Inherited SIPP "Successor" Query: Avoiding 40% Tax Trap (Mother 75+)

abhorrentlenny

​Hi everyone, looking for some technical/tactical guidance on a SIPP inheritance.

​The Situation:

I am inheriting 50% of a SIPP (approx. £127k). The SIPP originally belonged to my Father (who passed away several years ago under age 75). It then passed to my Mother as a nominee. My Mother has now passed away at age 77.

​My Financials:

• ​I am self-employed with a steady income of approx. £50k per annum.
• ​This puts me right at the threshold of the 40% Higher Rate tax band.
• ​I have a newborn at home, so my risk appetite is medium, but I’m looking for long-term growth.

​The Dilemma:

Because my mother (the last holder) was over 75, my understanding is that the "tax-free" status from my father's death is lost. Any withdrawals I make now will be taxed at my marginal rate.

​If I take the £127k lump sum now, I’ll be hit with a massive 40% (and some 45%) tax bill, losing over £50k to HMRC instantly.

​My Questions:

1. ​Successor Drawdown: Is it a "no-brainer" to keep this in a Successor Flexi-Access Drawdown wrapper rather than taking the cash?
2. ​The "Drip Feed" Tactic: Since I'm already at the 40% threshold, is there any clever way to get the money out without losing nearly half of it? Or should I just leave it invested in the SIPP wrapper for 10-20 years and let it compound tax-free?
3. ​Future Proofing: With the 2027 IHT changes on the horizon, does keeping it in the SIPP still offer the best protection, or does the "Successor" status change the IHT math?
4. ​Investments: Any recommendations for "set and forget" funds within a SIPP for someone in their late 30s/early 40s?

​Essentially, I want to avoid being financially penalised for "cashing out" too early. Any "brutal" advice or "out of the box" tax strategies would be much appreciated!

​Thanks in advance.

DRS1

Leave it in the successor whatever until you retire and aren't a higher rate taxpayer any more. Invest it in whatever you invest your own pension in (you DO have your own pension don't you?)

MallyGirl

A bit of searching on here around multi asset funds would be a good start point for a set of products that offer an easy range of risk levels to choose from. Examples often discussed would be HSBC Global Strategy or Vanguard Lifestrategy but there are others

ali_bear

Leave it invested in a SIPP until your own retirement. Put it in medium-risk globally diverse investment funds. But don't rely on that alone, you'll want to be building your own pension fund with regular payments into higher risk equity-based funds for the next decade or so, then perhaps medium risk funds after that.

Marcon

Not sure where you are in the process, but I note that you have a newborn at home…who has a personal allowance of £12,570 for the current tax year. I presume they will be a non-taxpayer in the foreseeable future!

See how the SIPP provider responds if you ask about doing a Deed of Variation and having some funds transferred from your mother's pension (too late if it's already been put in an account in your name) to a pension for your infant.