IHT and general tax in 2027

trickydicky14

Hi not looking for advice just some facts.

This relates to the new IHT on pensions coming in April 27 as well as general taxation.

1. Will I still be able to pass my pensions and savings to my wife without any tax or IHT being applied if I die before I’m 75.

2. Am I correct in thinking that ISA’s will be included for IHT but if passed to my wife, will be exempt. And can my wife keep the ISA status on this money.

Snap shot scenario:

Man dies age 76, he has joint ownership on house with wife, value 320k.

He has 220k in ISA’s a combination of cash and S&S. 200k in DC pensions and a small DB pension of 5k a year NHS and 165k in general savings accounts.

What would be the tax hit on this scenario please. Every thing would go to wife, no children.

Just trying to understand the current and new rules so I can plan ahead thanks.

Notepad_Phil

The new pension rules are not yet set in stone and so may well change before they get passed. But it would be a complete surprise if pensions were not able to be passed to a spouse free of inheritance tax, and yes ISAs are exempt if passed to a spouse and they can keep the ISA status - they actually have to open and transfer the money across see https://www.gov.uk/individual-savings-accounts/inheriting-an-isa-from-your-spouse-civil-partner for more details.

So if everything is passed to your wife then on your death there should be no inheritance tax payable on anything you own (assuming that pensions are iht free if passed to a spouse as everyone is expecting), but note the DB pension will reduce to whatever rate the spouse's pension pays out at - you'd need to check your pension scheme.

Keep_pedalling

Currently everything left to a spouse is covered by spousal exemption and I don’t see that changing when pensions are brought into IHT territory.  You wife will be able to maintain the ISA status on your ISA savings. 

Who inherits on the second death? Unless the bulk goes to charity there will be a significant IHT liability on their estate. With no direct descendants the best way of reducing your IHT liability is to start enjoying your savings by starting to run them down for some of likes little luxuries. 

Albermarle

As above any IHT due will be on the second death only, unless something very surprising comes out of the current consultations on the legislation.

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.
This is the same as now, and is not due to change in 2027. It is unconnected to any IHT changes, although there is always the possibility that this rather strange rule may also change one day. 

trickydicky14

Albermarle said:

As above any IHT due will be on the second death only, unless something very surprising comes out of the current consultations on the legislation.

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.
This is the same as now, and is not due to change in 2027. It is unconnected to any IHT changes, although there is always the possibility that this rather strange rule may also change one day. 

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.


If I was to die after 75 and my pensions are untouched, would my wife still have to pay tax on the whole pension or would she be able to take 25% tax free as I could now whilst alive.

Keep_pedalling

trickydicky14 said:

Albermarle said:

As above any IHT due will be on the second death only, unless something very surprising comes out of the current consultations on the legislation.

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.
This is the same as now, and is not due to change in 2027. It is unconnected to any IHT changes, although there is always the possibility that this rather strange rule may also change one day. 

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.


If I was to die after 75 and my pensions are untouched, would my wife still have to pay tax on the whole pension or would she be able to take 25% tax free as I could now whilst alive.

No, she would not be able to take 25% tax free, but in you situation why would you leave it untouched?

Albermarle

trickydicky14 said:

Albermarle said:

As above any IHT due will be on the second death only, unless something very surprising comes out of the current consultations on the legislation.

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.
This is the same as now, and is not due to change in 2027. It is unconnected to any IHT changes, although there is always the possibility that this rather strange rule may also change one day. 

However if you die before 75, the named beneficiary of your remaining pension pot will be able to withdraw from it tax free, but if you die after 75 they will have to pay income tax on any withdrawals.


If I was to die after 75 and my pensions are untouched, would my wife still have to pay tax on the whole pension or would she be able to take 25% tax free as I could now whilst alive.

No, so with the impending changes in IHT on unused pensions, it would be the case for most people to take out all tax free cash before age 75.