Pensions and the budget

[BasketOfBubbles]

I am due to retire on 1st November ie a couple of days after the Budget. I have put-in for a 25% lump sum. The paperwork is going through.

I'm now panicking that the tax rules might be changed with immediate effect on October Budget day and I'll be screwed.

That couldn't happen could it? We'd need a bit of notice??

But it wasn't subject to income tax was it? It went straight into your pension pot pre-tax when you earned it.

Yes - I can't get worked up around there being less after my death. The kids know not to expect much - who knows what care costs etc I'll need in due course.

Perfectly reasonable closing of a loophole seeing as there was tax relief on the way in. And it is not just DC schemes, DB lump sum benefits will also be included

Prior to 2015 there was a 55% charge on any unused pension funds at death

https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment

Yes this is SUCH a reasonable change, I can't see why anyone really objects to it. No tax has been paid on this money. Tax should be paid on it.

The big question is, are they abolishing income tax post 75 death or will here be income tax at marginal rates of 45% plus 40% inheritance tax on what‘s left.

If it had been subject to income tax I would’ve just spent it rather than put it away for years. The principle of pensions is to encourage deferred pay. If there’s no tax advantage what’s the point.

And pensions are trusts and have been non-taxable under these circumstances for 100 years. That’s how profound this change is.

No matter to me. I’ll just spend it or maybe buy a not very good value annuity. I’d rather do that and let the insurance company profit than lose 40% of it in inheritance tax.

and have been non-taxable under these circumstances for 100 years

Rubbish, prior to 2015 any money left in a pension post was subject to a 55% charge on death

Good question!

I think you meant to include 75. I had no intention of leaving my pot unspent beyond age 75 that’s 20 years away for me. Benefits have always had the principle of coming into payment by 75

My father worked tirelessly to support his children and family, building up his company with dedication. Now, with both inheritance tax and pension tax, a large portion of what he’s worked so hard for will be taken away. It feels like his efforts to provide for us are being penalized. Why should people strive to build a future if the system only takes it from them?
Anyone who voted for Labour should reconsider the impact of their choice. Their policies are making things harder for those who work hard to build a future.

Get a grip

You will be a lot better off than most people - people whose parents also worked as hard as they could for their family

So you end up paying tax - gee

Well that would be cutting off your nose to spite your face as if you die then your beneficiaries get nothing rather than 60% of something

I have reconsidered and I am now even more in favour of Labour!
I stand to inherit money, I don't see why tax shouldn't be paid on it.

Honest to god, the pearl clutching going on amongst some of my acquaintances! If you leave your kids over half a million pounds, they'll need to pay some tax on it.

Cry me a river.

(And for disclosure, including our house we'll probably be in that bracket, how lucky are we that our children will receive half a million quid without tax and how lucky is society that they will pay tax on everything above that. People are fucking starving in this country. I'll take the IHT.)

But I would’ve had the full benefit of it instead of having to keep some back to allow for the uncertainty of future investment returns.

I feel exactly the same. DH and I are from ‘ordinary’ middle class families in the south with both in-laws property valued around £600,000, and normal pensions/savings etc. Assuming it doesnt go on care needs - and I’m fine with it if it does - we would stand to inherit in the next few years. I’m perfectly happy with being taxed on it, I am very aware that growing up in the circumstances I did gave me advantages that I now reap with my salary as an adult. Ditto when it comes to our kids - admittedly only small still - I’m earning this money now and they’re benefitting from it now. I can take them to the theatre, buy them books, give them great experiences, holidays. I don’t intend to snuff it until they’ve seen the benefit of all that (and if I do there’s life insurance to help prop that up).

When there are kids in this country who are living in overcrowded homes, without enough food or heating, with inadequate healthcare and falling apart schools - I’d have to be a complete dick not to want the government to support them so that I could get a second holiday in each year.

What a load of cobblers. Pensions get massive tax relief to allow for people to have an income in their retirement.

Now, with both inheritance tax and pension tax - what pension tax? All that is happening is that any remaining pension funds form part of the estate of the deceased. If the estate goes over the IHT threshold then tax is payable.

btw on 10% of estates pat IHT

I think this is a sensible change. Pensions are meant to be something that provides income in retirement, not a way of creating an inheritance.

@Flandango - what pension tax? All that is happening is that any remaining pension funds form part of the estate of the deceased. If the estate goes over the IHT threshold then tax is payable.

If the owner of the pension is over 75 when they die the beneficiary of the pension is taxed on it at their rate. Other assets and monies from a will are not treated as taxable income for the recipient. Money left in a pension pot will be subject to IHT (quite rightly IMO) AND the beneficiary will pay tax on it as income.

Right @Cheepcheepcheep? And well said.

So (and pardon me for talking about your parents' passing so casually): they pass, you inherit a house worth 600,000. If they've been smart about their thresholds, you get a 500,000 allowance and pay 40% tax on the remaining 100,000.

So you PAY 40,000.

You GET 560,000.

Over. Half. A. Million. Pounds.

I reckon if me and DH died today our kids would be in around the same boat.

In what world is this a disaster?

Perfectly reasonable to pay income tax seeing as the contributions had tax relief on the way in

It isn’t a disaster, and I have no issue with the issue of pensions coming within IHT, but you could also look in this as ‘you buy a house, at the cost of buying a house and then you leave your children the value of a house’

But split between the number of children you have.

i.e that £40k is still only the value of a house even if it has increased to a lot more cash value.

Thus IHT chips at the actual value being passed down.

Still not a disaster, and so many people never receive any inheritance at all.

There are downsides to that. Lack of affordable rental properties mean the Gvt pays UC towards housing for so many families etc.

Nobody is saying it's disastrous however it is a massive change and there will be thousands of people who are looking to retire in the next few years (during labour's current term) who have done their tax planning on the basis of pensions being excluded. Lots of people will now be in a situation where IHT is payable on much more of their estate.

We have just spent a couple of hours looking at our situation. Our kids will just be getting much more, much sooner. We will pay their university fees, we will pay for their annual holidays and other ongoing expenditure and we will gift them house deposits. This means we need to be more careful about what we spend now since we will no longer have as much to fall back on because it will already have been gifted, but that isn't a major problem.

It‘s not just income tax. Now it will be 40% inheritance tax with income tax on the 60%. That is double taxation.

Sorry but unless you're mega rich who actually leaves their pensions to their kids? I intend to spend all of mine, that's why I've spent my entire working life saving for my retirement. Not so that I can leave retirement savings to my kids.