Just regarding moving abroad to avoid IHT. I don't know whether you've looked at the tax implications carefully yet; just in case you haven't, here's a heads-up. There is a distinction between tax non-residence and "domicile". HMRC seek to levy IHT on the basis of domicile, and the problem is that there is no written definition of it. Basically if HMRC can find evidence that you still have "ties" to the UK they will come after your estate. There are cases where they did that purely on the basis that the deceased expressed the wish in their will to be buried in the U.K. I got all this from the British lawyer who did my will, he specialises in "expat" situations.
I'm working on this myself right now. I managed to get HMRC to agree that I no longer need to fill in an annual self-assessment form, but that's not the end of it. I need to get rid of bank accounts and platforms for which you are supposed to be UK resident. That means among other things shifting away from H-L to a platform which doesn't require a UK residential address or bank account.
If this is news to you, it will be worth you talking to a trusted tax accountant or will specialist lawyer.
Yes, I've been up to my eyeballs in definitions of ties and their links to the number of days you spend in the UK, particularly in the first few years. The season ticket would be a casualty, no doubt.
That's the balance I need to judge whilst my Mum is still alive. e.g. if she gets ill again, I want to make sure I have so few ties that I can move in to look after her again, as it's that callous and cynical a system, it would count that as a tie. I'm with her now, having stayed over for the Southend game and I'm glad to say she's looking well!
I have a couple of friends who are international tax lawyers and I'll definitely go to one of those when it comes to the time to pull the trigger.
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
That’s the way that I read it too, but I have a meeting with my advisor in 2 weeks to talk this all through. Have been thinking about IHT insurance, but it honestly seems extremely expensive and I’d rather spend those premiums on myself and family over the years to come.
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
Yes, that’s how I see it as well. However, if you as the actual pensioner draw it out and spend it then it’s very different. You have your 25% tax free then pay tax on it at your prevailing rate.
Basically what they are saying is paying loads of money into a pension, and then not withdrawing any. IS NOT a viable savings plan for your kids/ Grandchildren.
@LargeAddick if you die before 75 I believe after IHT (if it is due) is paid (from April 2027) it will then pass freely with no further tax to pay. If you pass and are 75 or over that's when the beneficiaries marginal rate comes into play for any subsequent drawdown (of course after any IHT). So that's where the double down can come into play, 40% IHT and then further tax based on the beneficiaries marginal rate when drawing.
It's a balance between your own tax when drawing, and if you die before or after 75. It certainly seems to me that drawing down as much as possible pre 75 could make sense but then largely depends on your own tax rate and how much you drawer. Certainly drawing up to the 40% band (£50k) probably makes sense.
One things for sure, the second I access my pension I'll be taking the maximum tax free element I can straight away!
I need to run the maths, but I may reduce or even stop paying in now. As broadly anymore that goes in I'll pay 40% tax on the way out. Might be better especially considering the IHT and beneficiary rate to take the hit now.
Yes, that is how the proposals seem to read. IHT (if any) first & then if over 75 on death the beneficiaries are taxed at their nominal rate. So double taxation.
There is now a consultation period, although that seems to be more about how & by whom the IHT is paid.
I expect clarity over the coming months but looks like it might be a case that you have to think about running down your DC pot by the time you get to age 75.
That's exactly why ours are now in spousal annuities. Nothing to get taxed on for IHT. Fair enough the pot goes back to the provider but hope to live long enough to have taken more in pension than the pot is actually worth.
That's exactly why ours are now in spousal annuities. Nothing to get taxed on for IHT. Fair enough the pot goes back to the provider but hope to live long enough to have taken more in pension than the pot is actually worth.
That's the age old dilemma with annuities. How long will you live.
My dad had a large pension pot, he bought an annuity (inc spouse) when he retired at 62. My mum dies at 65 and he died at 72, I dread to think how much the insurers earned on that! Seeing that in practice has always steered me away from even thinking of an annuity.
Yes, that is how the proposals seem to read. IHT (if any) first & then if over 75 on death the beneficiaries are taxed at their nominal rate. So double taxation.
There is now a consultation period, although that seems to be more about how & by whom the IHT is paid.
I expect clarity over the coming months but looks like it might be a case that you have to think about running down your DC pot by the time you get to age 75.
Yer I'm sure the consultations is on the practicalities, but be interesting to see the final outcomes on it all.
Is it not worth taking your pension early and just blow the lot while you can still enjoy it. Then go back to work in B&Q or something when it runs out and your only fit enough to sit and watch tele anyway.
Or do what the NHS workers and teachers are doing take pension then go back working 2 days a week.
Not sure I ever want to be working in B&Q let alone at 75
Re teachers etc it depends on size of pension I guess, but yes at my wife's school there are a few teachers taking their pension and working but have cut days (quite a few TA's as well). One is now down to two days a week...... she's 73!! Got no idea why she does it other than to fill time, she's got a good teachers pension as been a teacher all her life, plus the full state pension, she probably earns more than when she was pre retirement and working full time!
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
The pension can be transferred to the beneficiaries upon your death, via your expression of wishes and remain in SIPPs in their names with no tax to pay (apart from possible IHT).
They could then drawdown when it is tax advantageous to them. ie if a "child" was a higher rate tax payer, they could retire early and draw the inherited pension, thus paying no/less tax.
If the pension pot will now be part of the estate then you might want to review your will as previously the pension pot was not part of the estate and therefore not covered by a will where as from 2027 it will be.
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
The pension can be transferred to the beneficiaries upon your death, via your expression of wishes and remain in SIPPs in their names with no tax to pay (apart from possible IHT).
They could then drawdown when it is tax advantageous to them. ie if a "child" was a higher rate tax payer, they could retire early and draw the inherited pension, thus paying no/less tax.
The point being if you are 75 and older at point of death any money then taken out by the beneficiaries is taxed at their marginal rate........after any IHT is taken off.
Ime pension pots are not the £1m ones the media like to say they are. Even those that have been funded well have had the TFC taken out at retirement & the residual fund has then been eroded over time.
By the time any beneficiaries get it (if the pension holder was over 75) then whatever is left wont fund another retirement in full.
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
The pension can be transferred to the beneficiaries upon your death, via your expression of wishes and remain in SIPPs in their names with no tax to pay (apart from possible IHT).
They could then drawdown when it is tax advantageous to them. ie if a "child" was a higher rate tax payer, they could retire early and draw the inherited pension, thus paying no/less tax.
Agreed, but I'd rather less was in the pension and more outside as no benefit only negative to keeping more in pension, then they are free to do with as they wish and no further income tax.
As I see it (all based on todays values, State pension, tax free allowance etc) I'm best to:
1. From whatever age I retire (or start drawdown which for me cannot be before 57) to draw down £50,270 per annum to use up my tax free amount and 20% band (12,570 tax free and 37,700 @ 20%). In addition to take the maximum tax free lump sum of 25%/£268,275. 2. From age 67 (my state pension age) to aged 75 to draw down £38,500 (plus £11,500 state pension). 3. From 75 no longer draw pension (see below as will have all been used) and then live off savings etc.
A pot of £1.12m (to allow for the maximum 25% Tax free) taking the above sums each year and remaining with on average growth that matches inflation (and therefore withdrawals increase inline with inflation) would last until I'm 75 (£5k left!).
Times that by 2 for my wife and I is more than ample.
So I think I'll reduce payments or stop paying into my pension and fully max out my wife's although in 5 years probably won't get her to the £1.12m but that's fine. SHe'll have to carry on working past 57
I have absolutely no issue in pension being included in an estate, it's an asset and no different to savings or property or shares. It's the change from not being included to being included that smarts.
Just spend it ffs!
I agree, just changes my IHT planning. Will likely mean I retire earlier to give me a chance to spend it! Every cloud……
You've got until April 2027 to make any changes to your IHT planning.
Something I read on the detail of pensions falling part of your estate from 2027 which I can't quite get my head around as to if I read it incorrectly (but think I have), would welcome golfies thoughts:
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood. 2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
The pension can be transferred to the beneficiaries upon your death, via your expression of wishes and remain in SIPPs in their names with no tax to pay (apart from possible IHT).
They could then drawdown when it is tax advantageous to them. ie if a "child" was a higher rate tax payer, they could retire early and draw the inherited pension, thus paying no/less tax.
Agreed, but I'd rather less was in the pension and more outside as no benefit only negative to keeping more in pension, then they are free to do with as they wish and no further income tax.
As I see it (all based on todays values, State pension, tax free allowance etc) I'm best to:
1. From whatever age I retire (or start drawdown which for me cannot be before 57) to draw down £50,270 per annum to use up my tax free amount and 20% band (12,570 tax free and 37,700 @ 20%). In addition to take the maximum tax free lump sum of 25%/£268,275. 2. From age 67 (my state pension age) to aged 75 to draw down £38,500 (plus £11,500 state pension). 3. From 75 no longer draw pension (see below as will have all been used) and then live off savings etc.
A pot of £1.12m (to allow for the maximum 25% Tax free) taking the above sums each year and remaining with on average growth that matches inflation (and therefore withdrawals increase inline with inflation) would last until I'm 75 (£5k left!).
Times that by 2 for my wife and I is more than ample.
So I think I'll reduce payments or stop paying into my pension and fully max out my wife's although in 5 years probably won't get her to the £1.12m but that's fine. SHe'll have to carry on working past 57
Yes Rob I don’t think you’ll have to work at B&Q at 75 😃
Once my wife works out how easy it is to drawdown (she already has spending down to a fine art!) I could well be in B&Q on the till before 75!!
I've never quite understood this over 75 rule. If someone dies doesn't it pass down as pension pot to the beneficiaries, or does it have to be cashed in?
I've never quite understood this over 75 rule. If someone dies doesn't it pass down as pension pot to the beneficiaries, or does it have to be cashed in?
It can stay as a pension I believe to drawdown as they wish, taxed based on their marginal rate due that tax year of any drawdowns. if they just want it all straight away then it'll be taxed on their marginal rate for the tax year, so likely 40/45% depending on pot size even if they aren't a higher/high rate tax payer through normal earnings.
EDIT, another reason I think worth taking the full 25% tax free yourself as I assume any unused dies with you
Any unused TFC allowance does die with you. There is certainly a tax cliff edge the moment you hit 75 and this needs addressing. You’d hope the review examines this, we’ll see.
@LargeAddick if you die before 75 I believe after IHT (if it is due) is paid (from April 2027) it will then pass freely with no further tax to pay. If you pass and are 75 or over that's when the beneficiaries marginal rate comes into play for any subsequent drawdown (of course after any IHT). So that's where the double down can come into play, 40% IHT and then further tax based on the beneficiaries marginal rate when drawing.
It's a balance between your own tax when drawing, and if you die before or after 75. It certainly seems to me that drawing down as much as possible pre 75 could make sense but then largely depends on your own tax rate and how much you drawer. Certainly drawing up to the 40% band (£50k) probably makes sense.
One things for sure, the second I access my pension I'll be taking the maximum tax free element I can straight away!
I need to run the maths, but I may reduce or even stop paying in now. As broadly anymore that goes in I'll pay 40% tax on the way out. Might be better especially considering the IHT and beneficiary rate to take the hit now.
That's exactly what I did a few years ago when the tapering came in. Withdrew the lot and the tax-free element offset to a large degree the tax I paid on the balance versus the tax I would pay on the draw down. I then got a 10% of salary payment (subject to tax) from my employer in lieu of the employer's contribution.
I now have no pension pot and the only tax I pay is on the returns I get from savings, with the ability to draw down on the savings pot free of tax. I'm lucky to have a sufficient cash pot to get a very good return (although that will reduce as interest rates decline). We'll continue to siphon off cash to the boys and spend the rest! On that point though, and I'm assuming I'm right but stand to be corrected, technically if we give most of it to the boys now (living inheritance I think it is referred to) so it's in their estates, they can pass some of it back to us as and when we may require it, and as long as we live for another 7 years there will no IHT to pay on the cash element - just on the property and other non-cash assets? Obviously the payments back to us from the boys would potentially affect their IHT position, but I'm hoping they outlive us by 40 years or so resulting in no IHT on gifts less than 7 years previously. Is that pukka? Golfie?
@LargeAddick if you die before 75 I believe after IHT (if it is due) is paid (from April 2027) it will then pass freely with no further tax to pay. If you pass and are 75 or over that's when the beneficiaries marginal rate comes into play for any subsequent drawdown (of course after any IHT). So that's where the double down can come into play, 40% IHT and then further tax based on the beneficiaries marginal rate when drawing.
It's a balance between your own tax when drawing, and if you die before or after 75. It certainly seems to me that drawing down as much as possible pre 75 could make sense but then largely depends on your own tax rate and how much you drawer. Certainly drawing up to the 40% band (£50k) probably makes sense.
One things for sure, the second I access my pension I'll be taking the maximum tax free element I can straight away!
I need to run the maths, but I may reduce or even stop paying in now. As broadly anymore that goes in I'll pay 40% tax on the way out. Might be better especially considering the IHT and beneficiary rate to take the hit now.
That's exactly what I did a few years ago when the tapering came in. Withdrew the lot and the tax-free element offset to a large degree the tax I paid on the balance versus the tax I would pay on the draw down. I then got a 10% of salary payment (subject to tax) from my employer in lieu of the employer's contribution.
I now have no pension pot and the only tax I pay is on the returns I get from savings, with the ability to draw down on the savings pot free of tax. I'm lucky to have a sufficient cash pot to get a very good return (although that will reduce as interest rates decline). We'll continue to siphon off cash to the boys and spend the rest! On that point though, and I'm assuming I'm right but stand to be corrected, technically if we give most of it to the boys now (living inheritance I think it is referred to) so it's in their estates, they can pass some of it back to us as and when we may require it, and as long as we live for another 7 years there will no IHT to pay on the cash element - just on the property and other non-cash assets? Obviously the payments back to us from the boys would potentially affect their IHT position, but I'm hoping they outlive us by 40 years or so resulting in no IHT on gifts less than 7 years previously. Is that pukka? Golfie?
Would have thought you wouldn’t have minded paying all the tax with your political beliefs.seems bit hypocritical Bob.
I have never minded paying tax but 47% paid to get the net savings pot and another 40% IHT for my kids (so it's 47% plus 40% of the remaining 53% totalling 68%) is even beyond my political beliefs.
Oh so your not happy with Herr Stammer and Reeves then careful you’ll be accused off being far right. 😃
I exited my pension pot long before Starmer was the leader of the Labour Party - I'm on record on this thread (might have been the Budget Panic thread) agreeing that pension should be included for IHT
If the pension pot will now be part of the estate then you might want to review your will as previously the pension pot was not part of the estate and therefore not covered by a will where as from 2027 it will be.
Is this correct? As far as I was aware when deceased your pension pot still formed part of your estate and would benefit the beneficiaries of your will as would any other monies.
At the moment my pension pot would pass to my wife as she is the named beneficiary on it but if she was already deceased then the monies in the pot would go to my estate to be shared out to the numerous beneficiaries in my will. At least that was how I thought it worked?
If the pension pot will now be part of the estate then you might want to review your will as previously the pension pot was not part of the estate and therefore not covered by a will where as from 2027 it will be.
Is this correct? As far as I was aware when deceased your pension pot still formed part of your estate and would benefit the beneficiaries of your will as would any other monies.
At the moment my pension pot would pass to my wife as she is the named beneficiary on it but if she was already deceased then the monies in the pot would go to my estate to be shared out to the numerous beneficiaries in my will. At least that was how I thought it worked?
Yes, always part of the estate but the change is now that it will be included for inheritance tax purposes, whereas previously it wasn't.
@LargeAddick if you die before 75 I believe after IHT (if it is due) is paid (from April 2027) it will then pass freely with no further tax to pay. If you pass and are 75 or over that's when the beneficiaries marginal rate comes into play for any subsequent drawdown (of course after any IHT). So that's where the double down can come into play, 40% IHT and then further tax based on the beneficiaries marginal rate when drawing.
It's a balance between your own tax when drawing, and if you die before or after 75. It certainly seems to me that drawing down as much as possible pre 75 could make sense but then largely depends on your own tax rate and how much you drawer. Certainly drawing up to the 40% band (£50k) probably makes sense.
One things for sure, the second I access my pension I'll be taking the maximum tax free element I can straight away!
I need to run the maths, but I may reduce or even stop paying in now. As broadly anymore that goes in I'll pay 40% tax on the way out. Might be better especially considering the IHT and beneficiary rate to take the hit now.
That's exactly what I did a few years ago when the tapering came in. Withdrew the lot and the tax-free element offset to a large degree the tax I paid on the balance versus the tax I would pay on the draw down. I then got a 10% of salary payment (subject to tax) from my employer in lieu of the employer's contribution.
I now have no pension pot and the only tax I pay is on the returns I get from savings, with the ability to draw down on the savings pot free of tax. I'm lucky to have a sufficient cash pot to get a very good return (although that will reduce as interest rates decline). We'll continue to siphon off cash to the boys and spend the rest! On that point though, and I'm assuming I'm right but stand to be corrected, technically if we give most of it to the boys now (living inheritance I think it is referred to) so it's in their estates, they can pass some of it back to us as and when we may require it, and as long as we live for another 7 years there will no IHT to pay on the cash element - just on the property and other non-cash assets? Obviously the payments back to us from the boys would potentially affect their IHT position, but I'm hoping they outlive us by 40 years or so resulting in no IHT on gifts less than 7 years previously. Is that pukka? Golfie?
As long as you live 7 years after the gift. Be aware though if you didn't then gifts first use up your tax free allowance so in effect no taper relief on the first £325k given away. I know a couple of people who've been caught on that, thinking they had taper relief but because the amount fell within the £325k it didn't.
@LargeAddick if you die before 75 I believe after IHT (if it is due) is paid (from April 2027) it will then pass freely with no further tax to pay. If you pass and are 75 or over that's when the beneficiaries marginal rate comes into play for any subsequent drawdown (of course after any IHT). So that's where the double down can come into play, 40% IHT and then further tax based on the beneficiaries marginal rate when drawing.
It's a balance between your own tax when drawing, and if you die before or after 75. It certainly seems to me that drawing down as much as possible pre 75 could make sense but then largely depends on your own tax rate and how much you drawer. Certainly drawing up to the 40% band (£50k) probably makes sense.
One things for sure, the second I access my pension I'll be taking the maximum tax free element I can straight away!
I need to run the maths, but I may reduce or even stop paying in now. As broadly anymore that goes in I'll pay 40% tax on the way out. Might be better especially considering the IHT and beneficiary rate to take the hit now.
That's exactly what I did a few years ago when the tapering came in. Withdrew the lot and the tax-free element offset to a large degree the tax I paid on the balance versus the tax I would pay on the draw down. I then got a 10% of salary payment (subject to tax) from my employer in lieu of the employer's contribution.
I now have no pension pot and the only tax I pay is on the returns I get from savings, with the ability to draw down on the savings pot free of tax. I'm lucky to have a sufficient cash pot to get a very good return (although that will reduce as interest rates decline). We'll continue to siphon off cash to the boys and spend the rest! On that point though, and I'm assuming I'm right but stand to be corrected, technically if we give most of it to the boys now (living inheritance I think it is referred to) so it's in their estates, they can pass some of it back to us as and when we may require it, and as long as we live for another 7 years there will no IHT to pay on the cash element - just on the property and other non-cash assets? Obviously the payments back to us from the boys would potentially affect their IHT position, but I'm hoping they outlive us by 40 years or so resulting in no IHT on gifts less than 7 years previously. Is that pukka? Golfie?
Yes, it all sounds technically correct but all a bit convoluted imo. What are your boys supposed to do with it if you might need it back ? Do they have mortgages or debts they might want to pay off ? If so, what happens if they've spent it all, or are they supposed to just save it in case you might need it back ? Are they married & if so what happens if they divorce - will the ex wife want a share ? Also, deprevation of assets for long term care doesn't have a time frame so the Local authority might be after a slice if it came to that.
If the pension pot will now be part of the estate then you might want to review your will as previously the pension pot was not part of the estate and therefore not covered by a will where as from 2027 it will be.
Is this correct? As far as I was aware when deceased your pension pot still formed part of your estate and would benefit the beneficiaries of your will as would any other monies.
At the moment my pension pot would pass to my wife as she is the named beneficiary on it but if she was already deceased then the monies in the pot would go to my estate to be shared out to the numerous beneficiaries in my will. At least that was how I thought it worked?
I only, finally, put a will together recently. Your pension pot is not included as part of your will, rather you advise your pension provider of your “expression of wish”. The pension provider though is not bound by this, although they generally comply.
I wonder now whether this will change given the new rules and whether you will be allowed to formally include in your will.
I've never quite understood this over 75 rule. If someone dies doesn't it pass down as pension pot to the beneficiaries, or does it have to be cashed in?
It can stay as a pension I believe to drawdown as they wish, taxed based on their marginal rate due that tax year of any drawdowns. if they just want it all straight away then it'll be taxed on their marginal rate for the tax year, so likely 40/45% depending on pot size even if they aren't a higher/high rate tax payer through normal earnings.
EDIT, another reason I think worth taking the full 25% tax free yourself as I assume any unused dies with you
Thanks. So definitely double taxed on the non tax free element. two lots of tax at 40% (IHT, then IT) meaning it's only worth 36% of the current value.
Comments
Yes, I've been up to my eyeballs in definitions of ties and their links to the number of days you spend in the UK, particularly in the first few years. The season ticket would be a casualty, no doubt.
That's the balance I need to judge whilst my Mum is still alive. e.g. if she gets ill again, I want to make sure I have so few ties that I can move in to look after her again, as it's that callous and cynical a system, it would count that as a tie. I'm with her now, having stayed over for the Southend game and I'm glad to say she's looking well!
I have a couple of friends who are international tax lawyers and I'll definitely go to one of those when it comes to the time to pull the trigger.
1. We know from April 2027 your pension 'pot' forms part of your estate and therefore if your estate is big enough will attract 40% tax. Understood.
2. And this is the bit I wonder if I read incorrectly, post probate etc let's assume you had a £1m pension pot and therefore said pot is now £600k as 40% tax paid and you are over 75 on death. The beneficiary if they then ever draw on said pension pot has to pay income tax on it at their marginal rate. So it becomes double taxed, potentially your £1m becomes £360k (£1m - 40%, - 40%) if the beneficiary is a 40% tax payer. Whereas if the money was say in a savings account it would simply pass to the beneficiary after the 40% tax (so £600k) and no further tax would be payable.
That being the case, aside from the tax relief going into a pension it seems really not worth holding anything in a pension to pass down (other than to the wife!)...... am I missing something?
Basically what they are saying is paying loads of money into a pension, and then not withdrawing any. IS NOT a viable savings plan for your kids/ Grandchildren.
@LargeAddick if you die before 75 I believe after IHT (if it is due) is paid (from April 2027) it will then pass freely with no further tax to pay. If you pass and are 75 or over that's when the beneficiaries marginal rate comes into play for any subsequent drawdown (of course after any IHT). So that's where the double down can come into play, 40% IHT and then further tax based on the beneficiaries marginal rate when drawing.
It's a balance between your own tax when drawing, and if you die before or after 75. It certainly seems to me that drawing down as much as possible pre 75 could make sense but then largely depends on your own tax rate and how much you drawer. Certainly drawing up to the 40% band (£50k) probably makes sense.
One things for sure, the second I access my pension I'll be taking the maximum tax free element I can straight away!
I need to run the maths, but I may reduce or even stop paying in now. As broadly anymore that goes in I'll pay 40% tax on the way out. Might be better especially considering the IHT and beneficiary rate to take the hit now.
There is now a consultation period, although that seems to be more about how & by whom the IHT is paid.
I expect clarity over the coming months but looks like it might be a case that you have to think about running down your DC pot by the time you get to age 75.
Yer I'm sure the consultations is on the practicalities, but be interesting to see the final outcomes on it all.
Food for thought on how best to deal with.
Re teachers etc it depends on size of pension I guess, but yes at my wife's school there are a few teachers taking their pension and working but have cut days (quite a few TA's as well). One is now down to two days a week...... she's 73!! Got no idea why she does it other than to fill time, she's got a good teachers pension as been a teacher all her life, plus the full state pension, she probably earns more than when she was pre retirement and working full time!
They could then drawdown when it is tax advantageous to them.
ie if a "child" was a higher rate tax payer, they could retire early and draw the inherited pension, thus paying no/less tax.
Ime pension pots are not the £1m ones the media like to say they are. Even those that have been funded well have had the TFC taken out at retirement & the residual fund has then been eroded over time.
By the time any beneficiaries get it (if the pension holder was over 75) then whatever is left wont fund another retirement in full.
As I see it (all based on todays values, State pension, tax free allowance etc) I'm best to:
1. From whatever age I retire (or start drawdown which for me cannot be before 57) to draw down £50,270 per annum to use up my tax free amount and 20% band (12,570 tax free and 37,700 @ 20%). In addition to take the maximum tax free lump sum of 25%/£268,275.
2. From age 67 (my state pension age) to aged 75 to draw down £38,500 (plus £11,500 state pension).
3. From 75 no longer draw pension (see below as will have all been used) and then live off savings etc.
A pot of £1.12m (to allow for the maximum 25% Tax free) taking the above sums each year and remaining with on average growth that matches inflation (and therefore withdrawals increase inline with inflation) would last until I'm 75 (£5k left!).
Times that by 2 for my wife and I is more than ample.
So I think I'll reduce payments or stop paying into my pension and fully max out my wife's although in 5 years probably won't get her to the £1.12m but that's fine. SHe'll have to carry on working past 57
EDIT, another reason I think worth taking the full 25% tax free yourself as I assume any unused dies with you
I have never minded paying tax but 47% paid to get the net savings pot and another 40% IHT for my kids (so it's 47% plus 40% of the remaining 53% totalling 68%) is even beyond my political beliefs.
I exited my pension pot long before Starmer was the leader of the Labour Party - I'm on record on this thread (might have been the Budget Panic thread) agreeing that pension should be included for IHT
Yes I did last year, but it went to the Sally Army. None this year and that is absolutely right and proper.
At the moment my pension pot would pass to my wife as she is the named beneficiary on it but if she was already deceased then the monies in the pot would go to my estate to be shared out to the numerous beneficiaries in my will. At least that was how I thought it worked?
Yes, always part of the estate but the change is now that it will be included for inheritance tax purposes, whereas previously it wasn't.
As long as you live 7 years after the gift. Be aware though if you didn't then gifts first use up your tax free allowance so in effect no taper relief on the first £325k given away. I know a couple of people who've been caught on that, thinking they had taper relief but because the amount fell within the £325k it didn't.
Just a few thoughts.
I wonder now whether this will change given the new rules and whether you will be allowed to formally include in your will.