SIPP drawdowns and IHT

Averymaddog

My question is are withdrawals from my SIPP treated as income, even if they happen to be quite large?  Obviously they are taxed as income.  I ask because of the little known exception to the £3k/annum gifting limit which allows substantial gifts to reduce an estate for IHT purposes provided (i) the gifts come out of income and (ii) are affordable, i.e. surplus income.
I am lucky enough not to need my SIPP to live on, so can I draw sizeable sums from it each year, pay the income tax and gift the remainder to my children who will invest the money into their SIPPs.  Seems a better use of funds than allowing 40% to disappear as IHT and income tax levied on the rest.

HappyHarry

It has been asked here before, and the understanding is that income drawn from a SIPP can be considered as income as far as IHT gifting purposes is concerned.

abrdn say HMRC have confirmed to us that regular withdrawals from flexible pensions, irrespective of the levels withdrawn and whether taken as tax free cash or taxable income, always count as income for the purpose of the IHT exemption. This creates an opportunity for at least 25% of the pension fund to be taken and gifted both income tax and IHT free.

https://techzone.abrdn.com/public/iht-est-plan/gift-surplus-pension

Keep_pedalling

HappyHarry said:

It has been asked here before, and the understanding is that income drawn from a SIPP can be considered as income as far as IHT gifting purposes is concerned.

abrdn say HMRC have confirmed to us that regular withdrawals from flexible pensions, irrespective of the levels withdrawn and whether taken as tax free cash or taxable income, always count as income for the purpose of the IHT exemption. This creates an opportunity for at least 25% of the pension fund to be taken and gifted both income tax and IHT free.

https://techzone.abrdn.com/public/iht-est-plan/gift-surplus-pension

There is another thread where someone had taken the whole 25% in one lump and given it away straight away. That is unlikely to fall under this exemption as no pattern of giving has been established, so I don’t recommend the OP does that, but I see no problem in withdrawing that tax free amount over a number of years and once that has gone start on the taxable amount.

tacpot12

Keep_pedalling said:

HappyHarry said:

It has been asked here before, and the understanding is that income drawn from a SIPP can be considered as income as far as IHT gifting purposes is concerned.

abrdn say HMRC have confirmed to us that regular withdrawals from flexible pensions, irrespective of the levels withdrawn and whether taken as tax free cash or taxable income, always count as income for the purpose of the IHT exemption. This creates an opportunity for at least 25% of the pension fund to be taken and gifted both income tax and IHT free.

https://techzone.abrdn.com/public/iht-est-plan/gift-surplus-pension

There is another thread where someone had taken the whole 25% in one lump and given it away straight away. That is unlikely to fall under this exemption as no pattern of giving has been established, so I don’t recommend the OP does that, but I see no problem in withdrawing that tax free amount over a number of years and once that has gone start on the taxable amount.

Yes, while one payment can be considered the first in a sequence of payments, there has to be a clear intention for the payments to be regular - and you can't just say it, there has to be evidence and the funds there to back up the claim - and the reason for ceasing needs to be very good, i.e. the donor has died unexpectly. If the donor was expecting to die shortly, e.g. before further regular payments could be made, that would also fail the test.