Strategy Change in lieu of 2027 Pension and IHT legislation

segovia

I can't be the only one who is seething about the 2027 IHT changes next April. I am still trying to reconcile the impact. I have spent the last 30 years building up a sizeable pot to fund my old age and leave something to pass on to my children upon my death. I have been over multiple scenarios and keep coming back to the same outcome: spend, spend, and spend some more. As I am now 70, I am thinking I will need to exceed 100K a year and pay the 40% tax; I have already taken my 25%. Somehow, this does not feel right. Anyone else in the same position?

Ironically, the last 10 or 15 years have been spent discussing drawdown strategies and establishing if I have enough, I now find myself doing the opposite. The only upside is that my wife is 7 years younger and in good health, but our property portfolio is circa £900,000.00, and even at a conservative estimate of 5% growth, that is growing at £45,000.00 a year and compounding the problem

Aylesbury_Duck

What problem?

Serious question there. You have many hundreds of thousands of pounds in pension pots at age 70, and a property portfolio worth almost a million pounds. Are your children destitute or are there many, many of them? Look after yourselves instead of worrying about amassing a huge pile to pass to them.

It sounds like you've worked extremely hard to get yourself into a fantastic financial position, what on earth have you got to be seething about?

DRS1

As I am now 70, I am thinking I will need to exceed 100K a year and pay the 40% tax; I have already taken my 25%.

If you go over £100k in taxable income you are going to start losing your personal allowance (otherwise known as the 60% tax trap). Don't go overboard with the taxable pension draw just because of 40% IHT. Of course maybe you are going to have an estate including pensions over £2million all in?

our property portfolio is circa £900,000.00, and even at a conservative estimate of 5% growth, that is growing at £45,000.00 a year and compounding the problem

Maybe it is time to sell the property portfolio and spend the cash from that.

Bostonerimus1

Why should DC pension pots be excluded from IHT? The previous situation appears strange to me.

You can pass on £1M to your children without IHT and if you want to avoid IHT on more just start giving to your children or charities. You should loot at "the 7 year rule" and also "gifts from excess income". Also you might look at the recent thread about using life insurance in trust to leave money to your children to mitigate IHT.

Albermarle

https://forums.moneysavingexpert.com/discussion/6673354/strategy-change-in-lieu-of-2027-pension-and-iht-legislation

Being able to pass pension pots on, without them being included in an estate, was a loophole. Largely benefiting those with large pots, partly funded by 40% tax relief.

It will affect me, but I struggle to make a rational argument against it .
Probably the freezing of IHT Limits and the unfairness to unmarried childless people, are more arguable cases.

Marcon

I have spent the last 30 years building up a sizeable pot to fund my old age and leave something to pass on to my children upon my death.

You certainly haven't. You might have been building up your family finances for 30 years, but it's only thanks (I use the word advisedly) to George Osborne and his so-called pension freedoms that such a thing became possible. Before then, you were saving, with huge tax benefits, to provide for your own old age and probably that of your spouse.

You and your wife have plenty to pass on to your children and £1m of it could be tax free.

You've been given so much - free further education (assuming you wanted to follow that path), a massive increase in property prices (with tax relief on mortgage interest payments earlier on in your life), the luxury of having the choice to work hard and provide what has clearly been a well-earned and comfortable life style for your loved ones.

What's so terrible about being wealthy enough to contribute to the well being of society? You're hardly being asked to impoverish yourself in the process. Have a look at the number of people in poverty and think again: https://www.bbc.co.uk/news/articles/c3w38qvz195o

Pensions are to provide security in your/your wife's old age. They aren't there to provide a way to dodge death duties and the sooner people recognise that the better.

Aylesbury_Duck

https://forums.moneysavingexpert.com/discussion/comment/82042176#Comment_82042176

Perfectly put

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82042176#Comment_82042176

prior to pension freedoms I think you had a flat 55% tax on pensions when you died? so IHT is actually aligned more with that and actually lower.

the double taxation is a different matter, I don’t remember if that was still the case before. Plus the tax free vs taxable at 75 thing.

segovia

https://forums.moneysavingexpert.com/discussion/comment/82042097#Comment_82042097

Along with many others its a scenario that I had not planned for. I agree its a nice problem to have but it will take some planning to mitigate the tax liabilities.

segovia

https://forums.moneysavingexpert.com/discussion/comment/82042149#Comment_82042149

The property portfolio is our home and a commercial premises which generates income, selling one or both is an option but its a scenario I had not planned for.

segovia

https://forums.moneysavingexpert.com/discussion/comment/82042151#Comment_82042151

I think it is fair to say that most folks with family saved into their pensions on the assumption they would apply the 4% rule, enjoyed a good retirement and planned to leave something for their kids.