Pension to pay IHT

planforfuture

Please advice.

In the event that both me and my spouse are gone, am I right that my SIPP pension (as part of my residuary estate from 2027) can be released early from the pension provider in order to pay off the required IHT?

How about cash, stocks and shares assets, can they also be released early in order to pay the required IHT?

Marcon

https://forums.moneysavingexpert.com/discussion/6653326/pension-to-pay-iht

Could you clarify what you mean by 'early'? It has several potential meanings in the context of your question and knowing which one you have in mind increases your chances of getting a suitably targeted answer!

DRS1

The SIPP will not be part of your estate from 2027. It will just be subject to IHT.

The rules haven't been settled yet but it is unlikely the SIPP will pay the IHT due on the estate. It will probably only pay its share of the total IHT based on the size of the SIPP compared to the estate.

I am not sure what you mean by released early.

SVaz

Well Sipps don’t require probate so in that sense they are generally paid out earlier than other things like Investment accounts or bank /savings accounts that are over the Bank’s own limits.
This is all assuming that the Expression of wishes is up to date of course and the beneficiary knows what they will have to do in order to claim.

Flugelhorn

I think there were some changes (not specifically SIPP) where accounts could be accessed to pay IHT before probate

Keep_pedalling

The direct payment scheme can be used to pay IHT, this covers assets in things like bank and investment accounts.

https://www.gov.uk/paying-inheritance-tax/deceaseds-bank-account

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81865808#Comment_81865808

As you say the rules have not been settled yet. AIUI there was discussion that the Executor may be able to exercise discretion as to where IHT would be paid from.

planforfuture

Thanks all for the replies, much appreciated.

To clarify what i would like to achieve …

In order to allocate funds to pay the IHT after me and my spouse are gone, I was looking into whether to purchase a joint life policy (into a trust) for this purpose.

I have also heard that SIPP pension (that are subjected to IHT from 2027) can also be released straight after our passing to pay off the IHT hence I used the word 'early'.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81866168#Comment_81866168

If the policy premiums are reasonable in relation to the IHT exposure on your joint estates ( inclusive of your SIPP), a joint life 2nd death policy in trust is likely to prove a sensible course of action.

It will be useful not only to assist your beneficiaries to help settle IHT in order to obtain probate, but also compensate the estate for the additional tax burden levied on the SIPP. I imagine such policies ( in trust) will be commonly suggested by advisers for those in your circumstances going forward.

As regards 'early' release of funds from the pension fund to pay IHT, there will be a facility by which executors can request pension scheme trustees make payment of IHT direct to HMRC, but this will solely relate to the tax attributable to the SIPP. How quickly that can be turned around remains to be seen - see guide below

https://adviser.royallondon.com/technical-central/pensions/death-benefits/inheritance-tax-on-pension-death-benefits-from-april-2027/

Separate and distinct from this there is already a system in place where banks and investment platforms can be asked to make direct payments of IHT to obtain probate.

https://www.gov.uk/government/publications/inheritance-tax-direct-payment-scheme-bank-or-building-society-account-iht423

https://assets.publishing.service.gov.uk/media/67b7270e32b2aab18314bc79/IHT423_fillable.pdf

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81866168#Comment_81866168

This is exactly what we have done although mainly to cover IHT on gifts should we meet an early demise.

Albermarle

If the policy premiums are reasonable in relation to the IHT exposure on your joint estates ( inclusive of your SIPP), a joint life 2nd death policy in trust is likely to prove a sensible course of action.

Regarding the phrase in italics, can someone give an idea of what the level of premiums for this type of policy?

Lets say both of the married couple are 68, and in reasonably good health, and potential IHT bill on 2nd death was £250K. Just a very rough figure is fine.

I suppose one potential downside, is that you pay the premiums for 30 years, but a lot of the money has disappeared on care fees etc and no IHT due anymore. Or the IHT level is substantially increased, or IHT even abolished.