Inheritance of Pension funds

se2020

jem16 said:

se2020 said:

Smudgeismydog said:

No, I’m not suggesting take it out of the pension and then putting it back in as a contribution. If they inherit and transfer into their pension, it is not a new contribution, so doesn’t attract tax relief (as it’s already received this via the original recipient). 

This makes sense.
But,
Say a 20% rate paying child already has £20k of own funds in a bank account. Earns £35k/Yr.

They inherit £25k from the parents pension.
Pay £5k of that in tax.
Keep the remaining £20k.

Pay the £20k they had before into a new pension in own name and get 20% tax relief on that.
End up with £24k in a pension and still have £20k in the bank.
Effectively reducing the tax on the inheritance to £1k and enabling them to take 25% out, tax free, at 58.

Although,  if they want the money to go into a pension and they can keep it in the existing wrapper or transfer into a suitable alternative while keeping the full amount that would obviously be preferable. 

That isn’t correct. If you pay £20k into a pension, then 25% is added so £5k and you now have £25k in the pension. 

But what would be the point in doing that? You still end up in the same position as if you’d just transferred the pension to your own name.

Ah ok,  the stuff I have read seems to say 20% plus some extra relief available if you are a 40% payer.

You are right, there is no point doing it if the children can just transfer the existing pension into their own names.
I have only had a quick look at the documents for the existing pension. 
All it says in the event of death section is 
"You have nominated (names of 4 children) who may drawdown in a lump sum or installments over time"

I'll look into it further and see what other options are available. 

jem16

se2020 said:

jem16 said:

se2020 said:

Smudgeismydog said:

No, I’m not suggesting take it out of the pension and then putting it back in as a contribution. If they inherit and transfer into their pension, it is not a new contribution, so doesn’t attract tax relief (as it’s already received this via the original recipient). 

This makes sense.
But,
Say a 20% rate paying child already has £20k of own funds in a bank account. Earns £35k/Yr.

They inherit £25k from the parents pension.
Pay £5k of that in tax.
Keep the remaining £20k.

Pay the £20k they had before into a new pension in own name and get 20% tax relief on that.
End up with £24k in a pension and still have £20k in the bank.
Effectively reducing the tax on the inheritance to £1k and enabling them to take 25% out, tax free, at 58.

Although,  if they want the money to go into a pension and they can keep it in the existing wrapper or transfer into a suitable alternative while keeping the full amount that would obviously be preferable. 

That isn’t correct. If you pay £20k into a pension, then 25% is added so £5k and you now have £25k in the pension. 

But what would be the point in doing that? You still end up in the same position as if you’d just transferred the pension to your own name.

Ah ok,  the stuff I have read seems to say 20% plus some extra relief available if you are a 40% payer.

You are right, there is no point doing it if the children can just transfer the existing pension into their own names.
I have only had a quick look at the documents for the existing pension. 
All it says in the event of death section is 
"You have nominated (names of 4 children) who may drawdown in a lump sum or installments over time"

I'll look into it further and see what other options are available. 

It’s 20% tax relief of the gross contribution which is 25% of the net contribution. 

SadCodeMan

Just for clarity:

It is full tax relief on the contribution. Not just 20%.

The pension fund will claim back the lower rate tax for you (the 20%)
Any additional tax is refunded to you by HMRC (when you do your self assesment for example)

So, if you are in the 40% bracket, 20% will be claimed back by the fund. The remaining 20% in the tax return.

(Ignoring NI)
If you are a basic rate payer:
If you start with £100 you will get £80 after tax.
If you contribute that you will get £100 in your pension (£80 plus a refund of £20 claimed by the provider (the 20% tax))

If you are a 40% payer:
If you start with £100 you will get £60 after tax.
If you contribute that you will get £75 in your pension (£60 plus a refund of £15 claimed by the provider (the 20% tax))
but - In your tax return you claim back the remaining higher rate tax ( £20).

Or alternatively
You 'borrow' £20 off yourself and contribute £80. That will result in £100 in the pension (as for basic rate payer)
In your tax return you get the £20 back to 'repay' yourself)

I.e. in either case (basic rate or higer rate) you can start with £100 pre tax income and end with £100 in the pension.