Transferring pension to beneficiary - tax changes

Briskly

I am the main beneficiary in a will and the financial advisor administering the deceased's pension post has suggested I could inherit the pension and because my relative passed away under 75 years old and any drawdowns would be tax free. This on the face of it sounds a good idea as I am almost 70 and don't have a very good existing pension. My worry is that the government could suddenly impose tax on these drawdowns at the drop of a hat and I would lose a great deal of money as opposed to taking the money now and simply saving it in a normal savings product. I guess I should at least wait until after the budget but any ideas on this?

poseidon1

Briskly said:

I am the main beneficiary in a will and the financial advisor administering the deceased's pension post has suggested I could inherit the pension and because my relative passed away under 75 years old and any drawdowns would be tax free. This on the face of it sounds a good idea as I am almost 70 and don't have a very good existing pension. My worry is that the government could suddenly impose tax on these drawdowns at the drop of a hat and I would lose a great deal of money as opposed to taking the money now and simply saving it in a normal savings product. I guess I should at least wait until after the budget but any ideas on this?

I assume the relative  who has passed is your cousin in the post below, in which case my commiserations -

https://forums.moneysavingexpert.com/discussion/6572700/private-pension-pot-and-paying-for-care#latest

In theory your rights to drawdown tax free  from the SIPP over whatever period you wish should now be set in stone under the current existing rules, and any future changes should not be retrospective for someone in your position. 

A wait and see approach to the coming budget is probably prudent. However, how much is in the pension pot? 

Briskly

Thanks for your reply and kind  commiserations - it has been tough.... There seems to be around £100k in the pension pot. A lightning tax grab would cost £20k.

poseidon1

Briskly said:

Thanks for your reply and kind  commiserations - it has been tough.... There seems to be around £100k in the pension pot. A lightning tax grab would cost £20k.

A reasonable size.

If you have not used your own isa allowance this year, you could consider putting £20k in that direction sooner rather than later.

 If you are comfortable with where the SIPP is invested a stocks and shares ISA could mirror the SIPP investment profile. So same tax free environment but far less likely to be attacked. Rinse and repeat in subsequent tax years, if nothing untoward happens to your  future tax free drawdown rights in the coming budget.

Briskly

Thanks. I'd like to think there would be at least some warning of an attack so I could draw everything down quickly but these days anything could happen it seems. Another thing that worries me a bit is that HMRC apply emergency tax to the drawdowns - I don;t think I could face a battle with them to get it sorted,  

sheramber

Briskly said:

Thanks. I'd like to think there would be at least some warning of an attack so I could draw everything down quickly but these days anything could happen it seems. Another thing that worries me a bit is that HMRC apply emergency tax to the drawdowns - I don;t think I could face a battle with them to get it sorted,  

If it paid as a tax free payment no tax will be deducted.
  It will be given a NT code ( nil tax)

Briskly

Thanks. Silly question maybe but would I be able to top the SIPP up if say withdraw half the pot at first to be on the safe side and feel like putting some back when times are less turbulent and still have the tax advantage?

SadCodeMan

I am next to certain you would not be able to reverse the witdrawal. (There were some test cases on that after last years budget).

You might just be able to invest the money in a new SIPP in your name though (Assuming you have relevant earnings of at least the size of the amount you want to put back).
That would depend on whether the withdrawal from the inherited SIPP triggers the investment cap. Someone like @poseidon1 is a likely person to know the answer to that sort of thing!
It also assums you have not already triggered that by withdrawing from your own pension already (other than tax free 25%)

This would not put you back in quite the same situation though because this would be a 'normal' investment so one you could only withdraw after 55 (or 57) and would pay usual personal pension tax on. I.e. you would not be able just to take the money back out again as if it had been in the original wrapper.
On the plus side, you would get tax relief (currently) on that.
You would need to check that it did not fall foul of  pension recycling rules too.

Sorry. A simple answer has so many exceptions in the pension world... 
The above is doesn't cover every if and but for that same reason...



 

Briskly

Thankyou. It does seem very complex. I think I might hedge my bets, wait until after the budget and then withdraw 50%.