Private pension after death
Discussion
A question has come up from the olds about their private pensions.
Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
A swift google found this which seems to cover everything: https://www.moneysavingexpert.com/savings/inheriti...
From my understanding private pensions that are defined contribution pots sit outside of a person's estate i.e. it does not form part of the estate. For defined benefit scheme you need to talk to the scheme provider.
As per the mse link, the devil is in the detail.
I will mention, the nomination form is very important!!!
If there isn't a nomination form, the pension provider will do what they think is best, as an example married man has 2 children, gets divorced, has another relationship and a 3rd child. After death DC pension pot split 3 ways between children but 2nd partner (been together 25 years) gets nothing as not married and no nomination form in place.
As per the mse link, the devil is in the detail.
I will mention, the nomination form is very important!!!
If there isn't a nomination form, the pension provider will do what they think is best, as an example married man has 2 children, gets divorced, has another relationship and a 3rd child. After death DC pension pot split 3 ways between children but 2nd partner (been together 25 years) gets nothing as not married and no nomination form in place.
Thats one reason why its been brought up.
Another issue is olds have not used their TFLS. This is on the basis that the pensions were tax free on death.
Again, I think they are either being told the wrong info by IFA or they are not understanding. They issue is they are now getting on in years so 7 year rule is coming into play. But kids might end up in very different situations due to income tax rules. Which I dont think they are understanding.
Another issue is olds have not used their TFLS. This is on the basis that the pensions were tax free on death.
Again, I think they are either being told the wrong info by IFA or they are not understanding. They issue is they are now getting on in years so 7 year rule is coming into play. But kids might end up in very different situations due to income tax rules. Which I dont think they are understanding.
gotoPzero said:
Thats one reason why its been brought up.
Another issue is olds have not used their TFLS. This is on the basis that the pensions were tax free on death.
Again, I think they are either being told the wrong info by IFA or they are not understanding. They issue is they are now getting on in years so 7 year rule is coming into play. But kids might end up in very different situations due to income tax rules. Which I dont think they are understanding.
They can receive it as a pension "tax free" (ie they don't pay tax when it's transferred to their pension)Another issue is olds have not used their TFLS. This is on the basis that the pensions were tax free on death.
Again, I think they are either being told the wrong info by IFA or they are not understanding. They issue is they are now getting on in years so 7 year rule is coming into play. But kids might end up in very different situations due to income tax rules. Which I dont think they are understanding.
They will only pay tax when they withdraw it.
Whether the "olds" should take there TFLS depends on their other assets really
Edited as I missed that the ages are in the original post
It depends on what their wills say but Old no1 can pass their pension fund to Old no 2 on their death free of any inheritance tax. Over 75 means that the pension fund value of Old no 2 will form part of their estate and be subject to IHT
It won’t be ‘a pension’ to the beneficiaries of the will, it will just be money like any other
It depends on what their wills say but Old no1 can pass their pension fund to Old no 2 on their death free of any inheritance tax. Over 75 means that the pension fund value of Old no 2 will form part of their estate and be subject to IHT
It won’t be ‘a pension’ to the beneficiaries of the will, it will just be money like any other
Edited by LastPoster on Wednesday 23 October 22:34
Edited by LastPoster on Wednesday 23 October 22:36
gotoPzero said:
A question has come up from the olds about their private pensions.
Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
It is tax free in the sense that it is outside the scope of inheritance tax. Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
Once the recipient draws from the pot it will be taxed as income in the normal way.
TriumphStag3.0V8 said:
gotoPzero said:
A question has come up from the olds about their private pensions.
Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
It is tax free in the sense that it is outside the scope of inheritance tax. Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
Once the recipient draws from the pot it will be taxed as income in the normal way.
LastPoster said:
TriumphStag3.0V8 said:
gotoPzero said:
A question has come up from the olds about their private pensions.
Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
It is tax free in the sense that it is outside the scope of inheritance tax. Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
Once the recipient draws from the pot it will be taxed as income in the normal way.
supersport said:
LastPoster said:
TriumphStag3.0V8 said:
gotoPzero said:
A question has come up from the olds about their private pensions.
Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
It is tax free in the sense that it is outside the scope of inheritance tax. Their IFA has told them that their pension pots go to their kids (or who ever they nominate) tax free.
I am questioning this.
Can anyone advise what the situation is? I have googled but it seems quite complex.
To keep things simple, its a SIPP, its sub £1M.
Lets say the olds are 80. The kids are 50.
IMHO its not tax free, its taxed at the marginal rate? Is that right?
Also, lets say the SIPP had £100k in it and your in the 20% band.
Do you get a straight £80k or is it calculated in like normal on a tax return, so added into all your other income etc so you might end up in 40%?
I seem to remember there was some rule that the beneficiary could put it into their pension? Is this still a thing?
Once the recipient draws from the pot it will be taxed as income in the normal way.
gotoPzero said:
Thats one reason why its been brought up.
Another issue is olds have not used their TFLS. This is on the basis that the pensions were tax free on death.
Again, I think they are either being told the wrong info by IFA or they are not understanding. They issue is they are now getting on in years so 7 year rule is coming into play. But kids might end up in very different situations due to income tax rules. Which I dont think they are understanding.
Are you sure their IFA is actually I - ie, Independent?Another issue is olds have not used their TFLS. This is on the basis that the pensions were tax free on death.
Again, I think they are either being told the wrong info by IFA or they are not understanding. They issue is they are now getting on in years so 7 year rule is coming into play. But kids might end up in very different situations due to income tax rules. Which I dont think they are understanding.
Maybe they have misunderstood something, as you say. I imagine that is easily misunderstood…..but I would hope the IFA is being very clear and indeed documenting the detail for them.
Of course it is probably in his (or her) interest to keep the pot as part of the AUM (assets under management), as I imagine the fees are based on that….
As you say, they are potentially now into the 7 year rule, which might make it less appealing to draw to share, depending on any beneficiaries tax position. More on that here
Oh I know his game. He used to be my IFA till I sacked him.
They wont though, I try not to meddle too much, but he is going to get a big, big shock after they are gone.
He thinks he is keeping that pension in perpetuity but there is no way. The fees are ridiculous.
I cant actually believe they have not taken their 25% TFLS, but like I say I try not to meddle.
They wont though, I try not to meddle too much, but he is going to get a big, big shock after they are gone.
He thinks he is keeping that pension in perpetuity but there is no way. The fees are ridiculous.
I cant actually believe they have not taken their 25% TFLS, but like I say I try not to meddle.
Their IFA is probably correct, but I’d wager that your olds have heard “tax free” and not the “Inheritance” before hand!
SIPP will go to whoever your olds have named in the “expression of wishes” (presumably you) - in which case it is free of Inheritance tax, but when you extract it to spend it us subject to your marginal rate at that time.
If they take the TFLS now then it forms part of their estate on death and will be subject to Inheritance Tax.
Family finances can be a minefield!
Jim
SIPP will go to whoever your olds have named in the “expression of wishes” (presumably you) - in which case it is free of Inheritance tax, but when you extract it to spend it us subject to your marginal rate at that time.
If they take the TFLS now then it forms part of their estate on death and will be subject to Inheritance Tax.
Family finances can be a minefield!
Jim
LastPoster said:
Edited as I missed that the ages are in the original post
It depends on what their wills say but Old no1 can pass their pension fund to Old no 2 on their death free of any inheritance tax. Over 75 means that the pension fund value of Old no 2 will form part of their estate and be subject to IHT
It won’t be ‘a pension’ to the beneficiaries of the will, it will just be money like any other
This is incorrect.It depends on what their wills say but Old no1 can pass their pension fund to Old no 2 on their death free of any inheritance tax. Over 75 means that the pension fund value of Old no 2 will form part of their estate and be subject to IHT
It won’t be ‘a pension’ to the beneficiaries of the will, it will just be money like any other
The pension fund is always outside their estate. The beneficiaries are provided by the fundholders to the administrators completely independently from the will - and outside their estate, so no IHT in any scenario.
When they die, the funds will move into a new pension fund in the name of the beneficiary, but will be treated as a crystallised some, so no tax free 25% on it.
All subject to future change of course.
Car bon said:
LastPoster said:
Edited as I missed that the ages are in the original post
It depends on what their wills say but Old no1 can pass their pension fund to Old no 2 on their death free of any inheritance tax. Over 75 means that the pension fund value of Old no 2 will form part of their estate and be subject to IHT
It won’t be ‘a pension’ to the beneficiaries of the will, it will just be money like any other
This is incorrect.It depends on what their wills say but Old no1 can pass their pension fund to Old no 2 on their death free of any inheritance tax. Over 75 means that the pension fund value of Old no 2 will form part of their estate and be subject to IHT
It won’t be ‘a pension’ to the beneficiaries of the will, it will just be money like any other
The pension fund is always outside their estate. The beneficiaries are provided by the fundholders to the administrators completely independently from the will - and outside their estate, so no IHT in any scenario.
When they die, the funds will move into a new pension fund in the name of the beneficiary, but will be treated as a crystallised some, so no tax free 25% on it.
All subject to future change of course.
I wasn’t aware that the situation for a SIPP was different to a personal pension
But I am now and it’s something for me to consider (but not for a good few years)
So at least one person has learned something from my posts
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