Tax on lump sum

[LumpSums]

My young Dd is set to inherit her dad's pension lump sum. She is 10. I don't know how much it is yet but perhaps around £100,000. Would tax be payable on this? The website says tax of 40% but as she is a child does that still apply? If so is it up to me to arrange for that tax to be paid or does the pension service take it off before payment like happens with wages?
TIA.

It will be paid into her account that I have responsibility for if that changes anything.

Professional advice needed I think but isn't a pension pot exempt from IHT?

I've no idea how it works.

yes, it isnt part of the estate

OP, the answer is 'it depends' - here's a start point. It looks like tax will be deducted by the pension provider if it is due

www.gov.uk/tax-on-pension-death-benefits

That's great, thank you. It's such a lot of tax to take off if it's 45%!

Likely no tax if he was younger than 75 when he died but it’s best to double check with the pension provider or a professional.

Sorry for your loss.

This could all change with the budget.

.

Thank you. He was 50 when he died. Yes, the budget might change things.
What am I supposed to do with the money for Dd?? Treat her and save or invest it? Keep it for when she's 18 for uni/car/house deposit?

Our IFA said our DC wouldn't pay tax on our pensions if they put it in a pension themselves. I know people say it's never too young to start a pension but I would think your DD might want /need it before she's in her late 50s! Definitely take advice before doing anything.

As others have said, likely to be tax-free (because her father was under 75) but may change in the budget. When will it be paid?

It will be her money, so it should be invested for her until she's 18. If you don't feel confident with that I'd take advice from an IFA.

Legal point, but I think you it can be used for her "education, maintenance or benefit".

As it is her income, in theory she will be taxable on any income and gains. There's no lower age limit on that. But it's doubtful this would produce more than her allowances.

So in theory I could use some for a holiday? There's somewhere she is desperate to go back to but has also never been abroad and doesn't even have a passport. Compared to her peers she is from a poor household and feels left out.

Are you planning ti use the money to fund a holiday for the two of you ?

As he died before the budget I would think the rules in existence at death would apply so no tax.

@LumpSums if it is taxable, then unless your DD has income from other sources e.g. savings interest, the normal tax uses apply.

So it won’t be 45% on the £100k. If it’s £100k or less she should get the first £12,570 tax free, the next £37,700 taxed at 20% and the remaining £49,730@40%.

If it’s over £100k for each £2 she loses £1 of personal allowance.

@CloudPop it depends what the rules are. At the moment I'm just enjoying thinking about the possibilities for her with no actual intentions. Kind of like if I won the lottery I would xyz.

what the f are you on about? go back & read the OPs post properly

OP, ignore this nincompoop

The daughter is 10. Literally none of this applies.

If this is a normal DC pension you should consider transferring it into a beneficiary drawdown. Any withdrawals will be tax free. As will growth. The budget may change things going forward but I would not be putting this into a bank account just yet.

Strongly advise taking professional advice - either an IFA if you can get a good one recommended, or maybe a tax adviser

@LumpSums

Definitely "Keep it for when she's 18 for uni/car/house deposit".

At 18 she can what she wishes with it.

@GwenPost please can you advise what is incorrect to help the op. Is it that you don’t think children pay tax in the UK or that it is a pension payment that is tax free?

I thought lump sums from pensions were tax free. Probably best to seek financial advice.
Id personally save the money for a house deposit for dc.

The daughter‘s age does not come into it. What matters is if the pension holder died before the age of 75, which he did.

I'm sorry for your tragic loss. Did your DH purposely leave the lump sum to your DD, as I'd have thought it would have gone to you?

You definitely need to seek advice from an independent financial adviser. Was your husband in a union through work? I am and was able to seek financial advice without charge.

I hope there is financial provision for you too x