What is the actual impact of IHT on a SIPP post 2027?
Discussion
I've googled this, and I'm none the wiser.
What is the net impact of IHT on a SIPP when the SIPP holder dies over the age of 75 once pensions become subject to IHT? (assuming that there are other assets that are already over the IHT threshold for that particular estate)
Is it a case of the beneficiaries inherit 60% of the SIPP, but then that 60% is unencumbered.
Or
Do the beneficiaries inherit 60% of the SIPP, which they can then only access according to normal SIPP drawdown rules (excluding, of course, anything related to the 25% TFLS).
Or
Some other set of rules that I'm not aware of?
What is the net impact of IHT on a SIPP when the SIPP holder dies over the age of 75 once pensions become subject to IHT? (assuming that there are other assets that are already over the IHT threshold for that particular estate)
Is it a case of the beneficiaries inherit 60% of the SIPP, but then that 60% is unencumbered.
Or
Do the beneficiaries inherit 60% of the SIPP, which they can then only access according to normal SIPP drawdown rules (excluding, of course, anything related to the 25% TFLS).
Or
Some other set of rules that I'm not aware of?
Crumpet said:
Can the inherited SIPP be amalgamated with the SIPP of the person inheriting it?
Seems like that would be the only way to mitigate the theft of huge amounts of money.
Yes the SIPP goes to the SIPP of the beneficiary . However it is subject to a tax charge, deducted from the original value at transfer of 40%.Seems like that would be the only way to mitigate the theft of huge amounts of money.
The tax treatment of the beneficiary at withdrawal are the relevant rates at that time .
It was one line in the budget, not even mentioned at the budget address, I think it's one of the meanest and most envious and wicked tax charges of recent times .
It's also so dumb, in an environment where means testing will bring about loss of state pension, why not encourage people to be self funding and self sufficient.
cliffords said:
It's also so dumb, in an environment where means testing will bring about loss of state pension, why not encourage people to be self funding and self sufficient.
Devil’s advocate as I’m not a fan of this tax either but IHT won’t discourage anyone wanting to provide for [b{themselves [/b{in old age. You’ll be able to spend as much as you want on yourself, you can even transfer it to your wife free of tax. It’s only your beneficiaries that lose out (assuming your Estate is one of the 10% likely to fall into the IHT band). And AIUI pensions have only beien outside IHT since 2013? So arguably it’s a loophole that’s being closed.cliffords said:
Yes the SIPP goes to the SIPP of the beneficiary . However it is subject to a tax charge, deducted from the original value at transfer of 40%.
The 40% being the effective IHT or an additional tax charge?Countdown said:
Devil s advocate as I m not a fan of this tax either but IHT won t discourage anyone wanting to provide for [b{themselves [/b{in old age. You ll be able to spend as much as you want on yourself, you can even transfer it to your wife free of tax. It s only your beneficiaries that lose out (assuming your Estate is one of the 10% likely to fall into the IHT band). And AIUI pensions have only beien outside IHT since 2013? So arguably it s a loophole that s being closed.
I still think it will change contribution patterns and, possibly, trigger earlier retirements or part time work. Like the punitive tax rates above £100k it’s simply another disincentive to work hard and do better. My understanding is that the 40% IHT charge can never be applied to the full value of a SIPP.
Instead, a % of the nil rate band can be applied to the SIPP value and the IHT charge can be applied to the remainder. For example, if the SIPP represents 50% of the estate then 50% of the nil rate band can be applied to the SIPP value.
Note the "can". The executors don't have to pay any of the IHT charge from the SIPP if the don't want to. Also, the executors can't pay any more of the IHT bill than the above.
Once the charge is paid and the SIPP transferred to the beneficiaries then they can withdraw at their marginal rate of income tax - if the deceased died at 75 or older.
I'm sure there are nuances but that's my layman's understanding.
Instead, a % of the nil rate band can be applied to the SIPP value and the IHT charge can be applied to the remainder. For example, if the SIPP represents 50% of the estate then 50% of the nil rate band can be applied to the SIPP value.
Note the "can". The executors don't have to pay any of the IHT charge from the SIPP if the don't want to. Also, the executors can't pay any more of the IHT bill than the above.
Once the charge is paid and the SIPP transferred to the beneficiaries then they can withdraw at their marginal rate of income tax - if the deceased died at 75 or older.
I'm sure there are nuances but that's my layman's understanding.
Countdown said:
Puzzles said:
It will shift behaviour, people will save less and retire earlier.
Another nail in the growth coffin.
If people retire early won t that create vacancies and promotion prospects for others?Another nail in the growth coffin.
It’s like Kane retiring from England when he’s got a good few years left and saying it’s ok because it gives someone else a chance. It does, but rather than that person working hard to actually be better than Kane they’d just be in because there’s a slot to fill. You want people to be pushed so that they create opportunities and growth. Or, worse, competence is replaced by meeting quotas rather than putting the best person for the job in there. Or, even worse than that, the job or work is sent overseas or to a US AI company.
I’ve just requested part time; instead of me bringing foreign money into the UK the work will be picked up by someone from the EU. A fringe case, perhaps, but because of s
tty tax policies in the UK there will be tens of thousands of pounds less coming into the UK next year just from me alone. LeoSayer said:
My understanding is that the 40% IHT charge can never be applied to the full value of a SIPP.
Instead, a % of the nil rate band can be applied to the SIPP value and the IHT charge can be applied to the remainder. For example, if the SIPP represents 50% of the estate then 50% of the nil rate band can be applied to the SIPP value.
Note the "can". The executors don't have to pay any of the IHT charge from the SIPP if the don't want to. Also, the executors can't pay any more of the IHT bill than the above.
Once the charge is paid and the SIPP transferred to the beneficiaries then they can withdraw at their marginal rate of income tax - if the deceased died at 75 or older.
I'm sure there are nuances but that's my layman's understanding.
Why does it matter where the 40% tax (if due) comes from, it's still the same extra tax that the estate has to pay.Instead, a % of the nil rate band can be applied to the SIPP value and the IHT charge can be applied to the remainder. For example, if the SIPP represents 50% of the estate then 50% of the nil rate band can be applied to the SIPP value.
Note the "can". The executors don't have to pay any of the IHT charge from the SIPP if the don't want to. Also, the executors can't pay any more of the IHT bill than the above.
Once the charge is paid and the SIPP transferred to the beneficiaries then they can withdraw at their marginal rate of income tax - if the deceased died at 75 or older.
I'm sure there are nuances but that's my layman's understanding.
NortonES2 said:
LeoSayer said:
My understanding is that the 40% IHT charge can never be applied to the full value of a SIPP.
Instead, a % of the nil rate band can be applied to the SIPP value and the IHT charge can be applied to the remainder. For example, if the SIPP represents 50% of the estate then 50% of the nil rate band can be applied to the SIPP value.
Note the "can". The executors don't have to pay any of the IHT charge from the SIPP if the don't want to. Also, the executors can't pay any more of the IHT bill than the above.
Once the charge is paid and the SIPP transferred to the beneficiaries then they can withdraw at their marginal rate of income tax - if the deceased died at 75 or older.
I'm sure there are nuances but that's my layman's understanding.
Why does it matter where the 40% tax (if due) comes from, it's still the same extra tax that the estate has to pay.Instead, a % of the nil rate band can be applied to the SIPP value and the IHT charge can be applied to the remainder. For example, if the SIPP represents 50% of the estate then 50% of the nil rate band can be applied to the SIPP value.
Note the "can". The executors don't have to pay any of the IHT charge from the SIPP if the don't want to. Also, the executors can't pay any more of the IHT bill than the above.
Once the charge is paid and the SIPP transferred to the beneficiaries then they can withdraw at their marginal rate of income tax - if the deceased died at 75 or older.
I'm sure there are nuances but that's my layman's understanding.
If a larger proportion of the pension was used to pay the tax then it could reduce future tax receipts from pot drawdowns.
A quick Google AI result says:
Post-April 2027 rules allow Inheritance Tax (IHT) to be paid directly from your SIPP before income tax. To avoid double taxation, the Finance Act 2026 provides an income tax deduction for IHT paid. In practice this means the beneficiary does not pay income tax on the money used to pay Inheritance Tax (IHT). However, paying the IHT from the SIPP does not reduce your overall IHT liability.
I guess the positive here is that you can use your SIPP to pay all or most of the IHT leaving non-taxable savings/property to your dependents. That s a big positive and strategically means I can consider my SIPP as my IHT payment pot rather than drawing it down if I don t need to paying income tax as I do. Still doesn’t help with the increase in IHT paid once the SIPP is included.
Edited to add that AI confirms that 100% of the SIPP can be used to pay IHT. Which is probably the most effective way to do it from an income tax perspective for the dependents.
Post-April 2027 rules allow Inheritance Tax (IHT) to be paid directly from your SIPP before income tax. To avoid double taxation, the Finance Act 2026 provides an income tax deduction for IHT paid. In practice this means the beneficiary does not pay income tax on the money used to pay Inheritance Tax (IHT). However, paying the IHT from the SIPP does not reduce your overall IHT liability.
I guess the positive here is that you can use your SIPP to pay all or most of the IHT leaving non-taxable savings/property to your dependents. That s a big positive and strategically means I can consider my SIPP as my IHT payment pot rather than drawing it down if I don t need to paying income tax as I do. Still doesn’t help with the increase in IHT paid once the SIPP is included.
Edited to add that AI confirms that 100% of the SIPP can be used to pay IHT. Which is probably the most effective way to do it from an income tax perspective for the dependents.
Edited by Phil. on Saturday 18th July 10:47
Phil. said:
A quick Google AI result says:
Post-April 2027 rules allow Inheritance Tax (IHT) to be paid directly from your SIPP before income tax. To avoid double taxation, the Finance Act 2026 provides an income tax deduction for IHT paid. In practice this means the beneficiary does not pay income tax on the money used to pay Inheritance Tax (IHT). However, paying the IHT from the SIPP does not reduce your overall IHT liability.
I guess the positive here is that you can use your SIPP to pay all or most of the IHT leaving non-taxable savings/property to your dependents. That s a big positive and strategically means I can consider my SIPP as my IHT payment pot rather than drawing it down if I don t need to paying income tax as I do. Still doesn t help with the increase in IHT paid once the SIPP is included.
Edited to add that AI confirms that 100% of the SIPP can be used to pay IHT. Which is probably the most effective way to do it from an income tax perspective for the dependents.
The mechanics of this need to be understood. Will it be like NS&I where you can access the funds in the SIPP to pay IHT before probate is granted? Otherwise, if you can't get access to the funds in the SIPP until after probate has been granted, you'll have already had to pay the IHT.Post-April 2027 rules allow Inheritance Tax (IHT) to be paid directly from your SIPP before income tax. To avoid double taxation, the Finance Act 2026 provides an income tax deduction for IHT paid. In practice this means the beneficiary does not pay income tax on the money used to pay Inheritance Tax (IHT). However, paying the IHT from the SIPP does not reduce your overall IHT liability.
I guess the positive here is that you can use your SIPP to pay all or most of the IHT leaving non-taxable savings/property to your dependents. That s a big positive and strategically means I can consider my SIPP as my IHT payment pot rather than drawing it down if I don t need to paying income tax as I do. Still doesn t help with the increase in IHT paid once the SIPP is included.
Edited to add that AI confirms that 100% of the SIPP can be used to pay IHT. Which is probably the most effective way to do it from an income tax perspective for the dependents.
Edited by Phil. on Saturday 18th July 10:47
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