SIPP holder dies at over 75 - just checking my understanding

thingswerentthisbadinmyday

Evening all,
I’ve had it confirmed (by my SIPP provider) that if I ‘pop my clogs’ after age 75, then my SIPP beneficiaries (some of whom are resident overseas and non resident for UK tax purposes) would not have the option of receiving their share of my pot as a (drawdown) beneficiary SIPP; instead they would have to take cash with income tax deducted at their ‘marginal rate’. I’m not sure what this means exactly for my daughter and her (minor children) as they don’t have a UK tax code.
What I can foresee, though, is likely hassle in her having to deal with both Uk and Australian tax authorities to determine whether the correct amount of tax has been paid or whether a refund might be due. I’m keen to avoid this if I can as I won’t be here to help sort it!!
My other SIPP beneficiaries are daughter and grand kids in the UK. And I understand the choices they will be given, so that’s not an issue for me.
I’m starting to wonder if there is a better way of doing things.
One option I’ve started to consider is whether to scrap my existing plans and instead of having daughters/grand-children as beneficiaries, to name my wife as 100% beneficiary and then to include legacies for my daughters and grandchildren in my will, equal to the (present value) of my SIPP.
This is no more than a vague thought at present and I certainly don’t have sufficient clarity of mind to know if it’s a good/bad idea and whether it might give rise to any unintended consequences.
Of course, if I don’t make it to the ripe old age of 75 then all payouts would be free of tax (subject to the 2 year rule for uncrystallised pots). And so the problem of tax being deducted goes away.
And I suppose one strategy could be to wait a while and make the above changes closer to my 75th.
Any thoughts or observations would be very much appreciated. In particular, I’d appreciate clarification of the tax situation if I decide to nominate my wife as 100% beneficiary. Am I correct in saying that if I die over age 75, then she’d receive the SIPP proceeds as a beneficiary drawdown account but withdrawals would be subject to tax at her marginal rate?

dunstonh

I’ve had it confirmed (by my SIPP provider) that if I ‘pop my clogs’ after age 75, then my SIPP beneficiaries (some of whom are resident overseas and non resident for UK tax purposes) would not have the option of receiving their share of my pot as a (drawdown) beneficiary SIPP; instead they would have to take cash with income tax deducted at their ‘marginal rate’. I’m not sure what this means exactly for my daughter and her (minor children) as they don’t have a UK tax code.

Can you name the provider? SIPPs, unlike PPPs or SHPs, nearly all offer dependents' drawdown.

What it may be is that that particular SIPP provider won't offer it to those who are non-UK residents (especially if in the EU or US or a sanctioned country where nearly all providers couldnt do it). Dependents' drawdown requires the setting up of a new pension.  So, for example, an EU resident cannot be sold a UK financial service product unless that UK provider has a physical office in the EU country they are resident in passporting permissions throughout the EU.

Of course, if I don’t make it to the ripe old age of 75 then all payouts would be free of tax (subject to the 2 year rule for uncrystallised pots). And so the problem of tax being deducted goes away.

It doesnt matter if its uncrystallised or crystallised.

Any thoughts or observations would be very much appreciated. In particular, I’d appreciate clarification of the tax situation if I decide to nominate my wife as 100% beneficiary. Am I correct in saying that if I die over age 75, then she’d receive the SIPP proceeds as a beneficiary drawdown account but withdrawals would be subject to tax at her marginal rate?

yes

thingswerentthisbadinmyday

dunstonh said:

I’ve had it confirmed (by my SIPP provider) that if I ‘pop my clogs’ after age 75, then my SIPP beneficiaries (some of whom are resident overseas and non resident for UK tax purposes) would not have the option of receiving their share of my pot as a (drawdown) beneficiary SIPP; instead they would have to take cash with income tax deducted at their ‘marginal rate’. I’m not sure what this means exactly for my daughter and her (minor children) as they don’t have a UK tax code.

Can you name the provider? SIPPs, unlike PPPs or SHPs, nearly all offer dependents' drawdown.

What it may be is that that particular SIPP provider won't offer it to those who are non-UK residents (especially if in the EU or US or a sanctioned country where nearly all providers couldnt do it). Dependents' drawdown requires the setting up of a new pension.  So, for example, an EU resident cannot be sold a UK financial service product unless that UK provider has a physical office in the EU country they are resident in passporting permissions throughout the EU.

Of course, if I don’t make it to the ripe old age of 75 then all payouts would be free of tax (subject to the 2 year rule for uncrystallised pots). And so the problem of tax being deducted goes away.

It doesnt matter if its uncrystallised or crystallised.

Any thoughts or observations would be very much appreciated. In particular, I’d appreciate clarification of the tax situation if I decide to nominate my wife as 100% beneficiary. Am I correct in saying that if I die over age 75, then she’d receive the SIPP proceeds as a beneficiary drawdown account but withdrawals would be subject to tax at her marginal rate?

yes

Thank you for the replies.
The SIPP provider is HL. I will recheck the correspondence /messages we exchanged earlier this year just to be sure of my facts.
I’m not concerned about the UK side of things. My daughter and 2 grandchildren who are resident in the UK - would be offered the option of a beneficiary drawdown SIPP. I would encourage my daughter to take this up;  the grandchildren, less sure.
It’s the Australian side of things which bothers me.
If there are providers who would allow a non resident to have a beneficiary drawdown SIPP, then perhaps I should consider a transfer.

thingswerentthisbadinmyday

Having now searched on-line, so far I cannot find any of the (what I would call) the mainstream SIPP providers which offers a non-Resident SIPP/beneficiary drawdown SIPP. 
So it looks like it’s back to the drawing board.
Probably best also to have a detailed chat with both of my daughters who are already aware of my plans for the proceeds of my SIPP when I’m no longer here.

dunstonh

The SIPP provider is HL. I will recheck the correspondence /messages we exchanged earlier this year just to be sure of my facts.

I am pretty sure HL will offer beneficiary drawdown to UK residents.

It’s the Australian side of things which bothers me.

That would be possible but probably not as much in the DIY market.   

Australia taxes UK pensions differently.   (not tax free on growth for example).  So, if you have alternative assets, it may be more sensible to look at aiming the pension beneficiaries to be the UK residents and use other assets to go to the Australian resident.

thingswerentthisbadinmyday

dunstonh said:

The SIPP provider is HL. I will recheck the correspondence /messages we exchanged earlier this year just to be sure of my facts.

I am pretty sure HL will offer beneficiary drawdown to UK residents.

It’s the Australian side of things which bothers me.

That would be possible but probably not as much in the DIY market.   

Australia taxes UK pensions differently.   (not tax free on growth for example).  So, if you have alternative assets, it may be more sensible to look at aiming the pension beneficiaries to be the UK residents and use other assets to go to the Australian resident.

Thank you again for such a helpful reply. Much appreciated.
Apologies for the confusion I seem to have caused ;
HL will indeed offer a beneficiary drawdown option to my (UK based) daughter and grandchildren.
It’s the Australian side of things which is a “no-no” and would have to be paid out in cash. No option. 
I’m starting to think that your second point is a sensible one to follow - i.e. change my SIPP beneficiaries to UK residents only.
My issue then becomes am I prepared to have what I would call a ‘lop-sided’ will or do I go the whole hog; remove my daughters and grandchildren from the Expression of Wish and name only my wife as the SIPP beneficiary, with my daughters/grandchildren given matching legacies in my will (or as close as I can get, given that I will not be able to take account of changing investment values in the SIPP).
A rhetorical question, really as it will be a very personal decision which no-one can really help me with.
However, I am very grateful to you for bringing some clarity to my thought processes.
This gives me a platform to move on from. If I can persuade my daughters to talk to me about this (understandably neither likes talking about their dad not being here), then I’m sure we can come up with something that everyone is happy with.