However, pensions are usually free of IHT but the value of this tax break was previously limited by the lifetime allowance. Its abolition makes this an almost unlimited option. Instead beneficiaries are taxed on the pension they inherit as they would be for other types of income. For non or low earners, this could mean a pension is passed on entirely free of tax.
So the pension fund (not an annuity, obvs) becomes sorta a permanent trust then? Paying out an income down the generations?
I’m not knocking it too much, but in my case as a divorcee with grown up kids, when I go my pension goes with me and whatever is left in my pot goes back into the pension scheme.
I don’t know if this is the case with Doctors or plod but it is what happens with a railway pension and my mate who retired a few years before me was very annoyed to discover that his wife would get half his monthly pension if he popped his clogs.
If i’d have bought a property or two (as a plumber friend has done) instead of making pension contributions every month perhaps I could have had something to pass on.
This all applies to DC pension pots, not DB…….
I’m not an expert but my understanding is that LTA doesn’t really have anything to do with it. Once in Drawdown i.e. past the crystallization event where LTA matters, your pension pot can continue to grow. The investment gains aren’t taxed but anything you withdraw is taxed as income.
This is what happens when you die: If you die in income drawdown the remainder of your pension can be passed on to your beneficiaries. Any tax to pay will depend on your age at death. If you die before the age of 75 you can pass on your pension as a tax-free lump sum or as income (if your pension provider allows it). If you die after your 75th birthday the lump sum or income will be taxed.
If you have a Sipp, it falls outside IHT. This is what is annoying the Leftists.
However, your beneficiary can make withdrawals free of Income tax, as long as you died before the age of 75. If you die older than 75, the withdrawals are subject to income tax. It’s quite complicated
“the pension they inherit”
beg pardon? WTH is this? My Dad’s pension is my Dad’s pension it dies when he dies, THAT’S THE DEFINITION OF PENSION!
None of this matters because Sir Kneel will abolish the stunt. Not least because his pensions will doubtless all be DB whereas the stunt applies only to DC.
So, gentlemen, if you want to take advantage now, stage a John Stonehouse event but do it competently.
Journalist failing to recognise the difference between a pension and a pension fund …
Then he/she/they thinks it’s a big deal if someone who is too poor to pay tax doesn’t pay tax on the income from deceased parent’s pension fund if his/her income (including that from the pension fund) is below the income tax threshhold …
Groan!
Jgh.. You need to understand the difference between a DB pension (not transferable) and a DC pension fund (sometimes/often transferable)
One of the disappointing things about that Telegraph piece is the statement that the MPAA has been substantially increased, when it has simply been restored to the value at which it was first introduced. If the Treasury team want to build confidence in the latest changes going forward and distinguish themselves from Labour’s reflexive and vacuous response they might perhaps do worse than say openly of that change: “That was really stupid, we shouldn’t have fiddled with it, we are really sorry and have now got a clue and put right”.