are pension withdrawals classed as "income"

QrizB

https://forums.moneysavingexpert.com/discussion/comment/82160004#Comment_82160004

I think Google has led you astray there.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/82159971#Comment_82159971

A couple of problems with this plan. The first is that the gifts from excess income exemption is somewhat of a grey area and drawing down large amounts in a short time is likely to lead to an HMRC challange which your executor is got to deal with. You are also going to have to pay a large amounts of tax drawing down such large sums each year, so the overall tax reduction is going to be way under 40%.

Taking both of those issues together this cunning plan could actually lead to more not less tax being paid. I would also say that anyone with this amount of wealth should be taking professional advice not relying on strangers on the internet.

Marcon

Taking both of those issues together this cunning plan could actually lead to more not less tax being paid. I would also say that anyone with this amount of wealth should be taking professional advice not relying on strangers on the internet.

…none of whom is insured to give advice and none of whom has all the essential facts…

Not everything can be 'put right' once you've made a mis-step, as this recent thread demonstrates all too vividly:

https://forums.moneysavingexpert.com/discussion/6685582/triggered-money-purchase-annual-allowance

Don't let pride, inertia or anything else stand between you and a possible major tax saving.

Quidditch

https://forums.moneysavingexpert.com/discussion/comment/82160301#Comment_82160301

why large amounts of tax on drawing down these sums each year?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82160379#Comment_82160379

How exactly are you proposing to ensure that one of your hypothetical couple (the one with the big pension) actually dies before age 75? Are you writing a script for The Chelsea Detective?

Secret2ndAccount

Thanks to DRS1 and Fidelity, here is a flowchart:

and here is your potential personal journey through it:

So there is a potential route to withdrawing the whole £3 mil tax free. Your withdrawals, whilst large, would be part of a flexible drawdown, not lump sums.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82160756#Comment_82160756

The baseline limit for tax free withdrawals (inherited under 75) is £1.07 mil.

This is an ignorant question but are you talking about the Lump Sum and Death Benefit Allowance?

I thought that the LSDBA only caught certain lump sum benefits paid on death and that if the pension passed into a beneficiary drawdown pension following the death of the member before 75 then the LSDBA did not apply and the beneficiary could draw benefits from the beneficiary drawdown pension without any income tax being payable.

ETA Please see the attached Fidelity note which of course may not be definitive

The LSDBA and death benefits payments

Quidditch

https://forums.moneysavingexpert.com/discussion/comment/82160484#Comment_82160484

https://forums.moneysavingexpert.com/discussion/comment/82160484#Comment_82160484

So, there are two scenarios:
- if that husband/wife dies before age 75, the other gifts aggressively and there are no income tax implications. If he dies after the age of 75, you could do the same but accept that there will be a 40% income tax. That was relief on the way in anyhow.

I know it's crude but that scenarios was running through my mind, as a way to manage your estate and pass down wealth to children without being hit by IHT.

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/82161075#Comment_82161075

Third & fourth scenarios: as above but HMRC challenge the estate's IHT return and your executors either have to fight an expensive legal battle (which they may lose) or accept HMRC's ruling and the entire amount is added back into your estate for IHT purposes.

You really need to get professional advice before considering any aggressive form of IHT mitigation - and draining a SIPP over just a few years would certainly count as that.

Secret2ndAccount

https://forums.moneysavingexpert.com/discussion/comment/82160780#Comment_82160780

Thanks. This is the correct answer. A tax free withdrawal is possible. Over the years, I have posted several incorrect answers on MSE. Each one has led, finally, to some great clear and correct answers. Thank you very much for a great answer. I will correct my post.