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Using an annuity to reduce IHT ?

Ciprico
Posts: 661 Forumite


Googling indicates it can, the capital used to buy the annuity is considered spent so is no longer subject to iht.
So far so good.
But when you die, the annuity stops, or passes to spouse which is iht exempt anyway.....
So where's the annuity/IHT benefit...?
So far so good.
But when you die, the annuity stops, or passes to spouse which is iht exempt anyway.....
So where's the annuity/IHT benefit...?
1
Comments
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Something on the lines of buying a joint whole of life assurance policy with the annuity income, and writing it into trust?0
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Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!1
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Ciprico said:Googling indicates it can, the capital used to buy the annuity is considered spent so is no longer subject to iht.
So far so good.
But when you die, the annuity stops, or passes to spouse which is iht exempt anyway.....
So where's the annuity/IHT benefit...?I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.1 -
Dunstonh,
Can it be as simple as that ? ie just nominate ones children as beneficiaries of the end of term annuity payment and avoid iht.
The link on the other post above involves life insurance and trusts so looks a lot more expensive and complicated.....
(I have gifted money to my adult kids and that didn't work out too well)
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Ciprico said:Dunstonh,
Can it be as simple as that ? ie just nominate ones children as beneficiaries of the end of term annuity payment and avoid iht.
The link on the other post above involves life insurance and trusts so looks a lot more expensive and complicated.....
(I have gifted money to my adult kids and that didn't work out too well)
In this case there is no 'end of term annuity payment'
Depending on the annuity terms, there may be a provision for your Spouse to continue to receive monthly payments ( typically 50% of yours) but when they die that is the end of the annuity. So no IHT liability for your spouses estate as there is no money from the annuity.
That would be the 'normal' scenario. However @dunstonh has indicated that rather than your spouse getting a reduced pension, you could nominate one of your offspring. I was not aware of that but I wonder if wires have got crossed somewhere about the type of annuity we are talking about ?
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Albermarle said:Ciprico said:Dunstonh,
Can it be as simple as that ? ie just nominate ones children as beneficiaries of the end of term annuity payment and avoid iht.
The link on the other post above involves life insurance and trusts so looks a lot more expensive and complicated.....
(I have gifted money to my adult kids and that didn't work out too well)
In this case there is no 'end of term annuity payment'
Depending on the annuity terms, there may be a provision for your Spouse to continue to receive monthly payments ( typically 50% of yours) but when they die that is the end of the annuity. So no IHT liability for your spouses estate as there is no money from the annuity.
That would be the 'normal' scenario. However @dunstonh has indicated that rather than your spouse getting a reduced pension, you could nominate one of your offspring. I was not aware of that but I wonder if wires have got crossed somewhere about the type of annuity we are talking about ?
And so we beat on, boats against the current, borne back ceaselessly into the past.1 -
One potential issue with this is that the annuity purchase is irreversible should the current or a future govt subsequently close this "loophole".....0
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MK62 said:One potential issue with this is that the annuity purchase is irreversible should the current or a future govt subsequently close this "loophole".....
It is currently possible to purchase annuities with guaranteed periods of 30 years - i.e. if the annuitant were to die within 30 years, then payments to beneficiaries will continue until the 30 years is up. We do not know yet how these residual payments might be treated for inheritance tax come April 2027.
The plan mentioned in a post above is to use annuity income to purchase a Whole of Life policy. Again, no loophole - it is simply purchasing an insurance policy, and an individual's profit or loss on such a policy will correlate to a similar loss and profit on behalf of the insurance company - much the same as it is for any insurance.
HMRC will receive income tax on annuity payments, which will offset a significant part of any future inheritance tax shortfall due to annuity purchases. Indeed, many of those who previously would have accumulated pension funds and not spent them may now purchase annuities instead. This will give the government an immediate uplift in income tax collected, offset by a potential drop in predicated inheritance tax much further in the future - which is likely to be more than acceptable by our current government who will generally be planning to balance the books for a maximum of 5 or so years.I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.1 -
Also if you buy an annuity specifically to reduce your IHT liability, but do not actually need the income and end up saving it, you are back at square one.
If you do spend it, you could have just drawn it down out of your pot every year, which would reduce your IHT liability anyway.
It seems the only two simple ways to reduce your potential liability are to spend it or give it away, whether you go the annuity route or not.2 -
If you buy an annuity that you don't need as you have a large enough income from other sources, then potentially you can give the income to children as a "gift from income" which could be free of IHT.
You would need to keep good records and be sure that you had enough remaining income.
Here is a nice guide, even so, if it were me, I would consider talking to an IFA on this one.
https://techzone.aberdeenadviser.com/public/iht-est-plan/gifts-out-of-surplus-income1
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