Legal challenge to incorporation of DC pensions for IHT purposes?

[Yetanothercrazycatlady]

Has anyone seen anything about a legal challenge to the incorporation of unspent DC pensions into estates for IHT purposes? The farmers have a lot going on in the media which is likely to eclipse it. I would have thought there would be some formal objections, even on the timeline. This policy could be construed as a tax an early death/ terminal illness. Surely someone would pick up on this?

Furthermore, I don’t see a Tax Information and Impact Note listed about it :
https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins#autumn-budget-2024

Someone may have spent the last ten years up to their retirement loading up their pension and living off savings, only to be told the tax treatment will change in just over two years. Or is the tax impact considered irrelevant as it’s not on individuals but estates?

I’m waiting for the consultation (jan 25) but right now I reckon I will be giving money to my DC asap. My DF died in May 23, leaving me £120k. I have until April 25 to vary his will so it goes to my DC, not me, saving a guaranteed £48k in IHT should I die in the next 7 years. That was money that was heading for the SIPP before. While I’m still earning I plan to apply my income as monthly maintenance to my DC. I’ll only contribute to my SIPP to bring me under the £100k threshold each year - it’s just not an attractive vehicle any more. Basically for me the changes to IHT on the pension fund mean I feel pretty stupid fir having saved in a SIPP so I could pay my own way in my old age, knowing that what I didn’t spend would go to my DC, less income tax if I get past 75. I just don’t accept the idea of IHT on the pension, plus income tax if I last after 75. No. I plan to become a burden on the state!

No. I plan to become a burden on the state!

Good luck! Having witnessed first hand the state options thank fuck my older relatives had choices.

@Cantabulous

You obviously have a very large pension pot. This change in the budget like so many is just a non issues for the vast majority of the population. Pension pots at retirement typically are tiny amounts compared to the £100k a year you put in!

Being a burden on “the state” means that your children and grandchildren and the businesses they work for and the general taxes that they pay will be supporting you.

It means limited choice because you will get care according only to need. Prefer four care visits a day so you know for sure you won’t be sitting in an adult nappy for hours? Tough luck if the criteria say you get two.

As ever, the state might provide a basic level, but money gives you choice.

Yes, i understand the implications, having seen my father suffer at the hands of the state. It’s shite. That’s where assisted dying comes in!

i don’t mean to be flippant, but seriously I won’t allow my life’s work to be taxed at 85%, full stop.

Assisted dying, at present at least, also requires meaningful funds to travel to another country.

You were probably being flip, but just in case.

Yes i know, I am assuming the law will be changing on that.

And you kinda have to do it before you’re ready

But what happens if you are ill within the 7 yrs of gifting a load of money?

Pension pot currently is £385k, not small but not huge either. The current tax rules mean I can put in up to £48k a year but have only done so once, with the inheritance from dad; before then it was £3k a year gross (self-employed, never had an employer’s contribution).

I’ve never had a problem with paying 40% tax, I’ve done so all my working life. It’s the 85% that sticks in my craw.

Maintenance out of income is not a gift, so not counted in the 7 year rule. The £120k from dad’s estate will be treated as a bequest from him, bypassing me, so again not counted.

I’m ok with that

I think this poster meant she made pension contributions to keep her taxable annual pay below the £100k level not that she contributes £100k per year to her pension!

Age UK estimate that residential care costs approximately £800 a week, £41 600 a year. If you prefer to choose your care home you’ll need to squirrel away £50k plus the income you’ll need for the remaining years - let’s use £10k pa on top of your state pension. Taxed to £8k. At 77 you might assume you have five years before entering a home, expecting to die within the year at 83. £50k for your 5 years and £50k for your care home year is £100k. You might also want a buffer rather than running out of money.

Now if this £100k is over your IHT threshold (be it £325 to 500k) and you don’t use it, your beneficiaries will get £36k (after IHT and marginal 40% tax). I just don’t see people wanting to keep that amount of money ‘just in case’.

This may well be perceived as a rich person’s problem but it’s a tax revenue and welfare bill problem because the penalty for not spending it is too great.

Why is it a tax revenue problem?

Because the revenue the government expects to get by taxing at 85% won’t happen, plus the taxpayer will have to foot the welfare bill. What the OP just sketched out had been my plan. No longer.

As your DC can inherit up to a million tax free I don’t think that you would ever need to live off of the state. Just gift enough to keep under the million-mark and they won’t pay a penny.

some of my older relatives were desperate to stay at home in their 90s so they had carers in regularly. They went private and were really happy in their last year, cost was ££££ though.

£500k, I’m divorced.

Yes this a problem and will bring many more people into IHT

My IFA has advised me to gift as much as i can to my child and drawdown the pensions or convert to an annuity, which will die with you, as i too am at 500k.

I understand the reasoning behind it but i think the 1m should apply to an estate, regardless of marriage.

It’s like we’ve been playing the marshmallow experiment. You can have one now, or two later. Only to find out that the two promised will actually be tiny ones you get in hot chocolate!

Exactly this! We may as well retire now, shame as I thought the government wanted to encourage us to work into our 60's.

I’m going to carry on until I’m 68, paying my income as maintenance to the DC rather than continuing to save, then burn though my pension/savings and sign out just before I’m 75, unless my health is very good at that point, in which case I’ll continue to live it up frantically. Quite freeing, actually!

I am not across the details of the assisted dying bill, bur I assume it won’t apply to doctors assisting to those who wish to die for…..financial reasons.

Interesting fact. We, and Denmark, are the only countries to tax the donor, the estate. Other countries tax the recipients. In the main, they do not tax spouses, and many don't tax children. So the limits are per person, meaning they are more generous.