We’ve been challenged by pension planning on Monevator before. In particular you may recall my previous post on a fictional middle-class duo, Sarah and Stephen, and their pensions-and-IHT-planning saga.
Near the end of that piece, I read the vibes coming from the presumed shoe-in of an incoming Labour government and confidently declared:
Nor do I think it’s likely they bring pensions into people’s estates.
Pensions are trusts, and this would require the overhaul of quite a bit of trust law.
Well, chalk this up as another episode in the long drama of Finumus Predicts Poorly.
And let it serve as another reminder not to take anything as anything as gospel from semi-random internet pundits. Me included!
That said, I did hedge my bets in a later article, warning:
Over the long run, I doubt ‘beneficiary’ pension pots compounding tax-free for decades will survive the ‘Someone has £1bn in their pension’ headlines. We’re not America.
But I didn’t think the unravelling would come this quickly…
Pensions join the IHT parade
Starting April 2027, defined contribution (DC) pensions will fall within the scope of inheritance tax (IHT).
While the exact legislation is still to be hammered out, let’s assume the worst. (Generally the best approach to tax policy, especially for cynics).
Labour’s moving of the goalposts is not just a headline grabber. Bringing DC pensions into the scope of IHT creates significant problems, especially for those who’ve been diligently building retirement savings to double as intergenerational wealth vehicles.
Let’s have a quick refresher on how the system presently works.
The (simplified!) current rules:
- Pension assets are outside your estate for IHT purposes.
- On death, assets inside your pension can be passed to beneficiaries, as per your Expression of Wishes.
- If you die before 75, beneficiaries can withdraw tax-free (but they don’t have to – they can instead let the pot grow indefinitely).
- If you die after 75, beneficiaries pay income tax on withdrawals, but no IHT.
This structure has long been a favorite of tax planners for IHT minimisation.
Combining generous tax relief on contributions with tax-deferred growth and IHT-free transferability? It’s a potent cocktail – akin to having your cake, eating it, and then feeding it to your heirs in perpetuity.
But come April 2027, the party’s over.
The New World Order
Under Labour’s proposed new rules:
- Pension pots will face 40% IHT.
- Beneficiaries will also pay income tax on withdrawals, regardless of the original owner’s age at death.
One or the other might have been tolerable.
But both? It’s brutal.
[Editor’s note: The early consensus from Monevator readers is that Finumus’ worst-case scenario is excessively fatalistic. The suggestion so far, they note, is that the income tax regime on inherited pensions will remain the same. This would mean no income tax if the donor dies before age 75. We will not know for sure, of course, until we see the proposed legislation. Please read and add your own thoughts in the comments.]
To illustrate why Labour’s new rules could be so tough, let’s compare some outcomes.
If you start with £100 in a pension, under the current system, your descendants can keep that £100 compounding tax-free forever (as long as they never draw it down).
What about under the new system? Well, that same £100 shrinks to mere pennies over five generations due to compounding taxes.
Changing the rules like this effectively introduces a wealth tax of ~1.33% per year on assets in pensions.
And unlike other assets, pensions are trapped. You can’t give them away to sidestep IHT – or at least you can’t without paying income tax.
I feel another meme coming on…
Meet the victims: Sarah and Stephen
Let’s revisit our fictional friends from my previous post, Sarah and Stephen.
The doughty duo were last seen convincing Sarah’s parents to fund their pensions to the tune of £360,000 to save both IHT and to give them a bit of financial breathing room.
Since then:
- Sarah successfully squeezed £360,000 (gross) into their pensions.
- Their kids, Amelia and Jack, are now at university.
- Stephen netted £1 million from a venture investment.
- Their ISAs and SIPPs have soared in the bull market.
Their net worth (including gross value of pensions) now sits at £7.3m.
If they die tomorrow, their estate would owe £1.58m in IHT. But if they die post-April 2027? That IHT bill balloons to £2.7m. That’s an extra £1m gone to HMRC.
Dinner table drama: a clash of generations and expectations
Over dinner, Sarah unveils the grim numbers to Stephen, her spreadsheet glowing ominously on the kitchen table. Stephen’s initial reaction is one of stoic resignation.
“The kids will be fine,” Stephen says, sipping his wine. “We’ve given them a great education, a leg-up most people can only dream of. They’ve got to stand on their own two feet eventually.”
Sarah isn’t so sure: “Fine? In this economy? You have remembered that they are both studying humanities?”
Sarah reminds him that the cost of housing has ballooned since their own days as scrappy young professionals.
“Even with decent jobs, Amelia and Jack will struggle to buy a home in London unless we help,” she argues. “Add in student loans, higher taxes, and the cost of living – they’ll be working harder for less. And now, a good chunk of what we planned to leave them will be eaten by this new pension tax double-whammy.”
Stephen sighs but doesn’t counter. Sarah has a point. Their £2.7m post-2027 IHT bill could be as much an entire post-tax career’s worth of income for their kids.
That stark figure prompts Stephen reconsider his laissez-faire attitude.
“It’s not about leaving them a pile of money to blow on avocado toast and electric cars,” Sarah presses. “It’s about giving them options – the same options we’ve had. Financial freedom and choices. Security.”
By the end of the meal (and a bottle of wine), the conversation has veered from pragmatic planning to a lamentation of modern Britain.
They reminisce about the 1990s – lower taxes, cheaper houses, rising wages – and wonder how it all went so wrong.
“We’re not just managing money here,” Sarah concludes, a bit teary-eyed. “We’re managing their future.”
A camel through the eye of a needle
As Sarah digs into spreadsheets, she realises their pensions will need to be spent down – flipping their previous ‘pensions-last’ strategy on its head.
This will actually be quite difficult, she discovers as she runs the numbers.
For simplicity, Sarah bundles their SIPPs together and assumes both her and Stephen retire at 55, die at 85, enjoy smooth 3.5% returns, and make no further contributions to their pensions:
If they limit withdrawals to paying basic rate tax, then they’re not going to get it all out.
If they are prepared to go to take a 40% hit though, then maybe they can:
Stephen points out that 30-year gilts have a 5% YTM right now, so Sarah’s 3.5% return assumption is a bit pessimistic. So she plugs that in.
Yeah, they are not going to make it.
They should probably just assume that they’re going to have to pay 45% to get it all out at some point.
What’s the new plan?
For now the couple will:
- Only make further pension contributions if they can effectively achieve at least 50% tax relief. (For example income taxed in the 60% band, or with Employer’s NI via Salary Sacrifice).
- Think about retiring earlier than they otherwise would have.
And in retirement they’ll:
- Prioritise running down pensions as soon as they retire.
- Gift assets from their ISAs and other holdings to reduce taxable estate.
The generational headache: from one tax trap to another
The pension changes don’t just complicate Sarah and Stephen’s plans. They cascade upstream to Sarah’s parents and downstream to her children.
As the family’s de facto CFO, Sarah realises she has to juggle three generations of financial puzzles, each affected differently by these changes.
Sarah’s parents, Mike and Mary, are in their early 80s. Their SIPPs are smaller, but still substantial enough to pose problems.
Sarah’s immediate focus is to get Mike and Mary drawing down as much as they can while staying in the 20% income tax bracket.
“Every pound we can get out now saves Amelia and Jack from paying 40% IHT plus income tax later,” she explains to her increasingly confused parents. “It’s simple maths!”
Then there’s the tricky issue of skipping a generation.
If Mike and Mary’s pensions pass directly to Sarah, they’ll fall into her estate, creating a tax nightmare. To avoid this, Sarah gets them to update their ‘Expression of Wishes’ forms to redirect those funds to Amelia and Jack instead.
But even this has its pitfalls.
“The kids could inherit £420,000 each in their early 20s,” Sarah frets. “That could either set them up for life – or ruin their work ethic.”
Sarah tries not to think about what will happen when their children’s children face the same tax quagmire.
Pensions as poisoned chalices?
As Sarah continues crunching the numbers, she starts to question everything she thought she knew about pensions. What was once the family’s golden goose – a tax-efficient savings vehicle and inheritance tool – now looks more like a poisoned chalice.
Let’s take Amelia’s hypothetical future. By 2030, thanks to Sarah’s strategic planning, both children each inherit sizable SIPPs – say about £600,000 each, boosted by earlier contributions. These balances are enough to provide financial security, but the tax implications loom large.
For example, there’s going to be little point in Amelia making pension contributions once she starts work. (Unless it’s to avoid marginal tax rates of 20,000%.)
If Amelia doesn’t add another penny to her pension but lets it compound at a conservative 3.5% for 35 years, it grows to £2m. At 5%, it hits £3.3m.
A fantastic outcome on paper, clearly. But when Amelia eventually withdraws funds, she’ll face income tax at higher rates. And since she can’t leave her pension untouched for her children (thanks to the new IHT rules) she’ll be forced to draw it down aggressively or see it taxed again upon her death.
This realisation leads Sarah to stop contributing to her children’s SIPPs altogether.
“What’s the point?” Sarah laments. “All we’re doing is building them a tax headache for the future.”
Sarah looks at all this in despair, and she honestly doesn’t understand how this can be not ‘raising taxes on working people’.
She starts to wonder: how bad can five years in Dubai really be?
What do you think?
We’d love to hear what people think of Sarah’s situation. In particular, some practical tips amongst the outpouring of sympathy – or otherwise – would be most welcome.
I’m going to be coming back to wider IHT planning options for Sarah in future posts, and I’ll doubtless be covering: gifting rules, trusts, life insurance, life assurance, family investment companies, and possibly at this rate, emigration. I might even talk about (gulp!) annuities
Of course there’s also policy risk to consider. Sarah might retire early, start aggressively drawing down her pension, pay tax on it, and then see a 2029, Farage-led, Reform / Tory coalition government abolish IHT on its first day in power.
Want to add something to the discussion? You know where the comment are…
Be sure to follow Finumus on Bluesky or X and read his other articles for Monevator.
“Beneficiaries will also pay income tax on withdrawals, regardless of the original owner’s age at death”
Surely that’s not right. The proposal is that inheritance tax is paid on the pension but the beneficiaries don’t pay income tax on the inherited pension if the deceased died before age 75?
I chuckled when I read this part of the article: “Bringing DC pensions into the scope of IHT creates significant problems, especially for those who’ve been diligently building retirement savings to double as intergenerational wealth vehicles.”
Um….that’s the WHOLE POINT of the change!!
IHT is one of the most sensible and worthwhile taxes as it ultimately means people are rewarded for working hard rather than being lucky. From a social & economic perspective (and speaking as someone who has children who are likely to be directly affected by this change also) allowing untaxed intergenerational wealth transfer simply locks in social inequality causing harm to society and inhibiting free flow of funds to where they will do most good/generate growth, while removing incentives to work hard.
In centuries past there were similar issues where ever more vast estates were locked up so that they could only pass to the eldest male child as a single unit and then to the next eldest male child and so on in perpetuity. This caused massive and predictable problems so the law was changed to allow assets to dissipate and this greatly helped the economy. This new change will do the same. It’s a positive change that estates will be better taxed. It means your (and my) children will have to stand or fall on their own merits, rather than whether they got lucky in the grand lottery of parents.
Note it’s also entirely rational for individuals to try and legally reduce their tax, and I have done so in the past (and will do so again in the future, if I can) but I hope (and expect) that the IHT rules will get ever stricter, meaning good luck if you want to plan, especially when futher IHT rug pulls are not only possible but highly likely!
In summary, I am 100% in favour of the change to IHT and it’s simply a shame that Labour didn’t go further (e.g. taxing farms equally).
From a mid 30 year old perspective I can’t say I particularly worry about my pension pot being set aside for my kids and it being taxed heavily on doing so. Presumably the tax free inheritance will still exist on my death and for me my pension is mainly for my (hopefully early) retirement. The fact I’ve been able to stick it in a pot tax free to compound for 30 years is boon enough. If there’s anything left for the kids on my magnificent and dramatic death, then that’s just good luck (or poor planning!)
Seriously?
Perhaps you could explain why ordinary tax payers must pay more tax so little Amelia and Jack can have enjoy an unearned, tax-payer subisidised life of luxury.
Pensions and the tax advantages are to support the saver during retirement, not to establish perpetuating trusts.
Interesting post, that I have only skimmed thus far. Clearly the post deserves much more time & concentration. Having said that, one quick comment re scope:
Annex B of HMG’s consultation pack , see: https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment
mentions DB pensions as being in scope in three (IIRC) places!
I agree with Snowman, everything I’ve read suggests the income tax regime on inherited pensions will remain the same, so no income tax if the donor dies before age 75. Of course, we have yet to see the actual legislation.
Also, you talk as though we’ve always been able to pass down pensions in this way – ‘long been favoured by tax planners’. Well, if 8 years is long then yes, but tbh this pensions inheritance wheeze was a product of the 2016 Pension Freedoms. Before that, lump sum death benefits were taxed at 55% I think?
And of course, there was also a lifetime allowance charge to consider until about a year ago. So, not so much the end of a long established mechanism for estate planning, as closing a short lived and probably unintended bonanza. Pension tax relief was never intended to be a gateway to trust funds for the wealthy, but an incentive for people to provide for their own retirement.
Finally, if you leave your pension to charities then it’s IHT free. If you really don’t want any of those tax funded public services getting your money. I didn’t see a mention of that in your list of IHT mitigation measures.
I think that there is a certain “tongue in cheek” tone to this article. All I have to say is that Sarah’s definition of “working class people” and my own are substantially different. I can’t fund much sympathy for her I must admit.
On the positive side, with all the money she will be so desperately withdrawing from her pension pot she might be able to afford some good therapy to come to terms with her drama.
PS: I wish I had Sarah’s problems
There has been no mention at all of the removal of the income tax free status for pensions for those dying before 75 . Such a measure would have been announced in the budget and cannot be introduced now (without another budget !
@all — Thanks for the early feedback. Unfortunately I can’t reach Finumus right now — I expect he’s organising the bailout of some bankrupt Central American country or whatever it is he gets up to in the daytime — but based on the credibility of the commenters here I’ve amended the article to reflect this uncertainty/potential excessively gloomy prognosis for income tax.
@Mariano Korman — Yes, I’d say Finumus is definitely aggrieved about the changes but he’s not completely tone deaf and the article is a bit tongue-in-cheek. Without wanting to speak too much for him, I think he’d say the wider problem is the paucity of ambition and salaries in the UK these days (especially versus the US) and arguably the necessity (especially with house prices) of thinking this way if you can afford to. It’s true the country continues to wade through economic treacle, and the major policy changes of the past decade have only made things worse (especially Brexit of course).
@Jimbob @Brod @Mike — Well basically I agree, my celebration of IHT is notorious among long-time readers. However Monevator is a broad church when it comes to investing and money management.
Moreover as I’ve said before, I consider it good to have Finumus sharing these glimpses of how the 1% are thinking and operating financially, even if it’s not immediately applicable for all readers.
Firstly, because it is for more than you might think (about 1/3 of our readers are additional rate taxpayers, which is very high considering we also skew high on retired), secondly because we can all learn from it, both practically and mindset-wise, and thirdly because it also informs my politics I suppose. 😉
I am afraid you lost any sympathy I might have had at “Stephen netted £1 million from a venture investment.” and “Their net worth (including gross value of pensions) now sits at £7.3m.”
Boo hoo. Is that a tiny violin I hear?
Pensions are for your retirement, not setting up your kids for life.
One would imagine Sarah would make a call to trust and estate practitioner while Stephen talks to an emigration lawyer.
“You have remembered that they are both studying humanities?”
Sarah seems to have a strange (to me) congnitive dissonance that seems common in inheritance discussions – a desire to feather bed the next generation but a defacto plan to give any money too late to be useful. Giving the kids grandma’s inheritance in their 20’s will ruin them? vs how are they going to afford a house? – not by inheriting from their parents when the kids are in their 60’s!
Most of the whining about IHT (including the farmers) seems to just be a desire not to pay tax and not give up control. The next generation would be better served by receiving the funds (or the farm) before their parents shuffle off this mortal coil. As others have mentioned using pensions to avoid IHT is a relatively new and now short lived wease.
Labour has been the biggest disappointment of 2024. High earners are already paying 70-80% in effective marginal taxes (income tax + lost PA + ENIC + NI + student tax + lost childcare + … etc.), subsidising others to live from welfare.
I don’t understand why success is so hated in the UK. Changing the rules mid-game and applying inheritance tax (IHT) retrospectively is a significant motivator for migration out of the UK.
Having just spent the last couple of hours trying to save £50 on my car insurance (don’t knock it – it works out at £25 an hour labour rate), I suspect I don’t have quite the same financial worries as Sarah and Stephen…..
That being said, I probably do know of a couple of people that might be close to that category. Pension buy-out rates of 40x were being offered until quite recently (not personally in the market, so I don’t know about the post 2022 situation), so a couple with moderate final salary pensions each of, say, £30k p.a. could have racked up a joint SIPP value of ~£2.5m quite easily.
Given the fantastical drawdown rates touted by some financial advisers, plus the inheritance possibilities, it would have been very tempting. A bit of luck in the markets (eg S&P 20204) would have seen their SIPP values rocket up.
As a number of commentators have said, this is a nice problem to have, so I don’t have too much personal sympathy.
But…. it is a “problem” that could be affecting more people than one might think, and could apply to high earning teachers, doctors, or even nurses etc.
Thank you @finumus for a most enlightening take on the new regime. Whilst of limited personal relevance (although I keep buying the tickets) I read with great interest from the academic perspective of a spreadsheet geek. Understanding the broadest implications of change can only add value, albeit with covetous enmity towards our hypothetical heroes!
What if someone has money in a SIPP and moves abroad in retirement? What tax would apply in that case (on the UK side)?
Of course the truly rich probably don’t have pensions…
Finumus’ article was quite useful actually. She who must be obeyed will get the ISA and so on but it’s reminded me to keep the value of the SIPP and 1/2 a house (to go to the children) below the IHT limit. It’s a tough job, but somebody’s got to do it…
https://www.harveynichols.com/domaine-de-la-romanee-conti/romanee-saint-vivant-2019-900543-na-146381/?_g
This is great stuff Finumus, entertaining as ever! The whole series you have planned sounds fascinating.
I was just having a little look at the membership of the commenters on this one and wonder whether you’d get less dissent targetting mavens or just moguls? You talk of monevator demographics (@TI #9), wonder if they are further accentuated by membership type? There is a socialist mogul above though so shouldn’t necessarily generalise! And maybe dissent is no bad thing?
Not sure how that works though with posters other than TI/TA, I guess if Finumus isn’t on the payroll then it may be a bit cheeky to paywall it?
But thats absolute supposition on my part, have no idea how Monevator organises that side of things..
Did make me think about ‘goldilocks’ financial planning where you don’t try to optimise too heavily in any one direction (i.e. smashing up SIPPs as IHT planning) as things inevitably change. I’m sort of glad now that I didn’t prioritise the SIPP uber alles but still kept the ISA ticking over.
I look forward to the passing of The Pensions Protection (Pension Scheme for Sir Keir Starmer KC) Regulations 2026 which will, unusually, allow Sir Steir Kleir to trade in some or all of his DB pension for a DC pension which will be exempt from the proposed new IHT laws.
I mean, why not? The precedent is already set. Two-tier pensions.
https://www.legislation.gov.uk/uksi/2013/2588/introduction/made
‘Pensions are meant for your retirement, not for setting up your kids for life.’ That’s got to be the most absurd comment I’ve heard this week. That’s the mindset of someone who has nothing and resents those who do.
I suppose at least I no longer need to spend a year dead at 74 for tax purposes…
Entertaining article: I find it very hard to work up any real anger about the principle of potentially very large DC pot, which I have been able to build up ENTIRELY TAX FREE as a way of encouraging me to make provision for my future wellbeing, being subject to taxes if it is passed on to my kids or grandkids, when my future has run out. In the days of DB pensions, or compulsory annuities, they disappeared in a puff of insurance company profit on death (or survivor’s death) – so we are only back to where we were a couple of decades back.
My SIPP will hopefully never run down to zero, which automatically makes me ‘broad shouldered’ – I can always withdraw more, pay higher rate tax, and gift it to my descendants, or take them on a fancy holiday – I will, probably maybe, have options that most people won’t.
I handle my fairly elderly mother’s financial affairs – I really began to question my principles when I started to include IHT consideration into where she should draw down from. This move at least removes that morality challenge too!
I punched the air and whooped when nothing happened to TFCLS and annual contribution and lifetime allowances in the budget – that might have drawn a very different response from me.
(I’m generally right of centre but pretty centre voter – don’t like tax much, and I pay quite a lot of it, but I also like to live in a vaguely functioning country)
As a single person with limited outlets to reducing IHT this changes have really messed things up. I have decided to wait until the full details are published later this before changing things. In a perfect world Labour will be forced to call an election and Reform or whoever get into government change things back but, then again things could get worse still.
I agree with others that situation with regard to income tax is seemingly unchanged. Albeit we need to see the legislation. I also think we may see challenges to the legislation. People are already arguing that trust law needs to take precedence etc.
This is creating a lot of unhappiness. Given the massive run up in assets prices there are some very large DC pension pots floating around, many well into eight figures. The abolishing of the LTA got those people very excited about the ability to leave that to their kids tax free, possibly with perpetual
gross roll-up.
Personally, I’m not too grumpy about the fact I cannot pass on the whole pension tax free to anyone. The whole point of pensions is tax deferral, not tax avoidance. Plus I’ve always intended for the kids to get the money in their 20s, not when I drop dead. Moreover, I’ve been careful not concentrate too much net worth into onshore pensions. It was always vulnerable. Instead, I’ve diversified into other types of wrapper, placing higher returning assets into those.
Where I agree with the OP is that this will create issues in terms of both sequencing. It seems sensible to start drawing down the pension as soon a feasible. Right now, I’d find it impossible not to be paying HR or AR tax on parts of the drawdown. Realistically though, that was always my base case. If I buy an annuity this is probably now the place to do it since if I drop dead early it’s a 40% haircut on the pot anyway.
What I would say though is you want to stay nimble on this. Pension rules have been a political football for decades. I could easily see LTAs brought back. Tax free sums abolished. I could also see the opposite under a more rightwing govt. Labour could easily be a one term govt since their majority is mostly a function of FPTP and the split in the right wing vote.
Thanks for this. Lots of food for thought!
Noticed, in case of interest, that HMRC’s consultation on the proposed changes has a useful case study of how it might work in practice for DB schemes (there are other examples covering DC schemes of course):
https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment#part-2-inheritance-tax-on-pension-funds-and-death-benefits
Seems any charge is pro-rated so estate and pensions share in benefit of nil rate band.
As the post points out, all subject to what final legislation says, so nothing certain yet.
You already lose 32%, 42% or 47% today on money earned before you can put it in to an ISA, and another 40% of the residual in your ISA if you die before spending it.
So at the end of the day, for higher or additional rate earners with very large pots (those that won’t be withdrawing at 20% marginal tax anyway), what this really does is put ISAs and pensions on an _even footing_ (i.e. you’ll pay income tax to use them one way or another, they’re both subject to IHT, you get tax free growth in both)
If your ISA allowance is gone then a pension is still your best option.
Annuities have actually become uniquely attractive again also, as the capital is ‘spent’ and the annuity income is immediately outside of your estate
The best way to avoid this is to give to your descendents while you’re still alive, which given our longer lives is much more sensible as you help your kids when they need it most, not when they’re in their 50s…
it should also be a lot more rewarding to see the benefits of your generosity on your descendents.
IHT is a wealth tax and hence seems pretty progressive to me. Passing down significant inheritances seems very much a “first world problem”. Its value will be taxed more and reduced – not taken away.
Not much point in having leftover money anyway (apart from as insurance for care costs)
“how bad can five years in [insert] really be?”: This is your answer. Move tax residence and domicile to a jurisdiction with low (or no) income tax rates, no or low IHT and no or low CGT. Make sure it has no double tax treaty with the UK giving the UK taxing rights over UK source pension income (as I think low flat tax rate Bulgaria does, but low flat tax rate Bosnia does not). For those about to say it’s too hard to move country, well you can’t reasonably expect to stay in the UK and still get to eat your cake.
So tedious reading the commie/socialist nonsense from the usual left-wing incompetents. We need to ban left-wing politics altogether or at least penalise it. Socialism is a failed experiment that has caused endless suffering and people need to be held accountable for this. Maybe we could tax all socialists at 90% (as they love high tax) and see how they get on. Meanwhile the rest of us can have actually spend, grow the economy and help our kids.
This new legislation will remove the freedom to pass the heard earned funds to the next generation. Not to make them lazy, but provide meaningful help. Our lives may have turned out less fretful if we had more financial support when young. Moving abroad may well be a solution, but that will lead to loss of social capital, at a time when it is most needed (in retirement). Having said that, any ideas of jurisdictions that can be accessed would be useful.
I’m definitely not in the lucky 1% that has been alluded to above.
Prior to the budget, I had a personal pension worth just south of £1M (quite largely by virtue of cashing in a DB pension at a ludicrous rate). My house is worth maybe £700,000 (but still with a mortgage) and I had £300,000 of liquid assets. There was no IHT to worry about.
I had built a GILT ladder comprising low-coupon nominal and index-linked bonds (with much assistance from previous excellent Monevator articles on the subject) such that it (in conjunction with £12.5k p.a. withdrawal from my pension) would provide living expenses for ten years. No income tax payable over the ten year period. I planned not to touch the pension until my GILT ladder had collapsed (assuming I even lived that long). Then pass it on it free of IHT.
Obviously, the budget has completely destroyed that plan. My heirs could be £400,000 (or more) worse off. Which, personally, I resent somewhat.
So, I now plan to dismantle the GILT ladder that I painstakingly built. Some of the proceeds will be passed to my daughter annually. She is a 40% tax payer (earning £79k) and therefore receives no child benefit for her two children. She will invest £19k into her SIPP. If my calculations are correct, she will then qualify for child benefit, will receive a pension tax rebate and the £19k pension payment will be grossed up for basic rate tax (to £23,750). These benefits equate to more than 40% of the £19k gift, so, even if I die within the seven year period, she’s still in profit. It’s my little way of waving a digit or two in the Government’s direction.
If someone wants to help their children, why not do it when it’s most welcome rather than making them wait until they die. As was mentioned above, tax on pension contributions is deferred, not removed completely. Hence IHT is perfectly reasonable.
As for my comment about the purpose of pensions being to fund retirement, well the clue is in the name.
Whilst I don’t have the answer, it feels harsh to bring it into the estate and maybe some concession could be made rather than making pensions unviable for those with hefty sized estates.
One thing to not rule out is further tinkering and whilst the toothpaste may not go back in the tube it wouldn’t be unthinkable to see this reversed. Therefore there will be an element of hedging your bets.
All of this is damaging for pensions as a whole as it undermines the “deal” and shows that policital football can be played with your nest egg.
I would have prefer to see pension have their own NRB or an allowance of some sort but I’m glad I’m not the one making the rules!
I did see something like this coming at some point. It had always seemed a glaring anomaly that there was no LTA test on death, so I suspected that might be introduced. I briefly celebrated the abolishment of the LTA and even more so when Reeves said that Labour would not reintroduce it, but then quickly surmised that something even more draconian would likely come along. I thought there may be a flat 40% charge on passing on a DC pension pot to anyone other than a spouse, civil partner or charity, as there used to be before Osborne’s reforms. As it turns out, charging IHT is not quite so draconian, at least for some people, as the nil rate bands can be apportioned between pension and non-pension assets. That is the current proposal, but may not make it to legislation as it makes life more complicated for executors and pension providers.
The introduction of IHT on SIPPs hit our current plan very hard. We never expected to spend it all, but it was kind of reassuring that we would have the money there should it be needed to pay for expensive care, even though it would mean paying above basic rate income tax to access. We do however have an IHT mitigation strategy, and not one that involves turning our lives upside down moving to some hell hole for 5+ years just to save a bit of tax. The mitigation strategy is straightforward, but isn’t one that will appeal to those who consider one’s only worthy beneficiaries to be direct descendents…
What happened to Max the dog???
Mrs Details Woman and I were discussing this the other day. She is preparing a submission to the consultation (she is a pensions lawyer and I, for a number of years, worked in the pensions industry).
What I think we both agreed on is that the proposal is an absolute shambles. It will be an administrative nightmare to deal with (I won’t bore you with details, but I am happy to share). It’s pretty much universally agreed in the industry that ‘this is a bad idea’.
So whilst it is complete conjecture on our part, I would imagine there will be significant changes to the proposals following submissions. Our gut feel is that the most sensible way forward would be a flat rate tax on all pension assets on inheritance (i.e. non-exempt passing of the estate), possibly with say a floor of £xk per pot being exempt.
That would achieve the aims of the current proposal (to replace the LTA wealth tax / remove pension assets as an IHT dodge) but not cause the clusterf*ck that would happen if the current proposal comes in to being.
So what I’d say is, let’s see where we are in a year’s time on this.
Fantastic article as always Finumus! Thank you. And your thinking is spot on. I am eagerly awaiting your follow up posts on IHT planning options: gifting rules, trusts, life insurance, life assurance, family investment companies, and emigration. On the latter I believe that as of April 2025 the UK will transition to a residence-based IHT system. Individuals who have been UK residents for 10 out of the previous 20 tax years will be subject to UK IHT on their worldwide assets, regardless of their domicile status. So 5 years abroad may not be enough.
…The mitigation strategy is relatively straightforward:
1) make large withdrawals from our SIPPs and give the money away. Most of the money will go to nieces and nephews as our own kids have already be sufficiently pampered.
2) Bring forward charitable donations. In our case we will give ETF investments held in GIA accounts to charity. This has the additional benefit of defusing the CGT gains on these assets. Essentially the charities get the CGT instead of HMRC.
Gifts to charity increase your personal allowance. This can reduce tax liability to basic rate, or even eliminate income tax entirely. We would seek to reduce our income tax to basic rate.
We will implement this over several years which should establish the gifts as gifts from income and so not PETs.
Downsides are that I am sure some of the money going to beneficiaries will be used in a manner we would like and we will be around to witness that. One nephew is an alcoholic and we really need to think carefully about the best way to help him. We haven’t spoken to his parents yet, but I suspect they will say giving him money may increase his problems rather than reduce them. It might be better to help his kids (teenagers) directly, but again complicated and likely to cause other problems and resentment.
On the other hand most nephews/nieces will definitely benefit and use the money well. Hopefully the benefit will be greater having the money earlier instead of inheriting in their 60s.
Another downside is that our very comfortable SWR will inevitably rise. We will mitigate some of the additional risk by buying annuities.
Spookily timely article. Only this morning I pressed the button on setting up monthly income from my SIPP, having spent the past few weeks turning off all the income taps from my GIAs.
I agree with @ZX and Bill Perkins on giving the next generation cash in their 20’s when it’s of greater use to them and you can see them enjoy it. That’s what I’ve been doing for some time, using both one-off gifts (potentially exempt transfers) and gifts out of income.
For future follow up articles it might be worth exploring the mechanics and timing of the IHT payment – I’d originally told my son that he’d get the SIPP tax free and to use that to pay the tax on the rest of my estate. That isn’t going to work after 2027 so I’m now planning to transfer some more funds to him from the recently redundant GIAs and then hoping to live another 7 years.
Wow. It really is depressing to see some folk’s attitude to paying tax. Not excessive, punitive tax, just the tax that they deferred when they made contributions out of gross salary. As someone who has rather a lot, and doesn’t resent those who have more (but would hope for a bit more karmic gratitude from them), I do agree that the pension incentives are there to encourage saving for retirement, and not setting your kids up for life. That does not seem an absurd statement.
Please think about whether it truly is better to keep your contribution out of the grubby hands of our teachers and nurses by any means necessary, including gifting it to a charity that looks after cats/old houses/dolphins, or whatever.
Cannot really complain-Pensions are for pensioners -not for wealth transference -the IHT loophole was just that-a loophole
In a fit of pique I paid for all the Christmas Holiday accommodation for my 3 kids this year,bought my wife a very expensive necklace and also bought a new car!
Settling down again now and resigning my self to probably leaving a sizeable IHT bill to the kids -don’t really intend to do anything else dramatic -both wife and I now 78 so it’s all getting a bit late in the day for exciting financial behaviour
Financially kids are all OK so will keep the financial “cushion” going in case something happens that needs cash
xxd09
The best solution I come up with is moving to another country.
Here’s how it works:
1. move to a low tax country, and stay there for 5 years
2. transfer all UK DC pension to a Qualifying Recognised Overseas Pension Scheme
3. withdraw everything from the new pension pot
4. move back to the UK (optional)
@passive Pete – how is that new plan going to help with paying the IHT?
@TI – it would be good for any further article about ‘mitigating’ IHT to include some practical info about how to pay it. Whilst this hasn’t really got harder with the new proposals, estates without liquid assets currently have a bit of an issue with how to fund the tax due before probate is granted.
@details man – an exemption per pot would surely just encourage people to subdivide their pensions…
I agree that a return to a flat tax on all lump sum death benefits and unspent pension pots would be simpler administratively, but it would be much less progressive. And also difficult for some surviving spouses. So for that reason I’m not convinced the proposed mechanism will change radically. At least this measure is mainly restricted to couples with more than £1m unspent assets on death.
Oh, which reminds me – I didn’t see ‘if you have a partner, get married/legally partnered’ on the list of mitigations.
Thanks, this is a great article.
Just wanted to point out that these changes also impact the average person not just the rich looking after their kids.
23% of couples live together but are not married, it wouldn’t be so bad if we were all in it together and we were all equally impacted but as it stands this makes a discriminatory situation even worse.
Average house price is £300k – so half would be £150k (my half) that only leaves £175k before my money starts being clobbered (try living off a dc pension on that)
If I die my money is there to ensure my partner keeps a roof over his head, keeps food in his belly, and keeps him alive quite frankly.
I think this new policy absolutely stinks, I don’t want to get married, I don’t see why in this day and age married people should get special treatment, and it irks me that Rachel Reeves is stealing my money sitting in her nice privileged seat with her final salary pension (paid for by me) and her married couples loophole. This policy is taking from average people and giving the money to the rich!
I can only hope the general population comes to it’s senses, & boots out this terrible government at the next general election
I appreciate that a lot of followers here have a lot of money and might not agree but us average people don’t deserve this (just for clarity I have worked since I was 16, and have made HUGE sacrifices just putting a roof over my head and saving up some sort of reasonable dc pension – god bless you monevator for your guidance on this- no kids – if the government takes all our money when we are both gone so be it but to leave my partner vulnerable no way – this is not fair treatment)
@Vanguardfan – I’m not an expert, but my understand of the current system is that IHT needs to be paid within 6 months of death. The Executor of my will (passive junior) will need to pay the IHT before HMRC permit probate to be granted. Probate is required before investments can be liquidated. So the current plan is to hope the pension pot comes through within 6 months to allow him to take control of the estate. Financial advisors say they can arrange short term loans to pay the IHT, or life insurance to do the same – each method comes with cost and uncertainty – hence my alternative of highlighting the SIPP as the primary source of funds (not ideal I know as it would unwrap it from its tax wrapper). Also I understand that individual government bonds can be liquidated before probate is granted, so I have a short ladder of those that should either naturally liquidate or be simple to liquidate on my death to help with the IHT payment.
Going forward, and as @The Details Man has eluded, the pension might not be released in time or at the level I’d expect. Therefore I plan to simply gift a similar amount to Junior now and hope he invests it wisely (like I’ve taught him), and I plan to live another 7 years so that the gift falls out of the IHT net. In any event having the cash under his control is better than getting caught in legal feedback loops with advisors calling the shots.
@all – Just a quick note to apologise to the couple of posters who found their comments not appearing last night. They’d been erroneously pulled into spam, and I was out for the evening. It happens, but I can usually retrieve them quicker than this.
Cheers for the informative and overwhelmingly good natured discussion of a controversial subject!
@JP (#26):
Thanks. I assume you mean case study 2?
Assuming I have understood this correctly, then DB pension death benefits are also in scope (notwithstanding @JP’s comment at #27) and with the usual spousal exemption, etc. I do not recall this point being made elsewhere – but might have just missed it. DB beneficiaries be aware!
@Naeclue (#36, #40):
Basically get it. Pretty much takes us back to where we started this chatter years ago (albeit with the incorporation of registered charity* giving to help with the income tax hit) when I expressed serious doubts about the IHT wheeze. Also worth noting @ZX’s “challenges” comment at #25.
However, I think I must have missed something, as I do not understand why your choice of beneficiaries (nieces/nephews rather than children) makes any difference to the tax payable.
Also, AIUI establishing/proving gifts from income [vs PET’s] is not entirely straightforward.
*I just wonder how long it will be until somebody tries to “exploit” this seemingly well intended feature of the tax code?
Thanks everyone for the feedback – this was exactly the sort of discussion that I’d hoped to stimulate. It’s actually very nice to see how civilised the debate is, given how contentious a topic this can be.
Whilst I’m not Sarah, I’m quite a bit more sympathetic to her position than many of you are. The real issue is not really if pensions should be IHT exempt (this is kind of, obviously they shouldn’t be – TBH) – this is just one of the work-arounds that was available because of the chronically low IHT threshold and high tax rate. It’s rather similar to the tax-relief on pension contributions between £100k-£125k. On one level it’s “generous”, on another level, why are we even talking about this? Why do we even have a 60% tax slab? If IHT was 20% over, say, £5m each, then we wouldn’t need to be thinking about the impact of rule changes on pensions.
I wanted to avoid the debate about the morality of IHT, but I may as well state my position. I completely agree that society would be much better if it was more meritocratic. And indeed, I’ve generally supported policies that would make it more so – by enabling broad economic growth, higher wages, lower house prices, and lower taxes. Alas, such policies do not have widespread support. We’ve decided to structure British society in a way in which it is now extremely difficult to become even comfortably off by working hard or innovating. This isn’t my fault, any more than it is the fictional Sarah’s. I would very much prefer it if my children could afford a house, savings for retirement, to have children of their own, holidays, whatever health care they need – entirely from their own efforts – along with, it has to be acknowledged – the benefits they’ve _already_ accrued from growing up in a reasonably wealthy household. However this is now basically impossible in the UK. As we’ve decided to move to a much more zero-sum society (do I need to say it again? Not what I want) – unfortunately my kids aren’t going to be able to have these things without parental support. Is this worse for people who don’t have rich parents? YES. Is this unfair? YES. Do I wish it was not this way? YES.
Will Sarah, or Sarah’s parents, paying lots of IHT make this situation any better at a societal level? No it will not. It will just make it so her grandchildren can’t ever buy a house. And to those who say “well that’s unfair, why should Sarah’s grandchildren afford a house but these other people w/o wealthy grandparents who engage in aggressive tax planning not have a house?” – I’d suggest they take a good hard look at their own attitude to policies that have contributed to this situation: Austerity, Brexit, no house building, chronic under-investment in infrastructure – and a culture of punishing success, before they blame Sarah for putting her family first.
Anyway – on to specific feedback.
It’s great to hear other people’s mitigation strategies. On the specific issue of the over/under 75 years old rule, and the applicability of income tax, I was under the impression that this was being removed, but I defer to those better informed – of course we don’t know yet. This is a small silver lining, because we can all reasonably estimate from the ONS tables our probability of dying prior to 75, and people like Sarah who are keen cyclists probably get an added “benefit” here.
@ZXSpectrum48k
“Moreover, I’ve been careful not concentrate too much net worth into onshore pensions. It was always vulnerable. Instead, I’ve diversified into other types of wrapper, placing higher returning assets into those.” I’d love to know what the “other” is here – feel free to DM me if’ you’re on twitter.
@Vanguardfan – On the “practical info on how to pay it” – fortunately I’ve not gone through this yet – @TI might have to find someone else for this (or wait, I guess).
@Cantseethewoodsforthetrees – Indeed, poor Max.
@PP (#47):
My (admittedly superficial) reading of the consultation docs (see link at either #5 or #26) suggests the pension scheme administrator (PSA) will also be on the hook, as IHT payments due to HMRC from the pension will be made directly from the pension! Bodes well and may, to some extent, be why the pensions business reckons “this is a bad idea”.
@Naeclue:
Re my Q at #49: is it because you need to “share” the proceeds with registered charities to ameliorate your income tax hit – ie nothing to do with children vs nieces & nephews?
@Al Cam, you only get the residential nil rate band if you leave property (or equivalent assets) to direct descendants. Tbh this is far more directly discriminatory than the issue of marriage/civil partnership in my view. No married person gets a bigger allowance than a single person. I am also in favour of retaining some legal and financial difference between those who choose to legalise their partnerships and those who do not. Presumably those who object to legalising their partnership actually agree with this, otherwise they would have no issue with doing so.
Regarding practicalities @passive pete and others. I have dealt with an IHT paying estate, which fortunately held sufficient cash in National Savings accounts to pay IHT directly, before grant of probate. There are as far as I am aware, a few different possibilities.
1. Direct payment arrangement – National Savings, many banks, and I believe, many investment platforms will pay IHT bills directly from the deceased accounts prior to probate being granted. So an estate with plenty of liquid assets should be ok (and this is the way that the pension IHT is proposed to be paid)
2. It is possible to arrange to pay by instalments but interest is charged on outstanding tax
3. It may be possible for the executors or beneficiaries to advance the money for the IHT bill if they have access to sufficient funds
4. It is possible to take out whole of life insurance written in trust, to pay out sufficient to cover IHT.
So it requires a bit of pre-planning unless you have wealthy beneficiaries. The most difficult situation is where all or most of the assets are tied up in property or other illiquid assets.
Sorry I can’t edit my comment for some reason and wanted to caveat ‘no married person gets a bigger allowance than a single person’. Of course there are advantages to marriage which are that the surviving spouse can inherit and spend all the assets of the deceased spouse without losing any to IHT, and they can also inherit any unused allowance.
But, the solution is absolutely available to anyone (although awareness is the bigger barrier), unlike the residential nil rate band.
@Naeclue (40)
I am a little confused by your mitigation strategy. You have spoken previously of gifts of shares to charity being exempt from CGT. This is clear (although I understand the mechanics can sometimes be a little complex). You go on to explain that gifts to charity increase the personal allowance. Is this the same money that you are referring to? I would have expected that any gifts that attracted exemption from CGT would not have the same effect on tax thresholds as gifts from income, i.e. Gift Aid. Similarly for IHT purposes, I would have expected that charitable gifts that attract CGT exemption could not be established as gifts from income. What am I misunderstanding here?
@Vanguardfan (#53):
OK – but does that apply to SIPPs?
Re: practicalities – my reading of the consultation docs suggests quite a few changes are proposed thereabouts; but too early to be definitive, especially if the pensions industry is pushing back as @Details Man suggests.
I know that nightmare scenario!
I do wonder how this will work in practice. Let’s say you have a diversified DC pension in a SIPP in drawdown. You die. A few weeks / months later the stock markets crash. At what point is the SIPP valued for IHT. It will take time to sell off assets in the SIPP to pay IHT and their value may well have dropped from the valuation point – but you end up being forced to sell to meet the IHT. 40% of the original tax due may now be substantially higher percentage of the SIPP.
@tranq same situation as for any asset subject to IHT. Think ISAs or investments outside of tax shelters. Or even houses. As I understand it (and was certainly the case for the estate I dealt with, although our assets did rise in value between death and distribution, so obviously it can sometimes work out favourably), IHT is levied as per the probate valuation, which is the value on the date of death. This isn’t a new issue.
@Al Cam. not sure I understand your question.
An estate with a property (value at least £175k) left to direct descendants has a total nil rate band of £175k plus £325k plus any transferred allowance(s) from a predeceased spouse. This will be split in proportion between SIPP and rest of estate (not sure if only the £325k is split leaving all of the £175k for the non SIPP assets).
An estate with no property or leaving assets to eg nieces and nephews will only have the £325k allowance. Split between SIPP and non SIPP.
@Vanguardfan:
My original question at #49 was to @Naeclue about his IHT mitigation strategy – that he details at #40. The Q was not about IHT rules in general but rather about @Naeclues proposed mitigation – which is essentially gifting whilst alive.
@Al Cam, that’s right, I was referring to case study 2.
I imagine all this will cause a huge headache all round as schemes will have to liaise with executors about the IHT and it may mean delays before funds can be paid out while the amount of IHT is worked out (some people have hugely complex estates), and all this will up the costs on both sides, and then what if an estate later discovers assets they were not aware of (it happens) and funds hve already been released by the pension scheme. A can of worms for sure!
Looking at the original figures the current estate value is £7.3m. In the worst case scenario above post 2027 the IHT payable is £2.7m, the inheritance is £4.6m. I’m struggling to see what the problem is?
@JP (#61):
Thanks.
As I mentioned at #51 “Bodes well”, not! Increased costs did occur to me, but I am no expert and costs may only be the peak of the iceberg. One intriguing scenario that occurred to me is how might such cost increases impact a DB scheme that had been subject to a full buy out and was now with an insurer?
@DavidV, when you make a gift to charity, not under Gift Aid, the value of that gift is deducted from your total taxable income. You don’t have to value the gift after deduction of CGT.
You genuinely get both CGT relief and income tax relief.
@Al Cam, there is no difference from a tax point of view in our gifts to nephews and nieces instead of our children. We have chosen to bring forward donations to nephews/nieces because we have already made gifts to our children.
@Finimus, I am in total agreement with you about your comments on morality and fairness. I wish things were not as they were, but they are and we have to make the best with the society we are given.
I agree with @Details Man about the awful complexity of the new rules if they get this wrong. Can of worms indeed. Just one example, if there is a revision to the value of an estate, more (or less) IHT may become due on the pension pots. How is that going to be handled if the pension providers have distributed the pots to beneficiaries? Or are the pots to be totally frozen until the end of the administration period (which could take years)?
On the payment of IHT before probate, it is possible to defer IHT due on land and property until disposal. In many if not most circumstances that helps with the chicken and egg situation of not being able to pay IHT due to being unable to sell land/property without probate. Also some brokers are prepared to dispose of investments and pay IHT before probate is granted. That only applies to GIAs and ISAs at present of course. I know Hargreaves Lansdown allow this, not sure what other brokers do but I should find out!
@Naeclue (64)
Thank you for that information – useful to know. As most of my legacy will go to charity anyway, I have no motivation to mitigate IHT. However, as the HRT threshold continues to loom very close for me, the ability to gift shares to charity and kill both the HRT and CGT birds with a single stone could come in handy.
Out of interest, as it is not relevant to me, regarding the second part of my question, how confident are you that phased charitable gifting of shares over several years can be established as gifts out of income?
@finumus you seem quite certain that Sarah or Sarah’s parents paying lots of IHT won’t make this situation any better at a societal level. Alone, that’s right, but multiplied across lots of Sarah’s that this policy will apply to, all of the baby boomers, perhaps it will play a part in making the situation better at a societal level?
The example you’ve given, Amelia and Jack are studying humanities. Perhaps their life outlook will be different to Sarah and Stephen. Could they be proud that their parents paid what was deemed appropriate by the elected government, paying to society what was due. That increased level of self esteem/worth they could gain from pride in their parents contribution to society, and less of a hand out, may spur them on to achieving greater success with their own lives, achieving more, perhaps even something meaningful.
@DavidV, I think our gifts to nephews and nieces will count as gifts from income, but I am not totally sure. Does the high income from our SIPPs count as income under the Gifts from Income rules? It certainly does qualify as income under income tax rules, but under the hood most of the income comes from asset disposal, not interest or dividends.
Then there is the pattern aspect. We will have high income for 5 to 6 years during which we will be making the gifts. The gifts will be made at the end of each tax year, but they will still be regular and we will not suffer any change in living standards as a result. After 5 to 6 years our income will drop and we will stop the gifts. I think this is all OK, but I am definitely not 100% on it. Hopefully we will both live more than 13 years in any case, in which case it doesn’t matter.
What might scupper us is the abolishment of the Gifts from Income rules, which are anomalistic, and the abolishment of the 7 year rule for gifts. That really would make transfer of wealth considerably more difficult.
@David V (#64), @Naeclue (#67):
I guess folks will still be looking at this subject in years to come* – the rules will just keep morphing. OOI, currently the German equivalent of PET’s is ten years with no reductions enroute. That is, in principle: live ten years (or more) – OK, no IHT; live 9.9 years – full IHT hit!
*which IMO could be either an interesting challenge or a nightmare depending on how you age
First time I’ve felt in any way compelled to comment on a post in a long time but clearly the likes of Russell (post 42) are correct and it’s fairly preposterous for anyone to argue that tax relief (i.e. money taken out the overall pot for defence of the realm, health, education, roads etc etc) intended to support people to have a comfortable retirement without requiring any state support should be used to support their over entitled and already wealthy offspring in perpetuity. I’m generally a bit of a centrist but reading these comments is enough to want most of middle-aged south-east England up against the wall (but only after having squeezed them til their pips squeaked).
And on a related note, Finumus referred to the seeming impossibility of young people being able to bring up a family on their own merits etc. which must be a particular issue in the south as people somehow manage to do so just fine elsewhere (and somehow managed to do so with lower wages and bigger families back in the day). It’s – in my experience – a totally bogus argument and one made largely only by privileged and entitled folk (and generally the same ones who think they are hard done by if they can’t get their parents pensions unencumbered).
Thanks, Finumus. Sounds like Sarah must be a glass two-fifths empty kind of person, but it also does illustrate the pain of loss being greater than the joy of having. I think the kids and their humanities degrees will be fine – surely parental connections will kick in?!
As a working-class northerner with no inheritance who studied physics way back when, things turned out fine. (Not 7.3 million fine, but still…) Someone similar wouldn’t be able to do the same now, unless they took their STEM degree into the City, I suppose. And that makes me sad.
Let’s pay our tax, help others when we can, and not overlook the planetary disaster that’s looming while mad blokes play with lethal weapons. I could rant a bit more, but I won’t!
Whilst having every sympathy with the sentiments at #42, #69, #70 etc, once you get your own asset pile it does affect your perspectives. As Pink Floyd put it back during another period of sustained economic crisis for the UK: “Money, get away, get a good job with more pay and your OK. Money, it’s a gas, grab that cash with both hands and make a stash…Money get back. I’m all right Jack, keep your hands off my stack. Money, it’s a hit, don’t give me that do goody good bullshit…Money, it’s a crime. Share it fairly but don’t take a slice of my pie. Money, so they say is the root of all evil today. But if you ask for a rise it’s no surprise they’re giving none away.”
@DH #71. haha indeed, although Roger, Dave etc aren’t now short of a few bob. We have a small asset pile that is affected by the IHT change, but we should be able to drain a fair amount of it before we die. Even I don’t think our daughter should get everything!
E&G #69:
‘Finumus referred to the seeming impossibility of young people being able to bring up a family on their own merits etc. which must be a particular issue in the south as people somehow manage to do so just fine elsewhere (and somehow managed to do so with lower wages and bigger families back in the day). It’s – in my experience – a totally bogus argument…’
Surely, the reality that the ratio between average house price and average salary now is significantly more challenging hasn’t escaped you? ‘Back in the day’ it was much easier to afford a house, much less so nowadays. More accute in the South, sure, but a nationwide issue?
@Details Man #38 – I entirely agree that the practical aspects of the proposals just haven’t been worked out properly yet and really ought to change – whether they will or not is anyone’s guess though.
In particular, this new system could lead to a big delay in beneficiaries receiving any lump sums from pension schemes even if no IHT is ultimately payable. The executor won’t be able to know whether IHT is due (or exactly how much) until they have got in touch with every single pension scheme administrator and found out precisely what benefits are payable (if they even know about all of the deceased person’s pension pots, which may not be the case) and added all relevant lump sum death benefits up with the value of all other assets in the estate. Whether the lump sums are even subject to IHT or not may also depend on who the lump sums are ultimately being paid to (e.g. a spouse or to someone else), which in turn may be down to the discretion of the trustees and involve its own evidence-gathering process.
Until the final IHT position is confirmed by the executor the pension providers won’t be able to pay out the lump sums as they won’t know how much tax to deduct – oh, and this whole process all has to be completed within six months of death or you start having to pay interest on any IHT due.
Even if no IHT is ultimately due (which will be the case for most people), it’s a whole mass of additional admin headache for executors, and a much later payment date for beneficiaries could cause major financial hardship if the person who died was the sole breadwinner.
There must be a better approach here.
Both things can be true:
1. An efficient tax system treats all income/assets equivalently, so changing IHT rules to align pensions with other assets makes sense.
2. An efficient tax system is stable and doesn’t encourage people to make one-way trips (e.g. saving into pensions) before then changing the rules to penalise that choice. This is why we don’t normally do retrospective taxation (and this is, in effect, retrospective taxation for any pension saving you’ve already done)
It’s further compounded by the widespread freezing of allowances. That £12.5k basic rate allowance, or £325k IHT threshold, are worth much less today than they were, and the odds are high that below inflation increases will continue. This further crimps your ability to respond to the new tax environment.
None of this is a sign of a system that wants to encourage saving, investment or hard work. That might have something to do with our chronically low productivity and growth.
Which is not to say that the existing situation was correct/sensible, or that people badly affected aren’t very well off. But changing the IHT rate to 20%, removing exemptions, and making it less of a priority for people to avoid it would have been much more sensible. Why do we persist in tinkering with broken taxes instead of fixing them properly?
With that, I’ll get off my soap box
#73 – I agree, though I also think the right answer for people in Sarah’s situation is to buy the house for their children when they are in their 20s, and hope to survive 7 years. Though that might be hard for anyone who has squirrelled away all their savings in their pension on the basis it was going to pass on tax free! The best defence against IHT is to gift away as much as possible as early as possible, but there are plenty of people who can’t or don’t want to, whether for family reasons or because of worries about care fees etc.
I imagine that solving the care fees issue (e.g. with something like the Dilnot cap) would significantly reduce IHT receipts, since people would feel more confident about gifting earlier.
@Naeclue #67
This briefing note seems helpful on your question re SIPP income etc.
“The exemption only applies where the gifts are made from surplus income after tax. Examples of income will include pension income, interest from savings, dividend income, rental income or income payments received from a trust. If you prepare income tax returns, your tax return will help you identify the sources of your income but you should remember to also take into account any income from ISAs, which will not show up on your income tax return, but which will still be considered income, for the purposes of the gifts out of surplus income”
https://www.gabyhardwicke.co.uk/images/library/files/briefingnotes/inheritance-tax-exemption-for-gifts-out-of-surplus-income.pdf
@snowcat – Thanks for that link. I will be writing about “Gifts from Income” at some point.
I have a question for the crowd here. If income “from” ISA’s falls within “income” when working out if there is a surplus…. do you have to withdraw it from the ISA for it to count? Example: I have £100 bond in an ISA. It pays a £5 coupon, at the end of the tax year the ISA is worth £105, with £5 being cash. In order to claim that the £5 is “surplus” income that I can distribute to beneficiaries and not covered by the 7 year rule, do I need to take it out? Or – can I actually use £5 of capital outside the ISA to make the gift and leave the £5 of interest in the wrapper? Common sense suggests that I don’t need to withdraw it from the ISA, because money is fungible, but the HMRC sometimes has other ideas.
https://assets.publishing.service.gov.uk/media/5f60b44cd3bf7f7234487bf0/IHT403-05-20.pdf
The above should also help. I’ve heard that filling in details before (your own!) death may concentrate the mind.
@Finimus I am not an advisor, accountant or any other qualified person, but as I understand it you only have to demonstrate you have surplus income in the amount of the gift, you do not have to use specific sources. There are other sources of income not declared to HMRC (e.g. VCT dividends), so I think this “problem” is not confined to ISA income, though obviously the presence of the wrapper is an added complication.
Given the number of comments, this is a hot topic.
My own financial planning has almost totally ignored inheritance tax, since I don’t plan to be around when it happens.
But, I am going to have a good long look and think about pensions and IHT now since the changing goalposts necessitates it.
As a company director, I had been diverting money into my wife’s SIPP as a way of dealing with excess cash and to limit corporation tax and dividends tax.
It looks like it might make more sense to keep the money in the company, build it up and pay the 10% tax whe dissolving the company, instead of gambling it on future tax rates.
@PhilosoFIRE – thank you for setting out one of the issues in such a clear way! It saved me attempting it this morning!
I’m particularly concerned as I can forsee this having a very negative impact on especially vulnerable people. I’m thinking child dependents or adult dependents with, say, disabilities, who relied on the deceased’s pension income to support them. Delays in getting the money to them could be very harmful for those vulnerable people.
Policy drives behaviour negatively or positively, continued tinkering or removal of perceived benefits questions the wisdom of saving into a pension past employer matching (excepting mitigation at certain salary/benefit points). Weigh a future pension against todays needs, locked away for a substantial period you may never access.
Did pension contributions increase after positive messaging such as pension freedoms, mine did. Has drawdown increased following the budget, mine has, are either of these a good thing?
Encouraging / forcing the nation to accrue savings post work is likely improved health and lifestyle, less cost on the state / increased GDP spending. However we are dependant on (passively) invested savings SWR lasting an unknown lifespan potentially covering considerable later life care costs.
Leaving to one side proposed increased executor process, complexity, red tape, payment, probate delays etc
Under 75 totally tax free I never understood, assume it was a legal trust thing. Paying tax on my untaxed additional contributions seems reasonable albeit kind of questions the benefit of locking away vs putting into an ISA.
My irrational brain screams at me 40% IHT plus withdrawal at marginal tax rates on any remaining pension pot is outrageous and unfair. My rational brain says this is similar to 40% IHT on my ISA’s but I have considerable flexibility with my ISA’s.
I feel any benefit will be taken by some colour of government at some point to meet previous, current, future commitments. All have a track record of continually eroding benefits, some of which were created to offset previous policy changes.
Why bother with a pension.
As for IHT – 40%!
Whoopee an individual may have a 500k allowance.
Bank of England suggests inflation has been 30% since since 2017 residence band included and 59.5% since the 325k personal band in 2008 and that’s CPI not RPI.
and ongoing
Having been a net positive contributing tax payer for the last 40 years I do have more than 500k net worth and have planned to live for the next 1 to 35 years. Currently more aggressively and irrationally spending down my pension pots.
Claus
I’ve been watching a bit or Rory Sutherland, I’m not a fan of marketing but his talks are excellent.
On housing- we’ve moved to 2 full time worker households being the norm and all the extra capacity has been used to bid up house prices.
(Although house prices have been flat for 20 years in real terms, it’s just wages not keeping up in real terms. Google said 2 full time working households have gone from 31-50% in the last 10 years
3 bed semis still can be had for under £250k an hour from London here in Suffolk, cheaper than 2 years ago)
@vanguardfan (#45) – Sorry, I forgot to reply to you.
I think there has to be a de minimis amount otherwise the proposal would become an even larger administrative nightmare. This is because each time you add an additional pension pot, the information sharing requirement increases multiplicatively, not additively.
To illustrate, say a deceased has two pots. There are three information nodes: the personal representative (PR) and the two pension scheme administrators (PSAs). The PR has to notify the two PSAs and the PSAs have to share information between them. They then send this information back to the PR. That is six information ‘transactions’. That can be visualised by a triangle, with three corners and three two way lines between them.
Now say the deceased had three pots. Now the shape is a square and there are 12 information transactions. It has doubled with one additional pot. Make it four pots and it’s now 20 transactions.
This might not be an issue now, but we know that the number of pension pots individuals have is increasing over time (mainly due to auto-enrollment). People under 35 have an average of 2.4 pots. At the pension scheme I worked at, people under the age of 40 had on average over three pots. Even if there is no IHT payable, that would mean 12 communications. Think how long it takes now to transfer a pension between two providers!
Also bear in mind that with a lot of auto-enrollment pensions there has been minimal to no KYC going in. Often, it’s the case that the administrator has only a name, date of birth, NI number and a stale email and physical address. It can already take a long time to pay death benefits to beneficiaries, especially where the deceased’s circumstances were complicated. And a lot of us live complicated lives!
Yawn (I can barely see the violin it’s so tiny). Maybe they should consider that that extra tax will pay for an ambulance to turn up when their grandchildren have a possibly fatal asthma attack!
The problem with those who think like E&G (no.69) – i.e. that this is just “tiny violins for the rich time”, is fourfold:
1. If all this extra tax was being spent wisely, and properly invested in sensible capital investment, OK, maybe we could all live with that. As the current government are giving us a real time demonstration of though, it’s not. Everything is being sacrificed (defence, education, basic infrastructure) to fund current expenditure. That can’t continue. At some point, the virtue signallers will be presented with a choice they can’t put off any more: “You can have a welfare state, or unlimited immigration. Choose.”
2. Time. The numbers we’re bandying about now might sound high, but just look at the BoE’s inflation calculators. A £100K salary now is the equivalent of only about £53K about 20 years ago. Put another way, in less than a third of the average lifetime, inflation has eroded almost 50% of the real value of the “pound in your pocket”. This is being accelerated by the freezing of tax thresholds. Remember, income tax was originally only for the rich, and was only going to be temporary…
3. Like it or not, pensions, ISAs and housing are the only real remaining (largely) untapped sources of wealth in the UK now. That makes them vulnerable. Public sector pensions will be exempt, but only because most of them, with a few exceptions like local govenment pensions, are basically just ponzi schemes with no underlying assets. So, you heard it here first: if the current Labour government get more than 1 term, private sector pensions are going to be repeatedly hit and ISAs will be squarely in the firing line. Housing I expect will be last to be hit – much easier to paint those with big ISA pots or private sector pensions as “rich” and thus “deserving” of being clobbered. Besides, too many Labour MPs have large houses themselves and little “Red Princes” and “Red Princesses” to look out for, as well as a fondness themselves for dynastic wealth (see e.g. the Kinnocks, Millibands and Benns, just for starters).
4. It’s becoming increasingly clear that the UK is relying on an ever shrinking pool of people for an ever increasing amount of tax income. The usual note about the top 1% of taxpayers paying about 30% of all income tax collected. That’s not sustainable either, especially if that 1% are the kind with skills in global demand. If they all left, it will be amusing to watch a left wing goverment try to explain to people with jobs like supermarket shelf stacker why their income tax now needs to go up to 70% at the basic rate to fund all the “freebies” … There used to be a pithy little story doing the rounds in the internet about 10 friends and how things would look if we paid for our beers the way we pay our taxes…
Like it or not, Finimus is unfortunately right about the choices the UK has made and where those will ultimately take us (with everything circling the plughole), even though I personally may disagree with some of his diagnoses (e.g. there was no austerity, just a slight slowdown in the rate of spending increase, and not even that for the NHS. If you want to see real austerity, look at what Ireland did in the aftermath of the GFC, or Iceland. Now those were “savage and vicious” cuts. Ditto on Brexit. The real issue there was that for 3 years after the biggest democratic vote in the UK’s history, with the highest turnout, ever, the losers basically had a gigantic 3 year strop/sulk which paralysed the country and meant nothing could be done. We’re still trying to repair that damage. They also repeatedly frustrated the efforts of the then conservative government to genuinely “put it to the people” via a general election until the depth of public feeling, and revulsion, got so bad that they eventually (with very poor grace) conceded. And were then promptly shown what the country actually thought of their views when Bojo (love him or loathe him, but campaigning on a “get it done” / “lance the boil” ticket), was duly elected with a thumping majority).
Claus, I know very little of housing costs in London but would imagine the folk principally affected by this are unlikely to be inheriting £7.3m estates prior to tax.
The fundamentals are that pension tax relief is intended to encourage people to put money away to fund their retirement, not to pay the school fees, skiing holidays or stamp duty of their kids, grandkids and beyond.
And that in almost every part of the UK a typical 1.5-2.0 FTE earning household with a couple of sprogs can live fairly comfortably while owning or renting a home that meets their needs (and often aspirations).
@ZXSpectrum48k
“Moreover, I’ve been careful not concentrate too much net worth into onshore pensions. It was always vulnerable. Instead, I’ve diversified into other types of wrapper, placing higher returning assets into those.”
Would you mind sharing details of offshore pensions and the ‘other types of wrapper.
@Dragon — Cheers. Some good points in the mix but:
(a) as I’ve written before, I’m minded to think that for social/cultural reasons (the will of the people if you like) we should be bringing mass immigration down.
However higher immigration is positive for the state coffers (https://migrationobservatory.ox.ac.uk/resources/briefings/the-fiscal-impact-of-immigration-in-the-uk/), not to mention the actual provision of much of those State services (NHS staff, care staff) and also private services (staff for restaurants, fruit pickers etc)
(b) re: Brexit, I’d agree that the post-vote political hiatus wasn’t great. However it was entirely predictable because There Was No Plan. Indeed no plan had been put to the voters.
You can’t just leave a 47-year old trading arrangement without making new arrangements, and different people — even, notoriously, or perhaps even ‘mostly’ on the Leave side — had different ideas about what those new arrangements should be. (Free movement yes/no, Singapore-on Thames, yes/no, etc etc).
This blog will stand for the rest of my life as a record of the farce that was Brexit, so I’m afraid I won’t let historical re-writes here go unchallenged, even in the comments.
Agree with you about the general tax situation and the anti-aspirational spirit. Losing £50bn a year in tax receipts due to the ongoing drag of Brexit obviously hasn’t helped, especially when there’s precious little that can be done about it (Leavers didn’t like friction-free trade and cheap immigration, UK voters don’t want a brutally reduced State, lighter worker regulations, etc).
In some other world Cameron and Osborne eased off (semi-phoney) austerity, the tax system was simplified, immigration was cooled a bit by the limited measures available (i.e. even just some sort of checks at the border, an extension of when various rights kicked in) the country got a bit more entrepreneurial, and under ‘nice’ Tories we’d spent the past decade doing sensible things like going to EVs, building a clean energy industry, putting up some new nuclear power plants, and who knows, maybe Putin didn’t even push into Russia as he was a little less emboldened by the disintegration of the Western consensus and its replacement by social media account nonsense being trusted more than, say, scientists. (Though still Trump and Covid so maybe not).
Growth continued to be higher than in the EU, in the main, as it was for the entire time we were in the EU. Perhaps the higher-rate tax rate band was now £60,000 a year and the ISA allowance £25,000 and the UK fintech scene had really gone global, helped along by government support and barrier-clearing.
Alas we got this world.
I may have missed something but will we still be able to withdraw 25% of our pension pot tax free on retirement? That will have a significant impact either way. If it is still available then there are options for a useful portion of the pension pot for personal use or gifting’ before you die. This would change effective tax calculations.
I apologise, there is a new cap taken account of in the pcls line item in the breakdown. Time to revise my own spreadsheet. joy
Pensions are designed to cover YOUR retirement, not your dependents. But yes trying to spend it before your unpredictable death date will be much harder,
#90 and #87: Agree that, in principle, free movement of labour *should* be good for everyone economically.
But, whilst not necessarily endorsing or agreeing, this recent DT article does make some decent points:
https://www.telegraph.co.uk/business/2025/01/09/britain-running-time-fix-boris-johnson-immigration-betrayal/
If public finances are eventually subject to greater pressures as a result, then pensions of all sorts will come under similar additional strains, including reduction of tax breaks for occupational and personal pensions provision, and means testing and reduced payouts for the SP.
Dragon, you are conflating a discussion on inheritance tax and pensions with a broader one about the tax burden, public spending and mood music (where I probably have a bit more sympathy with you). But fundamentally I cannot see why anyone thinks pensions should be a vehicle to avoid tax and pass it on to your dependents or create some sort of multi-generational family trust/private office). Perhaps if it means that cash is spent in the real economy, creating demand (and tax receipts) in the here and now then the burden on this and future generations won’t be quite so severe.
And the public v private pensions argument is not one that particularly backs you up the specific point: they are intended to do exactly what tax relief incentivises for everyone else, to support the recipient in their old age with no subsequent benefits to their dependents (bar a small pension for spouses in some cases). And it’s really just income deferred – though I take your point on the Ponzi scheme comparison and I’d much prefer them to transition to a funded model.
E&G #88,
BTW I do agree that pension tax relief is absolutely for retirement and not IHT avoidance or anything else.
I wasn’t suggesting that people inheriting the hypothetical £7.3M estate put forward by Finumus would struggle. My point was questioning your apparent assertion that housing affordability is only a London/South problem, or that provided you have 1.5-2 earners you can live comfortably anywhere. Not sure that is correct.
Table 1c in the ONS data shows that in only 25 years it has worsened dramatically in every part of the country (doubled or more in every part of the country?):
https://www.ons.gov.uk/peoplepopulationandcommunity/housing/datasets/ratioofhousepricetoworkplacebasedearningslowerquartileandmedian
@snowcat, thank you for the link. This summarises well my understanding of the gifts from income rules.
We intend to draw down our SIPPs at an unsustainable rate, about 10% of the current value per year, so at some point the gifts are highly likely to stop. We will also run out of GIA investments to give away to charity, which would mean we would need to make gifts from an ISA should we wish to continue reducing the SIPPs at the same rate. I am a little concerned that HMRC might take a dim view of this, although as far as I can see I am following the rules.
@Naeclue (#97), etc:
To my eyes a key issue with the gifts from income rules is what is really meant by “pension income” and how exactly do those two words map to DC pensions in drawdown as, by definition, such an approach “resort[s] to capital”.
With reference to the practicality of paying IHT, there is an HMRC Direct Payment Scheme whereby assets held with cooperating institutions can be used to pay IHT from within the deceased’s estate directly to HMRC before probate.
Hargreaves Lansdown have details of what they support on their website in the FAQ at the end of their berievement page https://www.hl.co.uk/support/what-to-do-when-someone-dies. This also includs a note on converting holdings to cash, which avoids risk of market movements – which can reduce having to do as many CGT calculations (there may be no CGT due on death, but it is due on gains made between death and any conversion to cash for distribution after probate if distributed as cash).
Customer services at the following brokers have confirmed to me that they support Direct Payment although there is no mention on their websites: AJBell, II and Vanguard. Don’t assume that all brokers will support it though. If it isn’t on their website, ask customer services (maybe the berievement team) whether they would honour an IHT423, as nobody seems to recognise the term ‘Direct Payment Scheme’.
Re #98
From IHT400 Notes:
“‘Income drawdown’ is a particular situation where the deceased has
reached pension age but has chosen not to buy an annuity that will
provide their pension. Instead, they decide to ‘draw’ a certain level of
income from the retirement fund with a view to buying an annuity at a
later date. ”
This looks quite helpful to me!
@Nearly There #99 – Thank you, that’s really useful. I think that will help me overcome the potential shortfalls in my current plan (my executor pre deceasing me, or spending the gift). It’s taken a while for me to learn, but I’m now quite wary of advisors bearing products (life assurance) to solve problems they’ve identified. As you’ve shown, there’s often a cheaper and more appropriate method to addressing the issue.
@Al Cam (100) @Naeclue
Those IHT400 notes do appear helpful. I feel, though, that HMRC might look for regularity and reasonable constancy of drawdown income to regard it as income. Ad hoc lump sum withdrawals I fear might not pass muster. Flexible drawdown with a withdrawal schedule established with the platform, rather than UFPLS, seems the way to go.
I think the whole topic of withdrawal from DC pensions, identified in #98, is far wider than just gifting for IHT mitigation. There must be similar problems in identifying eligibility for means-tested benefits – probably not an issue for Sarah and Stephen!
@DavidV (#102):
I agree that this whole area is murky/tricky.
Some other thoughts:
a) the thrust of the exemption seems to be that provided overall you do not impoverish yourself (such that you have to rely on the state, I assume) then how you spend your income is up to you;
b) I read somewhere (possibly the IHT 400 Notes) that the exemption also applies to/caters for people with lumpy / inconsistent incomes too – IIRC royalties were used as an/the(?) example;
c) I wonder if the legislation actually pre-dates DC pensions when it was relatively easier to distinguish capital from income;
d) as @Naeclue says – the whole thing looks a bit of an anomaly.
Perhaps somebody who has had some real experience could add some useful pointers.
Lastly, I did read somewhere that this path/route is rarely actually used.
PS yup issue must be bigger than just IHT – but no guarantee that the treatments are similar!
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14241
considers, amongst a lot of other things, “Fluctuating income” – however, unless I missed it, no explicit mention of DC pensions. My reading of these pages (esp some of the legal judgements) suggests there is quite a lot of leeway/discernment both implied & required!
@HammerHead #75
Agreed. Yet again, a great opportunity for simplification passed up. A £1m per person allowance, 20% rate thereafter and abolition of all the special treatments (farms, businesses, pension pots, etc) would have been a vast improvement – and people could invest their time in actually productive activities – rather then shuffling assets around into unproductive places (farms, anyone?) trying to avoid it.
As it now stands, IHT encourages gifting and downsizing earlier. This may release family housing stock which is a good thing and release equity for kids to get on the property ladder, especially in the south east where housing costs are so high.
@Warren. There is nothing special in the vehicles I’ve got. It’s the usual mix of ISAs, offshore bonds, family investment company, trusts (offshore, surplus income) etc. In the same way I don’t want to be too exposed to any asset class, I don’t want to be too exposed to any type of investment vehicle or tax wrapper.
Some maintain that any tax deferred is a tax avoided but I never really bought into that. My view was that pensions worked best for those who earn in the HR tax band but will retire into the BR tax band. Early on, I decided that wasn’t my situation.
For me, the only value in pensions was the massive size of the annual allowance, peaking at £255k/annum in 2010/11. I slammed the max of £1.175mm just between 2006/07 and 2010/11. That was always likely to become an issue downstream when I still had a minimum of 20 years compounding. I’d saved 40-50% in tax upfront but, other than the 25% tax free, I was never realistically going extract it at less than 40% on the way out. At that time, there was no ability to pass it on tax free.
So I took fixed protection in 2012 at £1.8mm at the expense of not be able to contribute again to my pension. Within the a few years the govt put the annual allowance for high earners at just £10k (then £4k, now £10k again).
I’m now in the situation where my offshore bonds dwarf my pension. That’s sort of where my vulnerability lies. The offshore bond though is just a damn sight better for passing on wealth to the next generation.
@ZXSpectrum48k Thanks for your summary. Offshore investment bonds are an interesting option if set up carefully and in a discretionary trust but fees can be quite high. I’m still in the tier below, ISA, sipps, and my children’s junior ISA and SIPPs.
Why not just leave the UK and retire in a more tax friendly country?
This is the problem the UK will face. Many will opt for this draining the UK of future revenue from cash rich retirees spending their hard earned savings.
@Finumus,
I noted your comment on a later post that you are switching Acc units to Dist units in an ISA to “get ready to produce “surplus” income from which to make PET-IHT free gifts…..”
Does this mean you have had further guidance on what will qualify as ” gifts from income” for IHT purposes – see various posts above, inc. #103 (that admittedly was primarily aimed at pensions, as opposed to ISA’s).?
Thanks.