What does this mean for people and pensions?

[imastrangerheremyself]

If pensions are to be taxed as part of inheritance how will this affect the way people view them?
Will it be - there's no point in putting more away now so let's enjoy our money now? This is something that will in two years time drastically reduce the wealth of everyone who has a pension and home.
Will people downsize their homes to ridiculous levels to try to reduce their level?
What about people who live in the SE where a 3 bed house may well be 1/2 a million compared to areas where it is half of this? Surely that is an unfair start line too?

Teaching our kids they should sacrifice their lives for more money than they need, only for it to be confiscated when they die seems like a pretty sad moral to pass on.

Pensions left to beneficiaries were exempt from IHT but subject to income tax if they were over 75 when they died. FiL died recently and planned that his unused pension would pay a good chunk of the IHT bill. So DH will take the pension lump sum, pay 20% income tax on it and send the rest to HMRC. If he were a higher rate taxpayer he'd be paying 40% income tax. Assuming this stays the same, does this mean that if FiL had died post 2027, his pension would now be subject to IHT at 40% plus another 20% (or 40% or 45%) income tax on top? If so, this definitely seems as if you should aim to spend it all while you can.

It means you are only incentivised to save the amount you actually need to live on in retirement, and that it is no longer possible to use your pension as an IHT avoidance tool.

Which is fine in my book.

I don’t get this angst. Under old style DB pensions, the pension dies with you. Under DC there may still be money in the pot. I was surprised that it wouldn’t be subject to IHT.

If you want to leave money for your kids, give it to them when you are alive. Give them a house deposit, uni fees or private education. No need to be the richest person in the graveyard.

People are not necessarily hoarding and not living their lives. It may well be that people have accumulated a good pension through many years. Why should they've denied passing all of it onto their family?

"
If you want to leave money for your kids, give it to them when you are alive. Give them a house deposit, uni fees or private education. No need to be the richest person in the graveyard."

Yes people will reassess their spending v pension building going forward.

Is that a bad outcome? It means a better life for the children now. If you have spare cash now then this makes sense.

For the same reason you can't pass on other assets tax free when you die (once you are past the nil-rate threshold). Why should a pension be any different? It's an asset like any other, and the contributions to the pension weren't taxed.

I seem to have already side stepped this issue by creating an income/savings plan that distributes/aims for differing lump sums at different ages.

Mainly by mistake, as I want to retire early, and pensions wouldn't cover that, so I need different investment pots.

As for inheritance, I expect I won't be leaving DS much more than a property - as we're putting money directly into his Junior SIPP. We'll set him up as well as we can and live for the day when it comes to retirement knowing that we're very fortunate.

That's good though - much better to help your dc out while you're alive than leave them money after you die.

My mum was in her 70s when her mum died. My dad was pushing 60. They both got a small inheritance, but much more valuable were the times both sets of parents had been able to help them out financially when they were starting out in life or had small children.

I'm in my 50s and lucky to have both parents alive and mostly well. I'm also fortunate to finally be in the position where I can pay for the odd treat for them, and depending on whether they need care or not, I will get an inheritance and probably pay some tax but hopefully not until I'm also of pensionable age. I'm hugely grateful that they were a safety net (that luckily I didn't need to use) when times were really tough financially when I was younger. I was privileged to have that.

My hope and plan is that:

• I can help out my children financially when they need it
• I can support myself financially so as not to be a burden on them beyond their ability or inclination to care when I'm older

I won't measure my worth, or my work rate, or my love for my children based on what I leave them (or don't) when I die.

It would have to be a pretty amazing pension pot to have significant amounts left over, or the person concerned has significant other retirement income streams.

Perhaps we should ask why some very well off people seem to be routinely saving much more than they need to fund a very comfortable retirment in to a pension. I wonder indeed. 🤔

This is something that will in two years time drastically reduce the wealth of everyone who has a pension and home.

No it wont. They will still have the same home and the same pension as they would previously. It's only once they are dead that it would make any difference.

People will spend more? Sounds like something that may boost the economy!

Closing an IHT loophole and encouraging people to spend the money they have... surely that is a good thing to come out of a budget?

Perhaps we should ask why some well off people seem to be routinely saving much more than they need to fund a very comfortable retirment in to a pension. I wonder indeed. 🤔

It’s impossible to know when someone will die and how investments will do.

Indeed, but if someone does die with pension savings remaining, what is your justification for treating the pension differently to all the other assets in the estate?

It's just another asset - one that was tax-free at the point of being saved so, if anything, there is more justification to tax it when it is no longer needed by its original owner.

However, you know as well as I do that the poster you were replying to was talking about the people who intentionally use pension pots as an inheritance tax dodge.

I find myself agreeing with everything @Ginmonkeyagain writes.
Spend your pension on what it is for ---your retirement. If you have extra to your needs, give it to your loved ones whilst you're alive to have the joy of sharing and seeing the effect. Win-win all round.

You can give your kids money without paying tax on it. You just have to do it while you are still alive. It's better like that as they get the money when they need it most and you get to enjoy giving it to them.

I don't think they're going to see the problem of more money than they need.

Even this generation of pensioners doesn't appreciate what they have, it's more more more.

The pension my mum
had before she died only paid 4
months worth of payments to any heirs.
That was the deal she had signed up to so as she got the best pension payment she could when alive. I think the change in rules will affect a tiny % of folk who
pribably have lots of other assets etc to pass onto their kids.

If you are a couple the threshold for your house would be 1 million. Where I live a terraced house is 1.4 million but I have a flat which is worth around 400k. But most 'normal' people I know tend to sell their houses by the time they are 60 plus and buy a 700k flat which is well below the threshold.

Its the singles I feel sorry for, my MIL's terraced house is probably worth around 600k (though it is in terrible condition which would probably make a difference now with the cost of works and has no double glazing). As she is divorced she would fall under the iht threshold and her daughter currently lives with her and there is no plan for her to move out (my MIL has plans for her to be the carer). I do think she wouldn't be up to it as when she went to stay with her grandpa before he died, her grandpa said she wasn't able to do much and it is hard work. So I don't think even in this situation of a woman who owns a terraced in nw london, she would have to pay inheritance tax because much of the money would be spent on care fees.

Your pension should be something you live on after retirement, not a nice little nest egg to leave to your children. If it's that, it's only fair that it should be taxed.

People here would faint at the IHT rules in my native Netherlands - the current nil band for an inheritance passing from parent to child is 22,900 Euros. Yes, that's all. Above that you pay 10%. Dsis and I paid Dutch IHT on our mum's estate and did not whinge about it, because we had not earned that money. The UK nil band is very generous.

People here would faint at the IHT rules in my native Netherlands - the current nil band for an inheritance passing from parent to child is 22,900 Euros. Yes, that's all. Above that you pay 10%

10% not 40%... why would that make anyone faint?

Very good.
No pockets in a shroud!

For anything over 152,000 Euros it then goes up to 20%.

And if you're a sibling, a grandchild or other more distant relative, the rates are higher - 36% after the first 24,000 Euros (just looked up the 2024 rates) and 40% above 152,000 Euros. So pretty much everyone pays IHT.

As I said, UK rates are generous.

The problem with giving your money to your DCs when you are alive is that you don't know how much you will need to pay for your care. To give money away when you're alive (and avoid IHT) you have to live for another 7 years. To be on the safe side, you need to give it away when you're in your 60's - which, tbf, is probably when they need it most. However, at that point, you have no indication of what your care needs might be in 20 years' time.