Pension policies in Trust

by **AvocadoK** on Sun Apr 26, 2009 5:18 pm

All you need to do is defer taking benefits. When Dad dies, the value of the fund will go tax free to the children (assuming he dies before 75). This will be free of income tax/IHT.
If you want to get the income to the kids before he dies, it will still be taxed on Dad (but is that a problem? is his rate of tax higher than the kids?). If you tried to get it paid direct to the kids it would be taxed at 40%. If Dad takes the pension and gives it to the children, the gifts to the children will not be taxable. They should be exempt from IHT as gifts out of income (tho this is academic if his estate will be less than the nil rate band).

AK

by **marc02** on Mon Apr 27, 2009 1:29 pm

If the Father were to require care the pensions will be taken as contribution. The challenge is therefore to remove the pension from his estate, which is why they was placed into Trust. However, would it have been more tax effective to have gifted the pensions using the method described in the earlier post?

Death benefits are 70% lower than conglomerated income over a 10 year guaranteed period.

by **AvocadoK** on Mon Apr 27, 2009 7:01 pm

As I think I may have mentioned, if benefits are paid other than to Dad, tax of 40% + 15% surcharge is payable. If this sounds better than the risk of 100% 'tax' by virtue of the CRAG rules for assessing care, then it would be worth asking the pension co if they will do it. Let me know what they say!

by **marc02** on Mon Apr 27, 2009 8:03 pm

Ok, so final clarity is that regardless of whether the pensions are in Trust or would have been gifted (as per post on - Sat Apr 25, 2009 4:38 pm) the 40%+15% Tax would apply?

Pension companies should pay into 3rd party account if the 3rd party holds Power of Attorney.

Will certainly let you know how this turns out!

Many thanks for your support with this question.

by **AvocadoK** on Mon Apr 27, 2009 8:41 pm

Yes, that's right.

I agree that the pension co would pay into an account of third party where the third party has power of attorney. However, the tax is still chargeable on 'Dad' - even if the person with PoA signs the tax return and writes the cheques for him, and the money belongs to 'Dad.' The attorney is trustee for him in that scenario.

by **marc02** on Tue Apr 28, 2009 2:56 pm

So if the children are Trustees, Beneficiaries AND joint PoA, they should be able to receive income from the pensions direct into a joint account setup for this Trust. The Trust is then liable for the 40% + 15% tax and the children can then benefit after tax.

Thanks again!

by **AvocadoK** on Tue Apr 28, 2009 8:05 pm

Payments made to the children under PoA would be taxed as if paid to father - normal rates of tax. The payments would count as income under CRAG rules for assessing residential care, too.

Payments made to children in any other capacity would be subject to the unauthorised payments charge (40% + 15%), which the pension co would have to deduct (as I mentioned, they probably wouldn't want to get involved in doing that and are likely to refuse).

You may wonder how the pension co will know in what capacity the children will receive the money - the answer is that they will require sight of PoA.

by **marc02** on Tue Apr 28, 2009 8:36 pm

Complex! Just to further complex things it turns out one of the policies in the Trust is not a pension policy but a paid up Endowment policy.

Would the 40% + 15% Tax also apply to a lump sum paid out from this policy? - Or would the Trust be liable for any other tax from benefits received from an Endowment Policy?