SIPPs

[Dod101]

Yesterday someone was writing about SIPPs and making contributions in retirement. I added that although you can make contributions at any age, any tax benefit ceases as age 75.

If that is the case, then one could actually make a SIPP a good way of avoiding IHT. Even post 75, keep throwing money into a SIPP and when the beneficial owner dies, the SIPP can pass to the next generation with no IHT and owner has reduced his overall liability for IHT.

Does that work or are the contributions regarded as PETs? Obviously SIPPs avoid IHT anyway but I had not thought of transferring substantial amounts to them specifically to avoid tax.

Dod

[BullDog]

As far as I know it works for IHT avoidance, yes. I should think an incoming labour government looking down the back of the sofa for cash to spend might make changes to SIPPs and IHT. Any move in that direction by an individual should be made sooner rather than later, I'd say.

[swill453]

After 75 you don't have an allowance for paying into a pension. If you pay in more than this (£0) allowance, then you have to pay tax on it.

See https://www.gov.uk/guidance/who-must-pa ... tax-charge

This probably makes it not a worthwhile thing to do.

Scott.

[BullDog]

After 75 you don't have an allowance for paying into a pension. If you pay in more than this (£0) allowance, then you have to pay tax on it.

See https://www.gov.uk/guidance/who-must-pa ... tax-charge

This probably makes it not a worthwhile thing to do.

Scott.

It might do for IHT avoidance.

[scrumpyjack]

If you die in the year you exceed the annual allowance, there is no annual allowance tax payable. So do it just before you snuff it!

[Arborbridge]

After 75 you don't have an allowance for paying into a pension. If you pay in more than this (£0) allowance, then you have to pay tax on it.

See https://www.gov.uk/guidance/who-must-pa ... tax-charge

This probably makes it not a worthwhile thing to do.

Scott.

Are you saying that you don't just miss out on the tax relief, but anything you pay in will attract a tax charge? Even though it has already been taxed as income at some point in the past.

Arb.

[swill453]

After 75 you don't have an allowance for paying into a pension. If you pay in more than this (£0) allowance, then you have to pay tax on it.

See https://www.gov.uk/guidance/who-must-pa ... tax-charge

This probably makes it not a worthwhile thing to do.

Are you saying that you don't just miss out on the tax relief, but anything you pay in will attract a tax charge? Even though it has already been taxed as income at some point in the past.

Yes that's exactly what I'm saying. I only know what I found on that page by googling though.

Scott.

[Alaric]

Yes that's exactly what I'm saying. I only know what I found on that page by googling though.

There's a certain amount of logic to it. Even ignoring IHT considerations, the money invested in a SIPP is free of Income, dividend and capital gains tax

[Urbandreamer]

As far as I know it works for IHT avoidance, yes. I should think an incoming labour government looking down the back of the sofa for cash to spend might make changes to SIPPs and IHT. Any move in that direction by an individual should be made sooner rather than later, I'd say.

We don't have to wait for Labour. The current government has introduced the "Lump Sum and Death Benefits Allowance (LSDBA)".
This is set at £1,073,100 and there is no provision to increase it to reflect inflation.
As I understand it, just to make the tax and pension system even simpler, income from inherited pension above that figure will be taxed at the beneficiaries marginal rate.
In addition, should you wish to take your "Pension Commencement Lump Sum" or tax free sum it's limited to 25% of the aforementioned figure. Again with no provision to increase it to reflect inflation.
https://www.mandg.com/pru/adviser/en-gb ... allowances

[Dod101]

It sounds as if it is a non starter. If it were an effective way of avoiding IHT I would imagine that it would have been used regularly by now.

Dod

[scrumpyjack]

After 75 you don't have an allowance for paying into a pension. If you pay in more than this (£0) allowance, then you have to pay tax on it.

See https://www.gov.uk/guidance/who-must-pa ... tax-charge

This probably makes it not a worthwhile thing to do.

Scott.

Are you saying that you don't just miss out on the tax relief, but anything you pay in will attract a tax charge? Even though it has already been taxed as income at some point in the past.

Arb.

The reason, I think, is that amounts you pay into your pension are paid net of basic rate tax and your pension gets credited by HMG for the basic rate tax you are deemed to have paid. So they are clawing that back. eg you pay 2,880 into your pension and you will find 3,600 is credited to it.

[Arborbridge]

[quote="scrumpyjack"

The reason, I think, is that amounts you pay into your pension are paid net of basic rate tax and your pension gets credited by HMG for the basic rate tax you are deemed to have paid. So they are clawing that back. eg you pay 2,880 into your pension and you will find 3,600 is credited to it.[/quote]

No you don't, not above the age of 75.

Arb.

[Arborbridge]

Yes that's exactly what I'm saying. I only know what I found on that page by googling though.

There's a certain amount of logic to it. Even ignoring IHT considerations, the money invested in a SIPP is free of Income, dividend and capital gains tax

Not free of income tax: it is deferred income tax.

[Arborbridge]

As far as I know it works for IHT avoidance, yes. I should think an incoming labour government looking down the back of the sofa for cash to spend might make changes to SIPPs and IHT. Any move in that direction by an individual should be made sooner rather than later, I'd say.

We don't have to wait for Labour. The current government has introduced the "Lump Sum and Death Benefits Allowance (LSDBA)".
This is set at £1,073,100 and there is no provision to increase it to reflect inflation.
As I understand it, just to make the tax and pension system even simpler, income from inherited pension above that figure will be taxed at the beneficiaries marginal rate.
In addition, should you wish to take your "Pension Commencement Lump Sum" or tax free sum it's limited to 25% of the aforementioned figure. Again with no provision to increase it to reflect inflation.
https://www.mandg.com/pru/adviser/en-gb ... allowances

income from inherited pension above that figure will be taxed at the beneficiaries marginal rate.

I believe the LSDBA limit is irrelevant because the beneficiary would pay tax at the marginal rate on any income drawn from the pension as it is now.

[Dod101]

We don't have to wait for Labour. The current government has introduced the "Lump Sum and Death Benefits Allowance (LSDBA)".
This is set at £1,073,100 and there is no provision to increase it to reflect inflation.
As I understand it, just to make the tax and pension system even simpler, income from inherited pension above that figure will be taxed at the beneficiaries marginal rate.
In addition, should you wish to take your "Pension Commencement Lump Sum" or tax free sum it's limited to 25% of the aforementioned figure. Again with no provision to increase it to reflect inflation.
https://www.mandg.com/pru/adviser/en-gb ... allowances

income from inherited pension above that figure will be taxed at the beneficiaries marginal rate.

I believe the LSDBA limit is irrelevant because the beneficiary would pay tax at the marginal rate on any income drawn from the pension as it is now.

This thread is now far from clear. My understanding is that irrespective of the amount, an inheritor of a SIPP must pay tax at his/her marginal rate on any withdrawals if the original beneficiary was over 75 at death. If he were under that age then the inheritor can take the benefits free of any rax.

My question is though, in life, can the original beneficiary continue to make contributions after he/she reaches the age of 75? Clearly he gets no added tax benefit but if without penalty the beneficial owner could continue to make contributions it would be a useful receptacle for spare funds to avoid IHT on his/ her death.

Dod

[BullDog]

income from inherited pension above that figure will be taxed at the beneficiaries marginal rate.

I believe the LSDBA limit is irrelevant because the beneficiary would pay tax at the marginal rate on any income drawn from the pension as it is now.

This thread is now far from clear. My understanding is that irrespective of the amount, an inheritor of a SIPP must pay tax at his/her marginal rate on any withdrawals if the original beneficiary was over 75 at death. If he were under that age then the inheritor can take the benefits free of any rax.

My question is though, in life, can the original beneficiary continue to make contributions after he/she reaches the age of 75? Clearly he gets no added tax benefit but if without penalty the beneficial owner could continue to make contributions it would be a useful receptacle for spare funds to avoid IHT on his/ her death.

Dod

My belief is that at the moment, the answer is yes. As you said, no contributions tax relief available, but in the case of IHT avoidance that's not an issue.

[Arborbridge]

My question is though, in life, can the original beneficiary continue to make contributions after he/she reaches the age of 75? Clearly he gets no added tax benefit but if without penalty the beneficial owner could continue to make contributions it would be a useful receptacle for spare funds to avoid IHT on his/ her death.

Dod

My belief is that at the moment, the answer is yes. As you said, no contributions tax relief available, but in the case of IHT avoidance that's not an issue.[/quote]

Unless scrumpyjack is correct - that HMRC link he gave seems to show that any contributions above the age of 75 would attract a tax charge.

We need a tax expert, or someone who has been through this mill previously.

Arb.

[BullDog]

My question is though, in life, can the original beneficiary continue to make contributions after he/she reaches the age of 75? Clearly he gets no added tax benefit but if without penalty the beneficial owner could continue to make contributions it would be a useful receptacle for spare funds to avoid IHT on his/ her death.

Dod

My belief is that at the moment, the answer is yes. As you said, no contributions tax relief available, but in the case of IHT avoidance that's not an issue.

Unless scrumpyjack is correct - that HMRC link he gave seems to show that any contributions above the age of 75 would attract a tax charge.

We need a tax expert, or someone who has been through this mill previously.

Arb.

Even so, it might be a choice of 20% income tax versus 40% IHT?

[Arborbridge]

Unless scrumpyjack is correct - that HMRC link he gave seems to show that any contributions above the age of 75 would attract a tax charge.

We need a tax expert, or someone who has been through this mill previously.

Arb.

Even so, it might be a choice of 20% income tax versus 40% IHT?

could be worth it. Dod?

[BullDog]

Even so, it might be a choice of 20% income tax versus 40% IHT?

could be worth it. Dod?

This is what Interactive Investor says on the subject -

Can I pay into my pension after 75?

There is no age limit on contributing to a SIPP, although you will only receive tax relief on your contributions up to age 75.

If you do not start taking a regular income, you can continue to contribute up to £60,000 a year to your SIPP until you reach 75, providing you have sufficient earnings.

After you have started income drawdown, your annual allowance for contributions falls to the lower of £10,000 and your annual income. You can choose to start income drawdown at any time after reaching the age of 55 (57 from 2028).

Link -

https://www.ii.co.uk/ii-accounts/sipp/r ... rules-faqs