Inheritance tax on pensions - would this be an effective tax rate of up to 67%?

Only if they take it out of the pension scheme though if they leave it in there they don’t pay any income tax. The amount in the pension will be enhanced compared to paying into an isa as you get tax relief on the way in. Beneficiaries don’t have to withdraw it all if their circumstances don’t need it, wait until a year their marginal rate of tax is lower

Fundamentally, this seems to stem from a dislike of the idea of saving money and giving it away to the people you love when you die, in favour of spending down your assets frivously and frittering away any margin of safety.

Let me rephrase that for you. It comes from a dislike of people acquiring more wealth than they need, and passing on ever bigger pots to heirs to create multi generational rich dynastic families

@Notsuchafattynow the £325k threshold has been frozen until 2030. If a divorcee has £50k in an ISA or SIPP and dies it will be taxed at 40% (down to £30k) then another 40% will be taken if the beneficiary is a higher tax payer. £18k left - an effective tax rate of 64%, for an occupant of a modest semi in the north of England (assuming it is worth £325k by 2030 for simplicity). That sounds fairly average to me.

This will push many millions of people into the category of having IHT on their estates.

I think this won't impact most average people, living in average homes.

A married couple can still leave an estate of 1 mill and not be taxed.

So even a house worth 500k, would leave room for 500k in pensions, savings and investments, which would be a dream for 80% of the population.

But pension money will now be subject to IHT AND income tax for the beneficiaries

MIL is going to start gifting and we are going to take the risk that she (hopefully!) lives 7 years.

Dh is determined not to pay any IHT at all.

Not really.

Capital Gains get wiped out on death.

So my house I literally paid 75k cost, 75k in interest, another 80k in improvements over the years. That, today, would hit my estate at 600k.

So not all 600k has come from taxed income.

Is this personal for you, @JeremiahBullfrog ?

We have been able to save. We give monthly to DCs (without leaving ourselves short), and had hoped they'd get some of our DC pension pots in due course. We may revise our plans now.
We're in a too-big house now and are looking for something more suitable (but we're fussy!). Would love to move and spend some of our hard-earned on removal, flooring, decor, new furniture etc.

The problem for many is the move as much as the house itself.

If you don't do it early (and when is that exactly?) The whole moving process is very difficult.

And then it's not easy to find a place that doesn't need work doing or shafts you on service charges in the guise they are helping you. My son's is looking at houses at the moment and almost every bungalow that pops up is a doer upper.

Inheritance tax always taxes money that has already had tax paid on it, that’s how it works. I pay income tax on my salary so it’s already taxed at 20% or 40% depending on if I’m in higher rate. If i save this as cash it forms part of my estate when I die and will have inheritance tax charged if I’m over the limits, same with any other type of income I get and save

Surely then you’d be cutting your nose off…. ? If you were saving via your pension in case you needed care home fees, then your Dc wouldn’t get that money anyway. By not doing that in order to avoid IHT, you could end up in some grotty care home.

Vanguard just produced this analysis: www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/what-the-autumn-statement-means-for-you?cmpgn=ET1024UKTLABU0101EN&guid=&nuid=

@Greenbike Thank you very much, that's extremely helpful.

3000 is the donor, yes.

By backdated they mean if you didn't give 3000 last year you can do it this year too. But that's the only backdating there is.

You can give everyone 3000 each. That's the total. 3000 to one person or split it up over more.

This gift goes immediately out of your estate.

There are other gifts allowed like when children or grandchildren marry.

People who are so concerned about passing their money on to help their relatives might consider doing so before they die. Instead of sitting in houses vastly larger than they need which seems to be the current preference of the older generation.

I've just had a pay rise and was thinking of adding the extra to my pension. Maybe I won't now.
I do need to do some retirement planning though.
I'm in the Civil Service and most people on retirement seem to take the maximum cash lump sum. Maybe I do the same and that's a contribution towards a house deposit for DC, or maybe I take the maximum monthly payment and pass regular smaller amounts to the DC. Hmmm. As PP, no real incentive to top up my AVCs.

Maybe it'll encourage them to keep.it until retirement then!

I will probably end up in a care home and it'll get chomped up in a few years on that anyway!

But, yes, 67 percent does seem very hefty. That's very true.

I've just caught the end of Rick Stein long weekend so that's one idea Also gifts of 3k a year each to the kids for deposit savings - will backdate a year as well. I will probably contribute to their living expenses when they start working so they can max out pensions with the tax relief and they can retire early. Talking of early retirement this does change my plans somewhat

they will paid IHT on it at 40% and then when they take what is left out they will pay income tax on it

@LargeDeviation

No I thought it would be 40%.

Although my plans are that the kids keep it as a pension fund for themselves, so will they get a 67% charge?

My DD has just bought a house and my son about to, so it's not particularly directed to be their house deposits.

I'm only 57 and I may need it, of course. At the moment I still.work part time and am an unpaid carer for my father, who has dementia and lives with us, so I don't have the ability to spend much. One day I hope to travel so maybe I can spend it and save 67%!

There are two types of pension: Defined Benefit (aka Final Salary) and Defined Contribution. DB is a promise of an income for life, and therefore gets snuffed out when you and your spouse die. DC is simply a pot of (tax advantaged) money with your name on it. It belongs to you and therefore can be inherited when you die.

The pension you’re thinking of starting for your son will be a DC pension, probably a SIPP (Self Invested Personal Pension). It’s a great idea and in fifty years he’ll be very grateful.

This Budget changes nothing for your plans.

We will now give the money to our children earlier, whilst we are alive. Better for everyone really since we get to see them getting the benefit of it.