We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
Pension v ISA after age 75


I am aged 73 receiving state pension. I have previously cashed in a small personal pension pot and I also have an untouched DC pension which I no longer pay into worth about £110,000. I understand that if I’m lucky enough to die after I turn 75 (2027) this will be part of my estate for IHT purposes AND my spouse will pay tax on this pension at her applicable tax rate (20%).
We do not have the funds available for paying into ISAs.
I’m thinking that as I’m not using all of my income tax personal allowance (and even if I were) we would be better off if I withdrew lump sums over the next couple of years to pay into our ISAs (40,000) as this would effectively not be taxed under the Additional Permitted Subscription rule. Also future growth would be tax free.
Have I got my thinking correct? Are there any pitfalls.
Comments
-
Are one or both estates likely to have an IHT liability?1
-
I think you should withdraw the 25% tax free amount before you turn 75 as a minimumI’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.1 -
As MallyGirl says, take the TFLS now and draw down the rest as you can without paying any 40% tax on the income. Store the moneys in ISAs. Or draw down at a slower rate.A little FIRE lights the cigar1
-
I'm confused by the mention of the "Additional Permitted Subscription rule". I'd never heard of it before (shame on me!) but it only seems to affect events if/when one of you were to die. So I'm not sure why it's important for your plan? It's just the means by which one partner inherits the other's ISA AFAICT?
1 -
squirrelpie said:I'm confused by the mention of the "Additional Permitted Subscription rule". I'd never heard of it before (shame on me!) but it only seems to affect events if/when one of you were to die. So I'm not sure why it's important for your plan? It's just the means by which one partner inherits the other's ISA AFAICT?3
-
There's no IHT on the pension if it goes to your spouse. It might make sense to take the TFLS and also to draw enough taxable income to at least use up your personal allowance.1
-
eskbanker said:Are one or both estates likely to have an IHT liability?0
-
Thank you all for your replies. I think I’m going to take either as much as possible without triggering higher tax rate (UFPLS) or TFLS under drawdownIs UFPLS the way to go? Or drawdown? I’m thinking that UFPLS might trigger wrong tax by HMRC which I would need to reclaim later.0
-
SweetnSavvy said:Thank you all for your replies. I think I’m going to take either as much as possible without triggering higher tax rate (UFPLS) or TFLS under drawdownIs UFPLS the way to go? Or drawdown? I’m thinking that UFPLS might trigger wrong tax by HMRC which I would need to reclaim later.
For a first taxable payment they will use the emergency tax code, 1257L, so assuming your pension company uses operates a monthly payroll process there would be no tax deducted unless the taxable amount exceeded £1,048.1 -
I understand that if I’m lucky enough to die after I turn 75 (2027) this will be part of my estate for IHT purposes AND my spouse will pay tax on this pension at her applicable tax rate (20%).
Any unused pension will be included in IHT calculations as from 2027, regardless of what age you die. ( although as mentioned if your spouse is still alive it will pass to them without any IHT, presuming you have named them as a beneficiary)
The age 75 rule only applies to whether income tax is payable on withdrawal by the beneficiary, which is a separate matter.1
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 351.1K Banking & Borrowing
- 253.2K Reduce Debt & Boost Income
- 453.6K Spending & Discounts
- 244.1K Work, Benefits & Business
- 599.1K Mortgages, Homes & Bills
- 177K Life & Family
- 257.5K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards