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Where Taxpayers and Advisers Meet

Tips for avoiding tax

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm
Re: Tips for avoiding tax

Postby JOHNRE » Tue Nov 23, 2021 2:26 pm

Yes, my Sipp is one of the devices which I will be using to reduce or eliminate future inheritance tax. I intend to leave it to my son because I have no need of the money. I also have no real need for the state pension income …that is why I am investigating putting part of it into my Sipp.

Can you possibly explain why your answer to my second query was No? Is there some guidance I can refer to?

John

darthblingbling
Posts:432
Joined:Wed Aug 02, 2017 9:09 pm

Re: Tips for avoiding tax

Postby darthblingbling » Tue Nov 23, 2021 4:45 pm

There has been some case law on people using pension wrappers to avoid inheritance tax where HMRC have been able to prove that as there was never any intention to draw down the pension pot, IHT should arise on the drop in value to the estate.

Something to be aware of anyway.

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Tue Nov 23, 2021 6:56 pm

Given that the law as it stands says that pensions are not included in a person’s estate when they die I would be interested in any links you have to this.

darthblingbling
Posts:432
Joined:Wed Aug 02, 2017 9:09 pm

Re: Tips for avoiding tax

Postby darthblingbling » Tue Nov 23, 2021 7:11 pm

Stavenly or something, it went to the supreme court and although the transfer was ruled to not be caught by IHT, HMRC was right to charge it on an 'omission to act' with regards to not drawing down the pension.

If you take a step back, it would be all too easy to just pump the estate into a pension pot and think it's now all outside IHT, but it defeats the purpose of what a pension pot is.

D&C
Posts:56
Joined:Mon Nov 25, 2019 11:35 pm

Re: Tips for avoiding tax

Postby D&C » Tue Nov 23, 2021 8:40 pm

The threshold is £50,271.
Yours isn't though.

Based on what you have already posted it is £53,870 in the current tax year.

someone
Posts:525
Joined:Mon Feb 13, 2017 10:09 am

Re: Tips for avoiding tax

Postby someone » Wed Nov 24, 2021 9:19 am

I was under the impression that once you reached 75 you had to crystallize your pension pot and then it was taxable when inherited too.

Have I misunderstood? Not there yet, and I will take advice, but my current thoughts were to crystallize everything at 55, take the lump sum and then withdraw as fast as possible while sticking to BR tax and hold it outside the pension wrapper. Might want to rethink that if my wife can get some tax free however long I live.

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Wed Nov 24, 2021 2:19 pm

The current threshold for paying 40% tax is £50,271…see government website below.
https://www.gov.uk/income-tax-rates

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Wed Nov 24, 2021 2:25 pm

Someone
This is a useful article from Royal London. If you leave your pension to a beneficiary and you die before the age of 75 there is no tax fur the beneficiary to pay. If you die after the age of 75 your beneficiary would pay tax at their marginal rate if they took money out of the inherited pension.
https://www.royallondon.com/about-us/members/understanding-your-finances/your-personal-finances/can-you-leave-a-pension-to-your-children/

darthblingbling
Posts:432
Joined:Wed Aug 02, 2017 9:09 pm

Re: Tips for avoiding tax

Postby darthblingbling » Wed Nov 24, 2021 2:48 pm

This is the Stavely case

https://www.ftadviser.com/pensions/2020/08/19/supreme-court-rules-ill-health-pension-transfer-not-liable-for-iht/

The transfer on death was not subject to IHT the court ruled, but as there was no intention by her to ever draw down the pension pot IHT was charged on her death as her omission to act reduced the value of her estate.

Obviously isn't 1 to 1 in your case, but it is something to be aware of in that HMRC could potentially challenge as using a pension pot to clearly avoid IHT could be deemed to be abusive tax avoidance given it's not the intention of law.

I mean if I had £1m I wanted to transfer to my son on death, it would be far too easy to just slap into a SIPP, never draw down and name them as the beneficiary.

Also the reason why other people have commented that your 40% band has increased is because of the BR relief you can claim on your gross contributions (i.e. £50270 + £3600)

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Wed Nov 24, 2021 4:29 pm

I will look that the case up. Thanks.


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