Drawdown pre or post 75

DT2001

I am now in receipt of SP and DB totalling £22k. I have taken my TFLS from my SIPP to help fund a property project and the balance is about £270k. OH continues to work as she enjoys it. I am considering taking enough to utilise my BR tax band each year until the SIPP is cleared. Our estates will pay IHT. We have a French property which has been on the market for sometime (not unusual), the proceeds of which will be gifted but obviously subject to the 7 year rule. I know if I die pre 75 the pension could be drawn income tax free (after IHT) so there is an argument to wait however if I drawdown now, pay the BR income tax and then pass the excess income on it is outside of my estate immediately. Am I missing anything?

GrumpyDil

Yes, it likely won't be fully outside of IHT for seven years.

Marcon

Have you factored in that you need to live for 7 years after giving the gift for it to completely avoid IHT, assuming you aren't gifting it to your wife?

Qyburn

if I drawdown now, pay the BR income tax and then pass the excess income on it is outside of my estate immediately. Am I missing anything?

Isn't gifting from excess income outside IHT?

DRS1

I suppose the comments about living for 7 years may be based on the possibility that the gifts from excess income provision may be abolished or that the OP may not get their gifts to fit within it (eg doesn't keep adequate records of income and expenditure, lives off capital or makes the wrong sort of gifts - ones that aren't "normal expenditure"). There are lots of threads on here about the exemption and the more you read the more of a quagmire it looks.

OP You mention an OH. Are you married (or in a civil partnership)? You mention a house do you or your OH have a child or children you can leave it to? If the answer is yes to both then you might want to total up all your assets and see if you have over £2million. If you have it may be worth getting down below that figure. You may want to consult a STEP practitioner about your estate planning.

DT2001

My thinking regarding the 7 year rule was if it takes say a couple more years to complete the sale of the French property I need to live another 9 years for that gift to avoid IHT as the rule stands however if I can comply to the gifts from excess income I can ‘shift’ some of the £270k less income tax IHT free.

Married with children and assets inc SIPPs now in excess of £2m

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82088425#Comment_82088425

I was thinking more of the comments from others about living 7 years.

Draining the SIPP and staying within basic rate will take you what: 10 years? And the record keeping is not to be ignored. [And it gets discussed so much it may be on someone's radar. If it does get abolished and you are part way through your gifting plan what happens about the gifts you have already made when you die? Would they only be outside your estate if they were more than 7 years old? Sorry this is pure speculation and we do get told we can only plan based on the law as it stands not based on what might happen. So please feel free to ignore this last bit.]

Maybe think about a one off gift (if you have other assets "spare") and maybe some term life assurance to cover the tax bill if you die within 7 years. Whether insurance is a good idea may depend on how large the gift is.

Do have a look at the tapering rules on the RNRB. I confess I do not know how they will work after April 2027 if it is the SIPP which pushes you over the £2million.