“Uptick” in regular instalments vs lump sums …

af1963

Might be bad advice, or not.  But it results from the lack of any clear definition of "income", let alone "excess income" in the legislation. It wasn't well defined to start with, and hasn't kept up with the changes that allowed flexible access to pensions. 

Alice takes a £120k pension fund as 12 annual UFPLS withdrawals of £10k.
Bob takes a £120k pension fund as 3 withdrawals of £10k tax free cash followed by 9 withdrawals of fully taxable cash. 
Charlie buys an annuity for £90k and takes £30k TFC up front, topping up the annuity from this cash as needed
Diane buys an annuity for £90k and a separate £30k purchased life annuity from the TFC

They are all spending the same type of funds. Why should the tax treatment be different ? But apparently it may be.

Albermarle

af1963 said:

Might be bad advice, or not.  But it results from the lack of any clear definition of "income", let alone "excess income" in the legislation. It wasn't well defined to start with, and hasn't kept up with the changes that allowed flexible access to pensions. 

Alice takes a £120k pension fund as 12 annual UFPLS withdrawals of £10k.
Bob takes a £120k pension fund as 3 withdrawals of £10k tax free cash followed by 9 withdrawals of fully taxable cash. 
Charlie buys an annuity for £90k and takes £30k TFC up front, topping up the annuity from this cash as needed
Diane buys an annuity for £90k and a separate £30k purchased life annuity from the TFC

They are all spending the same type of funds. Why should the tax treatment be different ? But apparently it may be.

Probably the easiest thing from HMRC point of view, is for the Govt just to block the Excess Payments route altogether. In this case the Treasury should also gain a bit.
It is not a very well used 'trick' apparently so should not upset too many, and 95% of the population would not understand anything about it anyway.

BikingBud

Closing the payment from excess income facility entirely would again be hitting people twice for tax.

Those that genuinely have surplus income that has already been subject to PAYE, not those trying to split out accrued pension that was squirrelled away tax free, should not be taxed again when they decide to spend, be that covering mortgages or pension contributions for our children or buying the Aston Martin

But as always the perceived inequity will be used to smash the working population for more tax.

We are rapidly getting to the point were there is no more blood to extract.

Can somebody send the link for the debt free wannabe board to Rachel please?
 

Moonwolf

Albermarle said:

af1963 said:

Might be bad advice, or not.  But it results from the lack of any clear definition of "income", let alone "excess income" in the legislation. It wasn't well defined to start with, and hasn't kept up with the changes that allowed flexible access to pensions. 

Alice takes a £120k pension fund as 12 annual UFPLS withdrawals of £10k.
Bob takes a £120k pension fund as 3 withdrawals of £10k tax free cash followed by 9 withdrawals of fully taxable cash. 
Charlie buys an annuity for £90k and takes £30k TFC up front, topping up the annuity from this cash as needed
Diane buys an annuity for £90k and a separate £30k purchased life annuity from the TFC

They are all spending the same type of funds. Why should the tax treatment be different ? But apparently it may be.

Probably the easiest thing from HMRC point of view, is for the Govt just to block the Excess Payments route altogether. In this case the Treasury should also gain a bit.
It is not a very well used 'trick' apparently so should not upset too many, and 95% of the population would not understand anything about it anyway.

I imagine it is a nightmare to police. For estates in the £500k to £1m would the executor have to ask for 7 years bank statements and check for gifts, or does this rule mean that a couple of irregular gifts in excess of £3k but less than say £10k which haven’t made any material difference to the donor can be ignored, or not even looked for? Scrapping it could leave executors embarrassed.

GunJack

Yet another shining example of UK tax legislation being as clear as mud....is it not about time the whole damned thing was simplified and loopholes closed, make life easier for all of us? ☹️

Secret2ndAccount

BikingBud said:

Closing the payment from excess income facility entirely would again be hitting people twice for tax.

Those that genuinely have surplus income that has already been subject to PAYE, not those trying to split out accrued pension that was squirrelled away tax free, should not be taxed again when they decide to spend, be that covering mortgages or pension contributions for our children or buying the Aston Martin

But as always the perceived inequity will be used to smash the working population for more tax.

We are rapidly getting to the point were there is no more blood to extract.

Can somebody send the link for the debt free wannabe board to Rachel please?
 

You are already taxed twice. You pay when you earn, then you pay again when you spend the money (20% VAT on almost everything - higher than a lot of people's personal tax rate). If you don't spend the money, then you are taxed when you die. Arguably from that point of view they should lower the Nil Rate Band, and reduce the Inheritance Tax rate.
If you give away the money, you are delaying the application of tax. Or maybe you are causing the money to be spent immediately at 20% rather than confiscated later at 40%. Somebody has to spend it eventually. Abolishing gifting exmptions is barely tinkering around the edges in the grand scheme of things. I don't think it's more fair or less fair. 

af1963

There's already an annual allowance for gifts, plus extra allowances for gifts on marriage.  These already exceed the amounts that the vast majority are able to gift to family.  And gifts which exceed these allowances are subject to a gradually decreasing tax rate until they finish up tax exempt after 7 years.  The "excess income" allowance introduces a lot of extra complication, and only benefits people with both wealth and income that are well above average.

It's a tax allowance that can only be used by people who are liable for IHT in the first place ( about 5% of estates) and who, by their own assessment, have "excess income".  Seems at least a candidate for being removed.

However, like most tax changes, the devil may be in the unintended consequences. People who can adjust their income ( drawdown etc) may choose to take less income in the first place, and pay less income tax on it right now, maybe hoping for a future government to change the IHT rules before it affects them.