Pension IHT

[Rufus Stone]

This is the Governments consultation response:

https://www.gov.uk/government/consultations/inheri...

Things to note from a quick read:

1. IHT and Income Tax liabilities remain.
2. Personal representative to calculate the IHT liability and report to HMRC.
3. Nominated beneficiaries liable for the IHT. Can use pension or other funds to pay the tax.
4. Death in service lump sum life assurance excluded from the IHT liability.

[isleofthorns]

still trying to hold out hope this gets shelved.... wishful thinking, I know.

having the ability to pay from outside of the fund is a small silver cloud... my seas is mainly held in property, so not exactly liquid or practical. Also means the liability in the fund could be covered with a life policy etc.

[SunsetZed]

Interesting that joint life annuities with survivors rights are not in scope for inheritance tax. I wonder how many people are now going to be taking a joint life annuity with a guaranteed 30 year payment at 75 now.

[Jockman]

SunsetZed said:

Interesting that joint life annuities with survivors rights are not in scope for inheritance tax. I wonder how many people are now going to be taking a joint life annuity with a guaranteed 30 year payment at 75 now.

In addition....buying an Annuity doesn't trigger the MPAA. Your Allowance stays at £60k pa.

[Jawls]

isleofthorns said:

still trying to hold out hope this gets shelved.... wishful thinking, I know.

having the ability to pay from outside of the fund is a small silver cloud... my seas is mainly held in property, so not exactly liquid or practical. Also means the liability in the fund could be covered with a life policy etc.

Can you explain how insurance might work for this? From my idiot’s perspective, doesn’t insurance only work if the majority of people don’t get a payout (eg. Car insurance. Most people don’t crash). But everyone dies. And presumably those who are nowhere near the IHT limit wouldn’t buy the policy. So how does it work for the insurance company?

I’m sure I’m missing something obvious.

[98elise]

Rufus Stone said:

This is the Governments consultation response:

https://www.gov.uk/government/consultations/inheri...

Things to note from a quick read:

1. IHT and Income Tax liabilities remain.
2. Personal representative to calculate the IHT liability and report to HMRC.
3. Nominated beneficiaries liable for the IHT. Can use pension or other funds to pay the tax.
4. Death in service lump sum life assurance excluded from the IHT liability.

Great way to grab nearly all someone's pension pot as soon as they're in the ground. Create a new tax liability (IHT) then let you use the taxed money to pay it, triggering another tax liability (Income Tax).

Easy vote winner for the next government to reverse it.

Edited by 98elise on Thursday 24th July 16:41

[Countdown]

Jawls said:

Can you explain how insurance might work for this? From my idiot s perspective, doesn t insurance only work if the majority of people don t get a payout (eg. Car insurance. Most people don t crash). But everyone dies. And presumably those who are nowhere near the IHT limit wouldn t buy the policy. So how does it work for the insurance company?

I m sure I m missing something obvious.

I'm guessing that the premium would be linked to your age.

So a 98 year old 40-a-day smoker is going to be paying a lot more than a 50 year old personal trainer

[SunsetZed]

Jockman said:

SunsetZed said:

Interesting that joint life annuities with survivors rights are not in scope for inheritance tax. I wonder how many people are now going to be taking a joint life annuity with a guaranteed 30 year payment at 75 now.

In addition....buying an Annuity doesn't trigger the MPAA. Your Allowance stays at £60k pa.

Which is bizarre imo. The 25% I can understand but other than that I really don't get the logic as to why the MPAA wouldn't be triggered.

[alscar]

Jawls said:

Can you explain how insurance might work for this? From my idiot s perspective, doesn t insurance only work if the majority of people don t get a payout (eg. Car insurance. Most people don t crash). But everyone dies. And presumably those who are nowhere near the IHT limit wouldn t buy the policy. So how does it work for the insurance company?

I m sure I m missing something obvious.

Most “ Joint Life Second Death “policies if taken out later in life tend to be prohibitively expensive although you can elect to chose what Sum Insured you want which can of course be lower or indeed much lower than the eventual IHT quantum.
But taken out at a much younger age ( ie landed gentry and perhaps family money ) and the costs are far more reasonable.
We looked into it recently and decided paying out potentially hundreds of thousands of pounds would be better spent on perhaps going towards a house move !
I’ve already given the children my TFC from my transferred DB pension so won’t feel too guilty.

[craig1912]

Countdown said:

I'm guessing that the premium would be linked to your age.

So a 98 year old 40-a-day smoker is going to be paying a lot more than a 50 year old personal trainer

Yep. My adviser gave me a quote for a policy to cover the IHT (he suggested the kids pay it) £200pm 64 years old!

[Somebody]

craig1912 said:

Yep. My adviser gave me a quote for a policy to cover the IHT (he suggested the kids pay it) £200pm 64 years old!

Need some context. What was the sum covered? Single or joint life cover?

[isleofthorns]

Jawls said:

isleofthorns said:

still trying to hold out hope this gets shelved.... wishful thinking, I know.

having the ability to pay from outside of the fund is a small silver cloud... my seas is mainly held in property, so not exactly liquid or practical. Also means the liability in the fund could be covered with a life policy etc.

Can you explain how insurance might work for this? From my idiot s perspective, doesn t insurance only work if the majority of people don t get a payout (eg. Car insurance. Most people don t crash). But everyone dies. And presumably those who are nowhere near the IHT limit wouldn t buy the policy. So how does it work for the insurance company?

I m sure I m missing something obvious.

guess this depends on your desired outcome and individual situation - if you want a life policy, it's going to be expensive.


in my case I was never intending to rely on my pension in retirement, with the bulk hopefully being passed on IHT free to my children.

Now the rules around IHT exclusion has changed, it's forced a change of plan.

Now I intend to draw the pension fully over the 55-75 span. Given the double tax cliff edge of dying after 75, it makes sense to use up the pension by 75. This only leaves the IHT liability on the reducing balance of the pension between 55 and 75.

hence, a term policy with declining cover over the period seems to make sense without being too expensive.

[craig1912]

I believe it was for around £200k and joint life second death

[supersport]

isleofthorns said:

in my case I was never intending to rely on my pension in retirement, with the bulk hopefully being passed on IHT free to my children.

Now the rules around IHT exclusion has changed, it's forced a change of plan.

Now I intend to draw the pension fully over the 55-75 span. Given the double tax cliff edge of dying after 75, it makes sense to use up the pension by 75. This only leaves the IHT liability on the reducing balance of the pension between 55 and 75.

This is my plan also. I looked at insurance, seemed expensive but a lot less than the IHT. But it was me paying the premium. In the end I decided that what was left was still plenty. I’m not massively happy about it, but there’s plenty.

I’ll see how things go and maybe hand it down early.

[isleofthorns]

supersport said:

isleofthorns said:

in my case I was never intending to rely on my pension in retirement, with the bulk hopefully being passed on IHT free to my children.

Now the rules around IHT exclusion has changed, it's forced a change of plan.

Now I intend to draw the pension fully over the 55-75 span. Given the double tax cliff edge of dying after 75, it makes sense to use up the pension by 75. This only leaves the IHT liability on the reducing balance of the pension between 55 and 75.

This is my plan also. I looked at insurance, seemed expensive but a lot less than the IHT. But it was me paying the premium. In the end I decided that what was left was still plenty. I m not massively happy about it, but there s plenty.

I ll see how things go and maybe hand it down early.

if you have your own business, the premiums can be paid from the company

[Rufus Stone]

Part of the purpose of the inclusion in IHT is to encourage retirees to draw their tax able pension and not leave it to others tax free on their death. The exchequer likely believe they will gain an increase in income tax receipts.

Of course there is no absolute guarantee in that. If I look at my own situation I started to draw pension from my SSAS in April 2024. But I reduced my income from my business by the same amount. I suppose the exchequer may still gain as my Corporation Tax may now be higher, but again that isn't guaranteed.

[alscar]

craig1912 said:

I believe it was for around £200k and joint life second death

Annualised as a rate is 1.2% - in comparison my quote at 63 with my wife at 60 was an annualised rate of averaging circa 1% depending on whether whole of life or limited to a given age.
I could also select virtually any SI I chose up to the level of what I calculated our IHT bill would be.
However working on average age achieved of say 85 for us both meant that on the SI we might compromise on, still paying away something like circa 30% in premiums aided the decision not to purchase.
Add to that potential possible future legislative changes was another reason for perhaps wanting to spend the money instead.

[alscar]

isleofthorns said:

supersport said:

isleofthorns said:

in my case I was never intending to rely on my pension in retirement, with the bulk hopefully being passed on IHT free to my children.

Now the rules around IHT exclusion has changed, it's forced a change of plan.

Now I intend to draw the pension fully over the 55-75 span. Given the double tax cliff edge of dying after 75, it makes sense to use up the pension by 75. This only leaves the IHT liability on the reducing balance of the pension between 55 and 75.

This is my plan also. I looked at insurance, seemed expensive but a lot less than the IHT. But it was me paying the premium. In the end I decided that what was left was still plenty. I m not massively happy about it, but there s plenty.

I ll see how things go and maybe hand it down early.

if you have your own business, the premiums can be paid from the company

And the premiums could also be paid from the Pension itself.
When I first took dd in 2022 my FA said I was " unusual " in wanting to use the Pension before other investments such as IIB's and ISA's so the grab by Rachel meant I was ahead of my time or at least that's what I tell him now !

[Sheepshanks]

SunsetZed said:

Jockman said:

SunsetZed said:

Interesting that joint life annuities with survivors rights are not in scope for inheritance tax. I wonder how many people are now going to be taking a joint life annuity with a guaranteed 30 year payment at 75 now.

In addition....buying an Annuity doesn't trigger the MPAA. Your Allowance stays at £60k pa.

Which is bizarre imo. The 25% I can understand but other than that I really don't get the logic as to why the MPAA wouldn't be triggered.

I suppose you're basically just transferring from one pension product to another. And all of the income from an annuity is taxable.

I guess it's an unlikely scenario anyway that you'd buy an annuity and continue to work, certainly to the extent of wanting to put more than £10K/yr into a pension.

[PistonHead007]

SunsetZed said:

Interesting that joint life annuities with survivors rights are not in scope for inheritance tax. I wonder how many people are now going to be taking a joint life annuity with a guaranteed 30 year payment at 75 now.

Payments under an annuity guarantee period will be subject to IHT, unless it's going to a spouse where the interspousal exemption applies.