Private Pensions on Death

[AsleepInYorkshire]

If a pension holder dies before 75 their pension doesn't attract tax?

What happens after this age please?

Thank you

AiY

[Dod101]

If a pension holder dies before 75 their pension doesn't attract tax?

What happens after this age please?

Thank you

AiY

If a pension holder dies after age 75 then he can leave his SIPP - is that what you mean? - to a nominated beneficiary but the beneficiary will pay tax on any withdrawals at their marginal rate.

And there is no IHT to pay in either case.

Dod

[ursaminortaur]

If a pension holder dies before 75 their pension doesn't attract tax?

What happens after this age please?

Thank you

AiY

If a pension holder dies after age 75 then he can leave his SIPP - is that what you mean? - to a nominated beneficiary but the beneficiary will pay tax on any withdrawals at their marginal rate.

And there is no IHT to pay in either case.

Dod

To bypass IHT though you need to have filled out an "Expression of wishes form" for the pension provider otherwise it is possible that the pension may be paid to your estate and then suffer IHT

Something like

https://www.youinvest.co.uk/sites/default/files/useful-forms/AJBYI_SIPP_nomination_and%20expression_of%20wishes_form.pdf

[Dod101]

If a pension holder dies before 75 their pension doesn't attract tax?

What happens after this age please?

Thank you

AiY

If a pension holder dies after age 75 then he can leave his SIPP - is that what you mean? - to a nominated beneficiary but the beneficiary will pay tax on any withdrawals at their marginal rate.

And there is no IHT to pay in either case.

Dod

To bypass IHT though you need to have filled out an "Expression of wishes form" for the pension provider otherwise it is possible that the pension may be paid to your estate and then suffer IHT

Something like

https://www.youinvest.co.uk/sites/default/files/useful-forms/AJBYI_SIPP_nomination_and%20expression_of%20wishes_form.pdf

I am not sure that that is correct. The funds are usually held by the pension trustees and that cannot be affected by whether you leave a letter of wishes or not. Even if you do the trustees are not bound by that anyway. Even if barring any letter of wishes they decide to pay the funds to for instance the Executors of the Will that does not surely place the pension funds in the estate for IHT purposes. There is no requirement to have a letter of wishes; it just helps to ensure that the funds go to where the deceased would like them to go.

Dod

[Urbandreamer]

To bypass IHT though you need to have filled out an "Expression of wishes form" for the pension provider otherwise it is possible that the pension may be paid to your estate and then suffer IHT

Something like

https://www.youinvest.co.uk/sites/default/files/useful-forms/AJBYI_SIPP_nomination_and%20expression_of%20wishes_form.pdf

I am not sure that that is correct. ...

Dod

I think that words are causing a simple concept to be made complicated. IF the pension is or becomes part of the estate then it will be subject to IHT.

This could happen if you put the pension in your will. It could also happen if the trustees are unsure who to give it to, ie complicated family arangements and a contested will. If there is no expression of wishes form, then the trustees will give it to who they see fit. It's likely that they would make a common sense decision.

A simple expression of wishes let's them know what is desired. There is and can be no way to enforce those wishes. Were there to be so then it would be part of the estate.

As said income tax is applicable on the beneficialry if you die over 75. However were that beneficiary to keep the scheme rather than wind it up and to die under 75, then their beneficiary would pay no tax.

I'm sure that we can all see problems and complications, but the concepts are simple, somewhat unusually for pensions.

[scrumpyjack]

It is very unlikely that the pension would fall into the estate in the absence of an expression of wishes form. As executor I explained to Standard Life what the wishes of the deceased would have been, as there was no expression of wishes, and provided evidence (a copy of the Will). It was a complicated case but Standard Life eventually did what I said they should do. They told me they had taken legal advice. The Will did not mention the pension but it did indicate where she wanted her assets to go.

[Dod101]

To bypass IHT though you need to have filled out an "Expression of wishes form" for the pension provider otherwise it is possible that the pension may be paid to your estate and then suffer IHT

Something like

https://www.youinvest.co.uk/sites/default/files/useful-forms/AJBYI_SIPP_nomination_and%20expression_of%20wishes_form.pdf

I am not sure that that is correct. ...

Dod

I think that words are causing a simple concept to be made complicated. IF the pension is or becomes part of the estate then it will be subject to IHT.

This could happen if you put the pension in your will. It could also happen if the trustees are unsure who to give it to, ie complicated family arangements and a contested will. If there is no expression of wishes form, then the trustees will give it to who they see fit. It's likely that they would make a common sense decision.

A simple expression of wishes let's them know what is desired. There is and can be no way to enforce those wishes. Were there to be so then it would be part of the estate.

As said income tax is applicable on the beneficialry if you die over 75. However were that beneficiary to keep the scheme rather than wind it up and to die under 75, then their beneficiary would pay no tax.

I'm sure that we can all see problems and complications, but the concepts are simple, somewhat unusually for pensions.

Even if you put the pension in your Will that does not make it part of your estate. It is not normally part of my estate and even if I ‘put it in my Will’ that will not make it so. To take a silly example, I could leave the Taj Mahal in my Will but that does not make the Taj Mahal part of my estate. If the pension is under the normal pension rules the assets will be held by the pension trustees and there is nothing you or I can do to change that. As the beneficiary I do not own the assets, not even in fact a SIPP.

Dod

[Aegis]

Generally it's best to complete a nomination form because it gives beneficiaries more options. Where you have completed a form, they have the additional option of keeping the pension in drawdown, with tax only then paid on withdrawal. In the absence of a form, the trustees can only make a lump sum payment, which means the recipient will pay income tax at their marginal rate when they receive the lump sum. If there's an opportunity for them to lower their other taxable income in one or more years, they could potentially reduce their tax liability.

Since the form is available for free, it's worth completing. The only caveat is to make sure the trustee allows for flexible death benefits - if not it may be worth changing product.

[Dod101]

Generally it's best to complete a nomination form because it gives beneficiaries more options. Where you have completed a form, they have the additional option of keeping the pension in drawdown, with tax only then paid on withdrawal. In the absence of a form, the trustees can only make a lump sum payment, which means the recipient will pay income tax at their marginal rate when they receive the lump sum. If there's an opportunity for them to lower their other taxable income in one or more years, they could potentially reduce their tax liability.

Since the form is available for free, it's worth completing. The only caveat is to make sure the trustee allows for flexible death benefits - if not it may be worth changing product.

That is my understanding because in fact the trustees are then dissolving the valuable trust aspect of the pension and simply releasing the assets outside of the trust/ pension arrangements, deducting tax at the same time and at the highest rate at that!

Dod

[DrFfybes]

On https://www.onlinemoneyadvisor.co.uk/pe ... ath/#sipde this might explain the pension provider's 45% figure...

What happens to my SIPP if I die after 75?

Any SIPP death benefits received by a beneficiary as a result of a member dying after reaching age 75 can still be taken as either a lump sum or as a regular income, however, these benefits will now be taxed at their marginal rate.

If a trust or company is one of the beneficiaries, these funds will be paid as a lump sum and subject to a tax charge of 45%. SIPP death benefits paid to a charity will not usually be subject to tax.

Paul

[Aegis]

On https://www.onlinemoneyadvisor.co.uk/pe ... ath/#sipde this might explain the pension provider's 45% figure...

What happens to my SIPP if I die after 75?

Any SIPP death benefits received by a beneficiary as a result of a member dying after reaching age 75 can still be taken as either a lump sum or as a regular income, however, these benefits will now be taxed at their marginal rate.

If a trust or company is one of the beneficiaries, these funds will be paid as a lump sum and subject to a tax charge of 45%. SIPP death benefits paid to a charity will not usually be subject to tax.

Paul

It's not complete, in that it doesn't distinguish between bare trusts and relevant property trusts (e.g. discretionary trusts), but yes, a discretionary trust would likely pay the majority of tax as an additional rate taxpayer, so 45%, but then any immediate distributions from that trust would come with a tax credit for the tax already paid, meaning the ultimate recipient could claim back tax above what they would have paid had they received the funds directly. Of course, this means there is no real difference between that outcome and just paying them a lump sum from the pension other than the introduction of a trust, which seems to add needless complexity and expenses if this outcome is intended. Trusts really should only be used here where there is a sound legal reason (i.e. one stemming from legal advice, not that it's actually a legal thing to do) because the existing framework allows for a fairly good set of options for pension death benefits without needing trusts. Or companies, for that matter, but I am less familiar with the taxes paid by a company on pension death benefits.

[Dod101]

On https://www.onlinemoneyadvisor.co.uk/pe ... ath/#sipde this might explain the pension provider's 45% figure...

What happens to my SIPP if I die after 75?

Any SIPP death benefits received by a beneficiary as a result of a member dying after reaching age 75 can still be taken as either a lump sum or as a regular income, however, these benefits will now be taxed at their marginal rate.

If a trust or company is one of the beneficiaries, these funds will be paid as a lump sum and subject to a tax charge of 45%. SIPP death benefits paid to a charity will not usually be subject to tax.

Paul

That’s what I said!

Dod