Investing an inherited SIPP into a pension

Coastalkate

I am just renewing my Will. I have a SIPP which i would like to pass on to my daughters, but I would like them to use it to give them more options at retirement time, as i have had. If what they inherit from my SIPP is paid into a SIPP of their own will it still be subject to income tax? Obviously I have no idea how much will be left by then, I'm hoping for another 30 years of retirement and I will keep it myself to ensure care options to the end. I'd just be interested in the principles. Thank you.

Albermarle

If you die before 75, then any withdrawals by your beneficiaries from the SIPP you leave behind will be tax free.

If you die after 75, all withdrawals will be classed as taxable income. Exactly how much tax your daughters will pay will depend on their other income.

AIUI your daughters will inherit a 'beneficiary pension' which has to be kept separate from their normal DC pensions/SIPPs, due to the different tax treatment.

Secret2ndAccount

They will each receive a SIPP containing their proportion of what is left of your SIPP.

If you were under 75, the entire amount can be withdrawn at any time without tax. They can leave it in for the tax free growth, and use it for their own pension, or they can take it out for a round-the-world cruise or a new car.

If you were over 75, they can withdraw money as and when they wish, but they pay tax on it as if they had earned the money in the year they withdraw it. So it is all taxable, and could push them into a higher tax rate if they withdraw a lot in one year. There is no 25% tax free part. That is lost. They could withdraw the money, bit by bit, and pay it into a SIPP of their own, whereupon they would receive tax relief. That's largely only deferring the tax though. Although 25% would become tax free, the rest would be taxable when they withdrew it from their own SIPP.

You cannot directly transfer an inherited SIPP into your own SIPP. They are separate pots.

af1963

Your SIPP or other pension isn't normally included in your will. It usually goes to the beneficiaries that you have nominated directly with the SIPP provider. Legally, the provider has discretion and it's possible for them to pay it to someone different ( e.g. if you have made nominations that leave a dependent penniless) but they almost always go with your nominations.

After your daughters inherit a beneficiary pension, they'll be able to access it at any time, no minimum age limit, subject to the tax rules mentioned above.

Keep_pedalling

Your SIPP does not form part of your heritable estate so can’t be included in your will other than as an unenforceable wish. Trying to control your wealth from beyond the grave is difficult and rarely a good idea.

NormalNorman

Primarily your SIPP forms part of your pension income to see you through retirement come rain or shine.

So, what I did was start a pension in daughters name since birth contributing monthly, sometimes more with manual payments. Then there is a clear history of gifting not that it will play a part in reality but you never know.

Personally I find that cleaner as there is a clear difference between earmarking a whole pot vs winding up an estate but accept that many factors such as tax implications will affect your decisions.

leosayer

If you haven't already then you need to tell the SIPP provider who your pension beneficiaries are if you die.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82061182#Comment_82061182

And do not mention the pension in your will at all, as it will just potentially confuse matters.

Coastalkate

Thank you very much, Everyone. That's all very helpful.

Now I know what I'm doing.