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Where Taxpayers and Advisers Meet

IHT treatment of a SIPP (income drawdown)

TG-W2
Posts:6
Joined:Wed Mar 17, 2021 12:16 pm
IHT treatment of a SIPP (income drawdown)

Postby TG-W2 » Mon Jun 28, 2021 9:34 am

Hi,
I have a SIPP (income drawdown) in my name.
I understand that, on my death, this will be transferred tax-free to my wife and she will then be taxed, at her marginal rate, when she drawsdown from the SIPP.
Assuming this to be true...

my question relates to what happens upon her death..... how will this SIPP be treated for IHT when our sole son inherits?

TIA, Tony

ben_power
Posts:81
Joined:Tue Feb 27, 2018 8:34 pm

Re: IHT treatment of a SIPP (income drawdown)

Postby ben_power » Mon Jul 05, 2021 12:35 am

The SIPP will pass onto nominated beneficiaries and always bypass inheritance tax (not form part of the estate).

If you die before 75, the beneficiary receives it free from tax, this could be as income or as a lump sum. If you die after 75, the beneficiary is always taxed at their marginal rate meaning they would need to be careful how much they drawdown each tax year to control the tax lability.

The same rule then applies to your wife when she passes away. Your son will receive the SIPP from her and your wife's age at death will determine how it's taxed. The same rule then applies to him if he passes away, his age will determine whether his beneficiaries are taxed. The SIPP never 'dies'.


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