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Paying tax on pension fund legacies

Hi there
Some of family recently received legacies from my late brother’s private pension fund. 
Can anyone explain or give me the rationale why the government taxes legacies from pension funds when the person is over 75 and not when the person dies under 75? 
This seems random and unfair. 
I’m not wanting to get into a political debate here. I just want to understand if there is any reason  why that is the case and be informed as to why that is the policy. 
Thank you 

Comments

  • phlebas192
    phlebas192 Posts: 95 Forumite
    Second Anniversary 10 Posts Name Dropper
    It used to be that any money left in a SIPP at age 75 had to be used to purchase an annuity and therefore any payments possible to a beneficiary after death (eg if it were a joint life annuity or had a guarantee period) would be taxed as income. I guess that when they removed the annuity requirement they just decided to keep a similar tax approach. I imagine that at some point in the future the pre & post 75 distinction will be removed but that could be that both are taxed rather than neither.
  • Albermarle
    Albermarle Posts: 28,832 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    jah61 said:
    Hi there
    Some of family recently received legacies from my late brother’s private pension fund. 
    Can anyone explain or give me the rationale why the government taxes legacies from pension funds when the person is over 75 and not when the person dies under 75? 
    This seems random and unfair. 
    I’m not wanting to get into a political debate here. I just want to understand if there is any reason  why that is the case and be informed as to why that is the policy. 
    Thank you 
    It is a question that has been asked before as it does not seem that logical.
    It was thought it might be abolished at the last budget, but the change came on IHT for pensions instead.
    If it is abolished it is more likely that all beneficiary pensions will be taxed, rather than those just coming from people who died over 75.
  • jah61
    jah61 Posts: 2 Newbie
    First Post Name Dropper
    Thank you @Albermarle and @phlebas192 for those replies. 
    I didn’t know the history/background to this but it does seem to me to be unfair to tax sipp investment legacies  - since the person who died paid tax all their working lives, as have/do the people being left the gift. I guess given the state general of high tax on any assets that may be inherited in this country it isn’t a surprise. And so I suspect you are right it will probably come to apply to over 75s who had Sipps also along with the forthcoming reforms on including taxing all private pension assets as part of inheritance. 😔
  • Albermarle
    Albermarle Posts: 28,832 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    jah61 said:
    Thank you @Albermarle and @phlebas192 for those replies. 
    I didn’t know the history/background to this but it does seem to me to be unfair to tax sipp investment legacies  - since the person who died paid tax all their working lives, as have/do the people being left the gift. I guess given the state general of high tax on any assets that may be inherited in this country it isn’t a surprise. And so I suspect you are right it will probably come to apply to over 75s who had Sipps also along with the forthcoming reforms on including taxing all private pension assets as part of inheritance. 😔
    Do not forget that all personal pension contributions get tax relief, and many peoples pensions are bolstered by employer contributions as well. Plus all investment growth in the pension is protected from any taxes.
    Even if you pay some tax on the way out, you are still quids in normally.
    If you are still alive you have to pay tax on pension withdrawals ( after taking the tax free cash) so why should beneficiaries not?

    Overall the pension system in the UK has quite generous tax treatment, to encourage people to save for their old age, as the state pension on its own is not that great.
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