IHT Changes

jim8888

I just wanted to check I understand this correctly. Before the proposed changes to pensions in the budget ref IHT, if I had died with, say, £500k in a SIPP, then I could have passed this to my son and it would have been free of IHT charges. (Assume I have passed on my home too, which takes out the £350k x 2 allowance as it is worth £1m).
Following the changes, is it correct that the £500k in the SIPP will in future be taxed at 40% IHT? When my son then withdraws the remaining £300k, does he get taxed on this again as income?
Apologies for trying to keep this simple as possible, but it seems a pretty massive change in pension taxation which, farmers aside, we're not hearing much about.

DRS1

Depends on how old you are when you die.  Under 75 no income tax; over 75 income tax.

Triumph13

Apart from the under 75 anomaly, yes it does get taxed twice and this is a feature, not a bug.  The idea is that putting money into a pension shouldn't be a way to reduce IHT.  If you'd saved in an ISA instead, the money would be taxed twice, as income for you then IHT on your estate.  By using a pension you avoided paying tax on the original income so taxing it as income for your kids levels the playing field.

There was a fair bit of kerfuffle when it was first announced (I know I was cross at the prospect of an extra £400k of IHT) and there is still plenty of grumbling about the mechanics of how it's done, but I think most people have accepted that in essence it isn't unreasonable - or no more unreasonable than IHT generally.

Keep_pedalling

Hopefully you will live a long life and spend lots of it, that is the best way to reduce IHT.

MarzipanCrumble

Yes agree - if only I could!  

Being brought up by grandparents who lived through the war (second hand/market shopping) and a parent who was supporting husband through uni,I really baulk at spending.  Yet I am in the IHT bracket. 

In one aspect Trump is great for me as it reduces my untouched SIPP.  

Albermarle

Be clear that including unused pension pots in IHT liability calculations is one issue.
Income tax for beneficiaries is another issue.
The former was announced in the budget and details are being finalised, but not yet known.
No change to the  latter was mentioned in the budget, although maybe will get changed at some point.