Reducing IHT

badger09

Something I’ve been considering for some time, so not a knee jerk reaction. 

I’m 75 and with our existing financial set up, my Estate would be subject to IHT under current rules. Small SIPP would increase IHT from April 2027.

I want to make gifts to my son to reduce IHT. There is no question of gifting amounts which could raise questions about Deprivation of Assets should care be necessary - no suggestion atm that it would be. Also trying to spend more, though DB & SP more than cover my needs.

All investments & most savings are in tax wrappers. SIPP (with HL) current value approx £90k. 
Is there any disadvantage to moving it all into Drawdown, taking the max 25% lump sum now, and leaving the rest invested?  (Apart from loss of 25% tax free on any growth). Potential saving 40% IHT & IT when son draws it. Further gifts would come from ISAs.

Thanks

Keep_pedalling

How big is your estate? What is your marital status?

DRS1

I think the argument for taking the TFLS is that if you don't then you might die before you take it and it is lost.  That is because if you die after 75 then your nominees will pay income tax on whatever they draw from the pension.  They don't get any TFLS.

Of course if you take it out and then die before 2027 you have moved it into the scope of IHT (unless you spend it all).  So you might want to wait until pensions are caught by IHT and taking or not taking the TFLS makes no difference from an IHT point of view.

Oh and the other question might be whether the people nominated to get your pension are the same as those named as your beneficiaries in your will.

badger09

Keep_pedalling said:

How big is your estate? What is your marital status?

Well into IHT territory
Married. But currently, no assets will pass to either spouse. 

badger09

DRS1 said:

I think the argument for taking the TFLS is that if you don't then you might die before you take it and it is lost.  That is because if you die after 75 then your nominees will pay income tax on whatever they draw from the pension.  They don't get any TFLS.

Yes if I don’t take it it will be lost as I’m already 75

Of course if you take it out and then die before 2027 you have moved it into the scope of IHT (unless you spend it all).  So you might want to wait until pensions are caught by IHT and taking or not taking the TFLS makes no difference from an IHT point of view.

I realise taking it now will bring it into scope of IHT now, rather than in 2027. I’m planning to gift it. If I wait until 2027 it means I’ll have to live at least 9 rather than 7 for there to be any benefit

Oh and the other question might be whether the people nominated to get your pension are the same as those named as your beneficiaries in your will.

Yes same main beneficiary. 

Could you elaborate on why you ask. 

Comments in bold. 

Thanks 

Albermarle

badger09 said:

DRS1 said:

I think the argument for taking the TFLS is that if you don't then you might die before you take it and it is lost.  That is because if you die after 75 then your nominees will pay income tax on whatever they draw from the pension.  They don't get any TFLS.

Yes if I don’t take it it will be lost as I’m already 75

Of course if you take it out and then die before 2027 you have moved it into the scope of IHT (unless you spend it all).  So you might want to wait until pensions are caught by IHT and taking or not taking the TFLS makes no difference from an IHT point of view.

I realise taking it now will bring it into scope of IHT now, rather than in 2027. I’m planning to gift it. If I wait until 2027 it means I’ll have to live at least 9 rather than 7 for there to be any benefit

Oh and the other question might be whether the people nominated to get your pension are the same as those named as your beneficiaries in your will.

Yes same main beneficiary. 

Could you elaborate on why you ask. 

Comments in bold. 

Thanks 

It is possible to have different beneficiaries for your pension, than the people you leave money to in your will.
So in that case moving money around from pension to other assets, would make a difference as to how much everybody gets when you die.
This will become even more of an issue after 2027, as payments of IHT could come from the pension or not.
However if your pension beneficiary is the same as the beneficiary of your will, then this will not matter so much.

badger09

Albermarle said:

badger09 said:

DRS1 said:

I think the argument for taking the TFLS is that if you don't then you might die before you take it and it is lost.  That is because if you die after 75 then your nominees will pay income tax on whatever they draw from the pension.  They don't get any TFLS.

Yes if I don’t take it it will be lost as I’m already 75

Of course if you take it out and then die before 2027 you have moved it into the scope of IHT (unless you spend it all).  So you might want to wait until pensions are caught by IHT and taking or not taking the TFLS makes no difference from an IHT point of view.

I realise taking it now will bring it into scope of IHT now, rather than in 2027. I’m planning to gift it. If I wait until 2027 it means I’ll have to live at least 9 rather than 7 for there to be any benefit

Oh and the other question might be whether the people nominated to get your pension are the same as those named as your beneficiaries in your will.

Yes same main beneficiary. 

Could you elaborate on why you ask. 

Comments in bold. 

Thanks 

It is possible to have different beneficiaries for your pension, than the people you leave money to in your will.
So in that case moving money around from pension to other assets, would make a difference as to how much everybody gets when you die.
This will become even more of an issue after 2027, as payments of IHT could come from the pension or not.
However if your pension beneficiary is the same as the beneficiary of your will, then this will not matter so much.

Thanks for the clarification. I knew that pension could go to a different beneficiary.
Are you saying that from 2027, IHT can be paid directly from the pension? If so, assuming there was enough in the pot, that would avoid the double dip of 40/36% IHT then beneficiary’s marginal rate IT when drawn.Or have I misunderstood?And who decides? Executor?

Apologies for so many questions. 

Edit

I’ve just found report on outcome of reporting & payment consultation. I’ll read that. 

BikingBud

badger09 said:

Keep_pedalling said:

How big is your estate? What is your marital status?

Well into IHT territory
Married. But currently, no assets will pass to either spouse. 

Either spouse🧐

badger09

BikingBud said:

badger09 said:

Keep_pedalling said:

How big is your estate? What is your marital status?

Well into IHT territory
Married. But currently, no assets will pass to either spouse. 

Either spouse🧐

Sloppy wording on my part. 

Currently, no assets bequeathed to spouse. 

Keep_pedalling

badger09 said:

BikingBud said:

badger09 said:

Keep_pedalling said:

How big is your estate? What is your marital status?

Well into IHT territory
Married. But currently, no assets will pass to either spouse. 

Either spouse🧐

Sloppy wording on my part. 

Currently, no assets bequeathed to spouse. 

Presumably this is because this is not a first marriage and you both have significant assets in your own right. Might be worth spending a little of that wealth on professional advice. 

badger09

Keep_pedalling said:

badger09 said:

BikingBud said:

badger09 said:

Keep_pedalling said:

How big is your estate? What is your marital status?

Well into IHT territory
Married. But currently, no assets will pass to either spouse. 

Either spouse🧐

Sloppy wording on my part. 

Currently, no assets bequeathed to spouse. 

Presumably this is because this is not a first marriage and you both have significant assets in your own right. Might be worth spending a little of that wealth on professional advice. 

Spot on. I didn’t repeat it but had already reached that decision.  

https://forums.moneysavingexpert.com/discussion/6634951/iht-planning#latest

Though I had been considering the wrong professional. 

I’ve already started the gifting process & will consult a STEP solicitor to help revise my will. Our wills were last reviewed before IHT was even a remote possibility. We are very fortunate, despite fiscal drag.