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Diabolical pension inheritance tax on death 2027.
Comments
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Also the 325k limit would not apply if the gifts come from overseas…so don't worry if you get a large inheritance from an Australian grandparent.
…although whether an inheritance is taxable under the tax laws of another country could depend on the jurisdiction of the deceased…
Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!0 -
I'd hazard a guess that this is not widely known yet could have serious implications for those who receive gifts.
For example, 2 years before I die I gift £325k to person A. One week after my gift to person A I gift £1m to person B. Person B has used the £1m to buy a property. On my death, if the estate does not pay the inheritance tax due then person B will be liable for £400k inheritance tax, which I believe is due after 6 months (after which interest accrues to HMRC).
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Indeed - although the information is readily available from reliable online sources eg https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/gifts-and-exemptions-from-inheritance-tax
But as with any money-related topic, if you rely on random strangers on the internet and/or AI, what appears to be 'free' advice could prove extremely costly for you or for those who come after you.
Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!2 -
Worth noting that if the estate has enough money, it can pay any IHT liabilities that can arise in this way . HMRC does not care about the source as long as it gets paid. AIUI this is usually what happens.
You would hope someone giving away One Million Pound houses, would look into the IHT implications first.
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Yes, I'm assuming your Aussie relative's estate has been wound up correctly and the executors have dealt with Australian taxes.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
It is my understanding that dual national US/UK citizens have always had a tax problem with pensions because although the US won’t double tax, as growth isn’t taxed in the UK they can be taxed in the US and they have always been subject to US inheritance tax. I know of at least one person with a large DC pot who was looking to renounce their US citizenship because of it. I suppose that might have changed now.
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Many could easily gift £3k a year but choose not too. Cold dead hands and all that.
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You are leaving the responsibility of paying the IHT to your beneficiaries. The time needed to secure probate and sell illiquid assets can take years. Whereas the IHT needs to be paid within six months. This can necessitate taking out expensive temporary loans to pay this tax. So not as clean and simple or hassle free as you suggest.
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Just to be clear, in the event of a failed potentially exempt transfer ( PET) becoming chargeable on death and the transferor/testator has made no testementary pledge for the estate to pay the tax, HMRC's intial legal recourse in the first instance for the tax due is to the gift recipient, not the estate (Section 199 IHTA 1984).
Only if the tax remains unpaid by that recipient after 1 year from death can HMRC then legally pursue the estate for the tax remaining unpaid.
This can be a particularly egregious outcome if the beneficiaries of the residual estate are not the same as the recipients of the failed PETs, hence the importance of careful estate planning if substantial gifts are considered in these circumstances.
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The US includes US and overseas DC pensions in the estate for IHT purposes. Even before the most recent changes to the IHT treatment of DC pensions by HMRC, US based DC pensions owned by UK tax residents were included in the estate for purposes of UK IHT. However, not many US yax payers worry about IHT as the Federal life time allowance is $15M.
And so we beat on, boats against the current, borne back ceaselessly into the past.0
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