Inheritance tax question - Gift from Dad

Smudgeismydog

https://forums.moneysavingexpert.com/discussion/comment/81909608#Comment_81909608

yes, that’s my understanding too

Tax Free Cash is still available post 75, it’s only lost on death post 75

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81909608#Comment_81909608

My oversight and error on that point.

OP should check how much TFC has already been taken since commencement of drawdown.

If a balance remains, there is a case for withdrawing and gradually moving those funds into ISAs over time and/ or taxable securities such as government gilts.

Gifting, is still debateable but, any residual pension TFC may make it possible.

DRS1

Some older pensions had 75 as a cut off date when an annuity had to be purchased. The OP's father is old enough to have one of those pensions but since there is an adviser of some sort involved there may have been a transfer to a more modern version at some time. The simplest thing to do is for the OP to ask the adviser if the TFLS has been exhausted or not.

If his father is getting £1k pm on top of a state pension then he is presumably paying some tax on the £1k pension anyway. Or maybe it is a carefully calculated UFPLS amount which just avoids it?

One thing to definitely check with the adviser is what nomination his father has given to the pension provider since his father's will will not be determinative of where the pension goes when his father dies.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81909394#Comment_81909394

It now seems certain that the OP's Dad simply doesn't have funds available to make any large gifts. That, therefore, should conclude matters.

From the first post:

He has owns his own property outright worth ~£300k

He has a significant savings fund of circa £290k and some small savings pots or circa £50k.

As mentioned earlier in the thread, IHT is unlikely to be a consideration.

Dad only really has £50k and needs to keep that to support his own care needs should they arise, or simply to live the best life he can.

Pension fund is not available to be gifted and needs to be managed to provide Dad with necessary regular income.

spdavies

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

Thanks again - this is an interesting perspective. I was unaware because until last week i was not involved in my Dad's finances. He's only just asked me to get involved and help him and he's already at the point of being confused about where everything sits. Hence the digging and the questions!!

I will clearly check whether he received a lump sum previously or if this is an option. I will also check that he has registered us a beneficiaries to his pension in the event of death.

Question - what normally happens to pensions after death. Does the remaining value class as part of his estate to be passed down? Does this then incur any tax (not IHT as we've established we are below threshold)?

I absolutely want my Dad to have all the finances he needs and hopefully he'll go on to live for another 10-15 years. However with his state pension contributions and other ~£50k savings he just doesn't need all the money that is tied up in his pension. He lives quite a humble life and (other than care needs) is keen to pass some of this down.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81910264#Comment_81910264

Question - what normally happens to pensions after death. Does the remaining value class as part of his estate to be passed down? Does this then incur any tax (not IHT as we've established we are below threshold)?

Currently unused pension pots on death are not included in IHT calculations, but will be from next year due to a change in the rules. Although even then there will be no IHT to pay, it is a fact worth knowing.

Pension pots should not be included in wills. The Trustees of the pension will normally pay out to the named beneficiary in the Expression of Wishes form ( hence the recommendation to check this ).

When the pension is passed to the beneficiary, there is no tax or charge. It can be kept or withdrawn ( all at once or in stages just like a normal pension) . If the deceased was over 75, any withdrawals will be taxed at the beneficiaries marginal rate. So if it was you then any withdrawals will be added to any other taxable income you have to calculate your tax liability. Depending on your other income and how much you withdraw it might mean you move into a different tax band for part of your income. For this reason it is usually not recommended to take it all out in one go, but spread it over several tax years. Or you can just leave it alone and use it your self when you are retired.