Inheritance tax question - Gift from Dad

spdavies

And yes thank you i recognise the power of attorney question

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81906333#Comment_81906333

You can do it online yourself, you do not need to pay a solicitor if you do not want.

Each one costs about £85 - one for health and welfare and one for finance.

DRS1

One thought if the OP puts a power of attorney in place and then his father wants to give him this money and he use the power of attorney to make the gift isn't the OP going to get into trouble? It will look as if he is using the power of attorney to benefit himself.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81906439#Comment_81906439

As long as his father has the mental capacity to make the decision to make the gift and has instructed their attorney to make the gift then it is not a problem.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81906448#Comment_81906448

Sounds like you might want the doctor and the lawyer in attendance. I know all a bit Agatha Christie.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81906453#Comment_81906453

It is a good point.

For sure you can have a PoA appointed, but not use them for many years as you are totally compos mentis.

For sure if there is a PoA appointed and you have significantly lost capacity, then they will act for you.

However there will be many grey areas inbetween.

spdavies

Ok so it appears that things are a little different to my first understanding. Following a note from the fund manager, it appears that my Dad was getting confused and that this £290k pot is actually a pension pot from which he draws down a regular income of circa £1000 per month and lives on that (plus his state pension).

The mgr tells us that there will therefore be income tax implications of drawing down any of this money early 20% for up to £50k and then 40% after that.

Am i missing something or are there any alternative ways to move money e.g. to an ISA without incurring income tax??

eskbanker

You're presumably referring to the pension provider (or financial adviser?) rather than the 'fund manager'?

Taxation of pension withdrawals depends on various factors, one of which is the 25% tax-free component, and in particular whether he's already drawn this out. Assuming he hasn't, then he can make UFPLS withdrawals whereby 25% of each is tax-free and the rest is taxed at his marginal rate, or alternatively take the full 25% of the remaining pot tax-free, leaving all subsequent withdrawals to be taxable.

As to whether it's a good idea or not to do this with a view to gifting, that's an entirely different question!

poseidon1

OP I find it significant that you were unaware and your father did not inform you, that the £290k is tied up in a DC pension which provides your father with taxable retirement income for the rest of his life.

Since your father is now 82, he should have ( prior to age 75) already had the 25% tax free lump sum such schemes usually provide.

If he did not take it, that ship has now sailed and all withdrawals remain taxable at your father's highest marginal rate ( no more tax free withdrawal options ).

Assuming he is a basic rate tax payer, any withdrawals in excess of the £1,000 p.m he is taking will minimally be taxed at 20%. Take too much and as the adviser indicated that tax bill could hit 40%.

With a relatively small additional £50k savings pot, I do not see your father as having much scope to make substantial gifts to you.

As well to be aware if your father dies with a substantial amount remaining in his pension pot, you inherit the right to continue to draw from it, but you also will be liable to income tax thereon depending on your own future income sources.

Difficult to see any rationale for your father drawing more taxable pension than he needs to, simply to give you the excess, but others here may see things differently.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81909487#Comment_81909487

AIUI , you can still take any tax free cash available after age 75.

The issue is that if you die after age 75, any unused tax free cash is then unavailable to any beneficiaries.