Draw down pension before 2027

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81948800#Comment_81948800

Once we get to April 2027 I’ll be ramping up the extraction, and gifting it as (documented) surplus income.

I would not be totally surprised if this route was closed one day. It is already somewhat at HMRC discretion if they allow it. It seems to be up to the Executor of the will to have all the correct evidence to prove the case.

Of course you can only plan based on existing legislation and not on speculation, but worth keeping in mind.

Mrbeethoven

https://forums.moneysavingexpert.com/discussion/comment/81948930#Comment_81948930

Thanks, I’ll bear it in mind. It makes the case to get money out of the pension sooner rather than later all the more compelling I think. I hope they don’t do anything to stop this because, in my mind at least, if I draw money from my pension it is income and as I don’t need it then it is surplus income. Under current IHT rules I can choose to give away surplus income on a regular and committed basis as long as it doesn’t affect my standard of living. Which it doesn’t, even without drawing down from our SIPPs there is still surplus income. As long as I have made this clear, in writing, to my kids (who are also my executors) and have left documentation in IHT403 format, then hopefully HMRC would not be able to successfully challenge this.

DRS1

They won't need to challenge it - they (the Government) could simply change the law. For anyone who dies after the date of the change.

Will they? That may depend on whether they see a pattern emerging and regard it as abuse of a loophole.

Mrbeethoven

https://forums.moneysavingexpert.com/discussion/comment/81949132#Comment_81949132

I meant challenge it under the current IHT gifting rules. I accept that it could be stopped by changing the rules.

plumb1_2

just to hijack the thread

I pay £400 a month into my grandchildren’s junior ISAs, it that classed as gifting?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81949825#Comment_81949825

You are giving them nearly £5K pa, so of course it is a gift.

Paspatur

That calculator is incorrect

It gives me an allowance of £500k despite telling it my house is worth £125K

My actual allowance is only £450k

Obviously not a problem for people in higher house price areas but just pointing it out

redwing

Hi - I have a related but different question. Do we expect that the new IHT on SIPPs will take any account of any remaining tax-free cash entitlement, or will this just be lost and the whole pot treated the same (40% IHT)? If so, I suppose it makes sense to draw down only TFC to live on, rather than the mix (75% taxable, 25% taxed) that I'm currently using?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81956201#Comment_81956201

I do not think I have seen that question posed before, but I would assume anything that is in an unused pension pot, will be counted in, but do not know for certain. Although it would mean it would be counted into your estate, ( which does not necessarily mean of course it would be subject to any IHT at all) .

In general, even before these new IHT rules come in , it is usually recommended to take all the TFC before you reach 75, as any left would not benefit beneficiaries after that age.

75% taxable and 25% tax free can be a good tax efficient way to withdraw from a pension, especially if you have no other taxable income. So like with many of these decisions, it depends on your personal situation, and even then it is not always entirely clear what the best course of action would be.

coyrls

Currently, the tax free element is income tax free not IHT free; if you take your tax free lump sum, it is still subject to IHT. After 2027, I would assume taking your tax free lump sum won't protect it from IHT and leaving it in the pension won't protect it from IHT.