IHT mitigations (Inheritance Tax)

kermchem

In response to the thought that a DC pension pot is “my money” there are many ill informed posters on here who really believe that their DB pension is also a pot of their own money.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82180215#Comment_82180215

It is not helped by widespread lack of knowledge about pensions. So when people see the 'bad news' about pensions, they are unable to differentiate between DB and DC and state pension, so will have a confused idea about what may or may not happen to theirs.

I read recently that 46% of people with workplace pensions, did not even know how much their employers contributions was ( just as one example).

artyboy

https://forums.moneysavingexpert.com/discussion/comment/82180215#Comment_82180215

The issue I have though is that pensions are something you start paying into many decades before you can access them - but as we have seen the rules change many times along the way.

Doesn't exactly inspire confidence in the long term planning that governments always say is so important for us to do…

Moonwolf

https://forums.moneysavingexpert.com/discussion/comment/82180223#Comment_82180223

I wonder if it is worth creating a thread of common pension myths and misunderstandings. There are at least two in this thread, this one and that annuities are still poor value.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82180343#Comment_82180343

And of course the perennial favourite: I need 35 qualifying NI years for a full state pension (when said by over-25s)!

kempiejon

Years back I spoke with a brother about passing SIPPs though the generations, a plan they'd looked into, I thought there was a risk of making trust fund wasters and the inequalities of a wheeze for those with more than average to keep that familiar wealth.

I used to wonder on the system that allowed me such tax relief and how lucky I am to leverage it. A chunk of many DC contributions are from reclaimed tax or sal sac; some can pay in at a higher rate than withdrawal. For years I only took company matching pension contributions and built a retirement fund in ISAs and GIA then the rules on pensions, specifically annuities changed and so did my preferred savings vehicle. For years I've reclaimed more than the income tax liabilities my salary suggested. I am a nett recipient of tax revenue when accumulating and need not pay income tax for the first decade whilst de-accumulating. In fact there's £720 gain from £2880 contributions even when not earning. Come SP I might have income tax liability but could chose to mitigate that.

Hopefully a long way off and different rules might apply but I've never fretted about IHT and told my parents I'd rather they spent money than intend to give the sibling crowd a legacy and we're probably worth more than them anyway. For some estates the idea of generation skipping probably has merit.

DRS1

For years I've reclaimed more than the income tax liabilities my salary suggested. I am a nett recipient of tax revenue when accumulating and need not pay income tax for the first decade whilst de-accumulating.

I have to admit I always thought such a person could only exist in a financial planners wildest dreams.

Most people need their earnings for frivolities like food heating the rent or mortgage the kids etc.

kempiejon

https://forums.moneysavingexpert.com/discussion/comment/82180450#Comment_82180450

Not a dream, a just regular Joe making provisions for post work choices over 20 years emplyment. I spent the majority of my earnings but cut my cloth appropriately, lived frugally and saved a portion each year, in the 90s exceeding ISA limits. As I'd accumulated funds outside a pension wrapper when pensions freedom came I could move those funds to SIPPs within limits for the tax reclaim.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82180337#Comment_82180337

Although I can understand the view that IHT exemption of unused pension pots was a loophole, as an unexpected sideshoot from the Pensions reforms of 2015.

However using a perfectly legal loophole to your advantage while it is open, is not really abusing it, it is just normal behaviour. Same as taking advantage of salary sacrifice for example.

Anyway it will be closed next year, so end of that story.

Yellowkite

I was a bit nervous about posting my first question, as it opens up lots of different views, but it’s been useful to read the comments, and to get to 5 pages of comments seems like it’s been an interesting discussion thread.

“I wonder if it is worth creating a thread of common pension myths and misunderstandings”………..and to have perhaps in a small way lead to another thread