

zagfles

What are you trying to achieve? Why would you want the NRB used up on your death when it could be transferred to your husband? I'm struggling to see what you're trying to achieve, your plan might make sense if you wanted to cover the possibility of you dying before IHT on pensions comes into effect, but then the NRB doesn't come into it. You could change it temporarily until the point when IHT on pensions applies. But obviously there's a lot to consider and it seems you either don't understand the rules or aren't explaining well what you're trying to do (or maybe it's just me not following you). 

Triumph13

It doesn't make much difference.  If you left £325k to your son, then your husband died the next day leaving the rest to him, then yes, he gets the first £325k IHT free, but your husband's NRB is now £325k lower on the second inheritance as he no longer inherits your NRB because you've already used it yourself.  Between you, you pay exactly the same total amount of IHT.

Where it could be a good idea, is if your husband expected to withdraw less from your pension than the investment growth after your death.  Change the above scenario to your husband dying several years after you, by which time your pension has grown to £500k.  In this scenario there is indeed an IHT benefit from having gifted your pension to your son early, but only to the extent that your pension has grown - and always assuming the government hasn't changed the NRB in the meantime.

Keep_pedalling

Ebkent said:

I am 72, husband is 78.  Good health. I understand pensions aren’t within IHT yet. 2027 ? 

I was just thinking if I named my son as the beneficiary of my pension , and IF I died first, it would bring this inheritance forward as part of my estate. As the rest of it would go to my husband, (IHT free)  could my son’s part, the pension , be used agains the NRB, £325k.
I don’t need the income from my Sipp, it being treated as part of my IHT free estate
just a long shot. Trying to mitigate the damage the latest budget made to my IHT planning.  

Although you don’t need the money perhaps, if you not a HR tax payer and you are not going to need it if your spouse dies first, you should start to draw some income from it and pass it on as gifts from excess income.

JayRitchie

Ebkent said:

I don’t need the income from my Sipp, it being treated as part of my IHT free estate
just a long shot. Trying to mitigate the damage the latest budget made to my IHT planning.  

How much do you draw from your SIPP at present and how much other taxable income do you have each year?