Drawdown Pension Tax Question

[irc]

In the event I die before my wife she gets everything as per our wills.

I have an occupational pension in payment she will get 50% of that.

On top of that I have a small just over £30k defined contribution pension in drawdown. Tax free lump sum already taken.

After my death does she inherit that tax free and can she withdraw it as a lump sum? Or would it be considered taxable income as she withdrew it so losing basic rate tax. It coud be taken out over more than one tax year if needed to avoid higher rate tax.

My estate will not be over the IHT threshold.

[leef44]

The transfer of the pension will be exempt from IHT however it still sits as a pension. She would then be subject to income tax when she withdraws that on anything above her personal allowance.

[Rufus Stone]

Unless the OP dies before age 75, when it's income tax free.

[leef44]

That's a good point. A bit off topic but it is interesting that if you have funds in a general investment account as opposed to a pension then on death the transfer value is the current market value.

This means that for inheritance tax purposes it can work better than a pension i.e. you build up a fund but only take up to £3k of gains each year. All the gains become tax free on transfer to spouse on death. Spouse would then be able to cash it all out subject to any change in value since death.

[irc]

Thanks for replies.

So. Tax free before 75.

After then her OAP and half my occupational pension would put her at around £25k a year so just need to avoid withdrawing enough to hit the Scottish higher rate tax band.