The financial consequences of dying


We seem to be a nation pre-occupied not so much with the after-life as the after-death.

Perhaps our obsession with planning ahead, whether it be funeral costs or the settlement of our affairs with the tax-man, allows us a way to opt out of such musings as Claudio’s

Aye, but to die ,and go we know not where;
To lie in cold obstruction and to rot;
This sensible warm motion to become
A kneaded clod; and the delighted spirit
To bathe in fiery floods, or to reside
In thrilling region of thick-ribbed ice;
To be imprison’d in the viewless winds,
And blown with restless violence round about
The pendant world ; or to be worse than worst
Of those that lawless and incertain thoughts
Imagine howling:  ’tis too horrible!
The weariest and most loathed wordly life
That age, ache, penury and imprisonment
Can lay on nature is a paradise
To what we fear of death.

“What we fear of death”, drove our ancestors to make endowments to institutions that their names might be remembered. Many pre-purchased indulgences that were thought to lighten the load of purgatory . some went so far as self-flagellation as penance to mitigate against the “fiery floods”.

Nowadays , we visit financial advisers to dispose of our assets and banish  “lawless and in certain thoughts” about our inheritance. Some may regard this as fiscally progressive, others that is morally and spiritually regressive. I’ll go no further down that rabbit hole.

Talking of rabbits

The Treasury press office let it be known that the Chancellor would be spending his weekend pondering whether to reduce death taxes. Death (or inheritance) tax falls mainly on those with illiquid assets (the family home) and quite often on those with no liquidity to pay it. Where the tax is on liquid savings, then the savings diminish but need no necessitate a change of lifestyle and the loss of property with more utility to the surviving family than can be realised from cash proceeds.

The likelihood of inheritance tax, disrupting the continuity of a family’s history is in stark contrast to the vision of “wealth cascading down the generations” a phrase coined by George Osborne in 2007, has become a mantra for conservative politicians and financial planners alike.

Jeremy Hunt has let it be known that inheritance tax is on the agenda of the Autumn Statement and headlines are made

Paul Lewis is right to remind us that inheritance may be a national obsession but its taxation is much less prevalent than the incidence or poverty

How can the Chancellor afford to cut taxes.

I won’t drone on about the propensity of Tory politicians for regressive taxation but stick with rabbits.

If – and I think it a very unlikely “if”, there is a cut to headline inheritance tax, I would expect it to be paid for by adjusting what it’s paid on. By that I mean the unspent pension pots of the wealthy, used to by-pass inheritance tax and provide liquidity where IHT is due.

Let’s remind ourselves that those who can afford to maintain their wealth within a “pension wrapper” are subject to no tax on the transference of that money on death before 75 and can make arrangements to maintain this through trusts – if they choose to roll up their pension investments beyond that.

This is a con, it defeats the object of the generous tax-relief offered to savers and their employers in building up the pot and it makes a mockery of the tax-free roll up of investments in later life. The tax-payer is subsidising the wealthy and the wealth management industry to a ridiculous extent.

A change in the headline rates of inheritance tax – to be welcomed by those contemplating the transfer of the family silver – may have limited social good , but only if it is accompanied by a change in the way DC pots are taxed beyond retirement.

We have a state pension age which currently only impacts the taking of pensions and pension related benefits. It would make a lot of sense to make the inheritance of wealth within an approved pension wrapper (of whatever kind) subject to inheritance tax. It would make sense to limit the tax free transfer of pension wealth to  pots of those who die before reaching state pension age.

As well as making cuts in inheritance tax self-financing (and therefore yet another tax on the not so wealthy) , this measure would require those with pots to consider spending them, pouring money back into the economy. It would encourage the pension industry to wake up from its current torpor and start building pension decumulation products that provide a wage for life and it will create a pension culture among savers, that is sadly lacking today.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to The financial consequences of dying

  1. John Mather says:

    The deal we accepted on pensions was and should remain NNT Income tax is deferred until drawn as income.

    Sadly because the economy cannot support aspirations retrospective taxation is applied and contracts reneged on.

    Confidence in saving in pensions is undermined and planned poverty and borrowing to consume substituted.

    The DMO has a tough time rolling over the debt so pensions are to be raided ( again)

    The FTsE 100 is slightly above its level at the start of this century and most fund managers have trouble beating this benchmark

    80% of employees work for private companies. University are full of the successes of the next 10 years but will be exploited by non British owners.

    If IHT is to go short the AIM market now.Then go long when Labour reverse IHT

  2. Dave C says:

    I agree with Henry, it is a con.

    I was a fortunate beneficiary of this con when my Dad passed away.

    The rest of his estate took years to resolve to probate, vast complexity, finding the right balances for valuations for IHT etc, thousands of pounds in fees for valuations, accountants etc.

    But the pension, a big fat cash tax free payment within a week or two of his death.

    It makes no sense that it both attracts tax rebates on the way in, then likely avoids them out the other side.

    No it’s not what we all agreed on. Welcome to the real world where things don’t go to plan.
    I’d hope the last four years are an example of that, but it seems some want their cake and to eat it.

    Beyond the individual contract there is the social one. We spent £1Tn+ getting through the last four years.
    Is it fair to just dump that cost on our children only?
    What contract did they sign or agree on to be burdened with that debt John?

    • John Mather says:

      I think you will find the big fat success of pensions amounts to £60,000 for most people.

      The main beneficiaries are public servants.

      Which is why the TFC survives

      • John Mather says:

        I am not quite sure why you think it fair for my children to subsidise your children Dave.

        When my wife died it took just 6 weeks to deal with all aspects including the gifts to her daughter. There were three wills covering all four jurisdictions involved. But then I did have a very good financial adviser.

        I will bet that your pension payout helped to pay the IHT in advance of any distribution.

        My point is a simple one instead of playing with deck chairs lobby for something that will balance the books so that the aspirations can be funded with productivity not debt, From my 50 years as an adviser the bottom 40 million workers in the UK cannot save anywhere near a decent pension to top up the State pension to the living wage level.

  3. John Mather says:

    Then what does Cameron add to resolving the UK poverty issue? More money from poor people in the UK to give to rich people in poor countries

    Maybe the shuffling should stop and could get back people like Rory Stuart and less like Boris clones

  4. Tim Simpson says:

    Hello Henry,
    ‘Tax that only thousands pay to be cut, paid for by cuts in benefits that millions rely on’

    Perhaps I’m missing the point here, after all, the Chancellor hasn’t, to my knowledge, said anything yet.

    When my Mother died (we shared one property) her share came into the reckoning as did all her savings etc. Luckily it just missed the £425k threshold. Has that threshold figure been changed?

    Houses in London: In the North/North-West houses costing in excess of £1m are not rare and 2-bedroom flats are not far off. Even in the South-East where similar properties are of a lesser cost, are still well above the IHT threshold. There are reports of properties having to be sold to settle that, especially when, say, the remaining spouse dies and offspring are still in residence.

    I would therefore suggest that the claim ‘Tax that only thousands pay ‘ might be somewhat outdated. As to who should pay etc, stopping what gets stashed away in places like the Caribbean might be a profitable start.

    Kind regards,
    Tim Simpson

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