to say I dont understand the new tory policy...how can pension pots be handed down once you die?

[ssd]

I have just seen on the news the tories are cutting the tax on pension pots handed down to children

can anyone explain this, how it works?

I dont have a pension so am a bit thick here...

This puzzled me too when I first heard it. I think but not absolutely sure it refers to a pension that is untouched by the person and they wish to pass on to their family as an inheritance. And it will be tax free.

so you would need to have a substantial pension pot to have some left behind when you die? so therefore you would need to be comfortable to be in this position and leave even more to your kids...and its now tax free?

is this right?

If you make sacrifices because you want to leave some money that you've accumulated to your DC, how can it be wrong? In effect, it's savings.

Personally, I'm aiming to spend every last penny!

Whether you have much left in the pot does depend on how big the pot was in the first place. But rather more crucially it depends on when you die. If that's only a few years after retirement, then even quite modest pots can still have several (or many) thousands left. Not paying 55% tax on that would make a big difference to a widowed pensioner.

Widow(er)s don't pay the 55% tax, scaevola.

Nor do children under 23.

This is about making inheritance tax-free for non-dependents. Nice if you've got it (which really isn't dependent on making sacrifices or working hard).

already don't pay the 55%

Yeah, it's just an inheritance tax cut dressed up. Designed to appeal to UKIP sympathisers aged tory voters.

Well, DFIL died before he claimed his private pension - so DMIL could claim for 5 years against his pension - those were the terms 20 years ago.

With DF, he died and his widow gets his pension until she dies. She is a little bit younger. He retired in 1985 and died in 2002 ; his pension was 36Kpa after commuting 25%. I would guess DStepM has a another 25 years in her yet!

Those were the days of the golden civil service pensions

More anti-meritocratic nonsense from the Tories. Inheritance tax is NOT a tax on the dead, it's a tax on the transfer of unearned income, payable by the beneficiary. It is only right and just that, in a world where someone can gain huge material advantage by virtue of being born in the right place and time, a benevolent state can take action to mitigate SOME of this unfairness. It seems they really do want to take us back to the feudal age.

Still, nice to see them announcing this at the same time as removing housing benefit entirely from young people.

Because a room in a shared house to allow young people to relocate to areas of greater employment obviously isn't something we'd want to support, is it?

I dont understand your post babycham?

There's some confusion here between pension pots & annuities.

There's many many different rules & it can be quite complex. Overall though this is good news & another way to encourage pension saving.

I understand your post completely babycham, but sadly we're in the minority on this one .

It's about personal pensions. If you die not having touched it then it won't be subject to tax. If you've already bought an annuity with it then your estate gets nothing. If you go into pension drawdown, whatever's left in the pension will be paid out an no longer taxed as before.

Babycham I understand and agree with you.

Tigress we can't say if it's good news yet. Any cut in tax needs to be offset either by an increase in tax somewhere else or a cut in spending. So good news for some but bad news for others.

Given these pension pots will often have benefitted from 40% income tax relief plus tax relief on investment returns it doesn't seem unreasonable to tax them on inheritance. I think the proposal is to still tax them but at the inheritor's marginal rate which the people with accountants will make sure is as low as possible.

can you explain it allotment? I'd like to understand it

It's nothing to do with inheritance tax, tecnically the money in your pension doesn't belong to you, so any that's unspent when you die doesn't form part of your estate. (The pension money that may then be distributed to your relatives is either the proceeds of an insurance policy or of a trust, I think.)

Unspent money used to be taxed at 55%, the article I read this morning said that it would be taxed as income of the recipients, so at 20% or 40% depending on their tax band. (Was only a brief article in the Telegraph so quite possibly wrong, don't take my word for it.)

Anyway, the money isn't going to be tax-free now, just taxed at a lower rate instead of confiscating more than half of it.

There's always been an option to transfer the unspent pension to a spouse pension, without any immediate tax, I assume that will continue. (The spouse will pay tax at their rate when they take money from their pension.)

I think, they might be trying to take the edge off the baby boomers and the generation coming behind them who are currently trying to avoid their dcs having to pay out a lot of inheritance tax. I have seen close hand the "planners" putting money in their adult children's hands to avoid the 7 years rule (that gifts given in less than 7 years are counted as part of the estate for tax purposes).

In my family, dpil gave dbil £20k when he got married then have us a similar sum to knock off our mortgage, and FIL said it was to "take it out of my estate". My parents lent my db £30k when he renovated his house, but have asked him to pay it back into a different account that's in his name, with the understanding if they later need it he'll give it them back and he's not to touch that account until they die (they have reflected the difference with me in their wills apparently).

More and more 60 and 70 something are dumping their cash, which is fine while they are healthy, but end of life care can be expensive and government plans for paying for elderly care assumes a decent percentage of the population do have their own funds, not that the middle classes have made themselves poor giving everything to their dcs who won't give it back to pay for care.

Similarly, I have heard various arguments amongst 50-something's against putting money into pensions, including loss of control over your money and not being able to hand it on.

People not saving for old age then needing to be looked after by the state might well end up costing far more than letting them hand more to their dcs on their death, but looking after themselves in a long retirement.

Inheritance tax might seem fair from an intellectual point of view, but people from across the political spectrum seem to find it unjust that the money they were taxed on already in life then saved hard, is then taxed again. (And by taxing estates- usually made up from earned wealth, not taxing the people who receive money, it is clearly a tax on the dead person, not the recipient 's unearned wealth).

This is about making inheritance tax-free for non-dependents. Nice if you've got it (which really isn't dependent on making sacrifices or working hard).

My pension pot is absolutely the result of making sacrifices and working hard!

ssd I think that Babycham is basically saying that this is another way to preserve wealth in the families who already have it (as taxing it would instead spread the money over people who benefit from public services).

This is a bad thing if you would like to live in a more equal meritocratic society (as I would).

OK the are lots of permutations, it seems passed on funds are more likely to be tax-free under the new regime. (In some circumstances they were tax-free under the old.)

This Telegraph article has a table summarising.

www.telegraph.co.uk/finance/personalfinance/pensions/11127534/Pension-death-tax-your-questions-answered.html

That's lovely for you, aj.

Gideon's isn't. And I'll wager his is larger than yours...

thanks isitme