A test on Pensions & Inheritance Tax

Nil

On the other hand as a Spurs supporter
you could donate some of the money
to the club

Again no liabilty!!!

their iht liability is nil.

its still your liability

If you died yesterday how are you  posting today ?

Trick of the trade 11kv

The answer is nil and was written for those that are unaware of what their liabilities are. As an ex IFA I've been particularly interested in the new pension rules and the taxation behind them. For some this could be a good future if one has planned well, especially that the fund can now be passed on to anyone (it used to be dependants only) totally free of tax. That is just one of many benefits of the changes.

The flexi-drawdown option is of great interest and anyone considering this should keep in mind that added to their earned income (if applicable) the maximum total income that can be taken in the current tax year is circa £42k to remain in the 20% tax bracket. This, of course, is after the 25% tax-free lump sum that is available on collecting it at anytime after reaching the age of 55.

If anyone wants to discuss this topic further please post your comments here. If I can't personally answer a question I'm sure there are others who can.

Please do not ask for advice; this has been set up to discuss your options and is for information and open discussion only.

Bit of care required with the 'totally free of tax' line required Aspro, there are limitations post-death at age 75 (which is applying to more and more of us).
Don't forget, of course, that the LTA is coming down to £1m, from next year limiting those opportunities - it should be £1.85m by now based upon the original concept.
However, on the whole the new legislation does present some terrific planning opportunities, I agree.

If beneficiaries haven't been nominated in the pension wouldn't it go into the estate?

No Dave, pensions are written into a discretionary trust, so all that happens is that the pension trustees use their discretion and pay out to who they consider to be the rightful beneficiaries.
Given the new distinctions between beneficiaries and nominees now though, nominating and keeping ones nominations up to date is absolutely crucial. We are more likely to see children being bypassed in favour of grandchildren I would think, as some benefits taken after the pensioner has died post-75 will be taxable at the beneficiaries own income tax rate.

Not all pensions are trust based - most employers, yes, and I suppose that the use of the term "defined contribution" would indicate that (although I have noticed that "money purchase" and "defined contribution" have recently been used as substitutes). Anyway, my point is that there is no blanket exemption from IHT, so imo OP is taking a risk that the trustees just pay into the estate in the absence of a spouse or indication of wishes.

That new pension boost for those born before April 1951, and April 1953 for women looks hardly inviting.

Stump up £22,500 if you're 65 to boost your pension by £25 a week.
Less if you are older.

That's £20 after tax if you're a basic rate tax payer or £15 if you're on the next rate.

The £25 is index linked and will escalate along with your state pension.

More attractive to non tax payers.
They're not giving give much away, and that's assuming you'll even live  long enough to get your money back.

They could use the money to defer their pension and get a more for the same "investment".  If the government was an annuity company the FCA would be fining them for mis-selling and ordering redress.

Oct 13, 2015 -- 5:28AM, Desmond Orchard wrote:

Bit of care required with the 'totally free of tax' line required Aspro, there are limitations post-death at age 75 (which is applying to more and more of us).Don't forget, of course, that the LTA is coming down to £1m, from next year limiting those opportunities - it should be £1.85m by now based upon the original concept. However, on the whole the new legislation does present some terrific planning opportunities, I agree.

I appreciate that Desmond but the cynic in me thinks over 75's wouldn't be reading this and how many people have £1m in their pot? an extreme small percentage but point taken and correction accepted.

Dave, a private pension (subject to the £1m stated above) should fall outside of IHT in most (if not all) cases. Pensions are not usually subject to IHT.

The only good thing is that they used to deduct 55% on death. This dropped to 45% and has now dropped to zero (again, in most cases under 75)

I appreciate that Desmond but the cynic in me thinks over 75's wouldn't be reading this
I assumed most of the chit chat massive were knocking on that door!!

I agree that very few will have £1m in their pots now, but if, as you allude to, PPPs should be looked at as a means of IHT planning (and they are being), then that will change as people look to maximise their allowances. I actually think that the changes to the death benefits should've been the real headline in the April 2015 changes, rather than the flexi-access news, which seems to have grabbed the media's attention after Webb's 'Lambourghini' remarks. Proven to be nonsense by the way, as sales since April have remained steady in the UK - although there has been a notable increase in caravan sales, which tells you a lot about the demographic who are utilising the new freedoms!

Indeed!

I'm fast approaching 53 with a half-decent pot (but nowhere near £1m). I've decided to continue working and drawing my tax-free allowance to reduce my mortgage at 55, whilst utilising approximately £15k per annum to clear it long before I retire.

With no mortgage I should be able to live on £15-£20k per annum (with additional sums if required) and still leave a reasonable inheritance by the time I reach 99 (if I can achieve an annualised rate of 5% per annum). I believe this could be achievable if I don't buy that Lambourghini! - It should also be noted that at 67 I also receive (approximately) £7k per annum state pension. I'm not in rich mans land but I can live (and die) with this scenario and I doubt 99 is realistic but it does provide a long term sustainable income.

Oct 13, 2015 -- 11:14AM, Aspro wrote:

Dave, a private pension (subject to the £1m stated above) should fall outside of IHT in most (if not all) cases. Pensions are not usually subject to IHT.

If a pension fund becomes part of the estate on death it is most definitely subject to inheritance tax.  The point at discussion is ensuring that it does not become part of the estate.

Fair point Dave, however; if my reading is correct the fund managers can nominate a beneficiary if no nominees have been made. If a nominee has been made then it is a mute point so unless the fund manager or the owner have no idea of the rules (unlikely) I find it difficult to understand how it can become part of the estate unless I've missed a point?

I'm just being pedantic.  You said in your original post that your children would receive your estate.  You made no mention of arrangements to transfer pension benefits outside the estate.  (Also as I said there are some forms of pension that are not trust based)

hands up Dave, I'm not sure what not being trust based means. As far as I was concerned, if it is a pension fund then all benefits are free from IHT liabilities in the UK. Are there alternatives that I am unaware of?

Btw, my original post was based on an assumption and not a fact. It was just posted to stir a discussion such as this to help improve our own understanding and for those who are less informed but would like to learn more.

Retirement Annuities, an early type of transfer plan called a S32 and I think some early personal pensions (might be wrong with the last one, just a vague recollection that some weren't trust based)- they were just insurance contracts and have to be specifically put in a trust to remove death benefits from the estate.

I vaguely remember those when I first started working with Prudential; they did have different rules and the lump sum was 30% (not 25% as it is today) but that was around 30 years ago. You may have a point there Dave and unless I research them (pointless as most have probably been taken by now) I cannot say for certain so I will accept your knowledge and recollections on this one. I also vaguely recall them being called 'Section 226' contracts or something similar to this.

yes s226 were another name for retirement annuities.  They stopped in 88 and were replaced with personal pensions.

I did a stint at the Pru as well.  Amazingly adaptive company - still the biggest insurer by market cap despite withdrawing from general insurance and killing off "the man from the pru".

I joined them in 1985 so, as you can see, I saw the tail-end of s226. I swear I couldn't recall the year they changed but impressed by your memory... too much weed back in the day

I spent 15 years of my life with them, got a £30k pay-off in 1999 but would give it all back to have continued. They were a good company to work for and they looked after (and rewarded) their staff well.

Ironically, I transferred my final salary scheme in 2012 and next week I'm about to transfer it back to their cautious fund. With just 2 years remaining before I retire I want (a) a good company to hold my pension funds and (b) a safe fund to ensure I can keep the bulk of what I've got!