WRONG – People pay Inheritance Tax on Pots not PENSIONS!
Let’s get this right, pensions are paid as long as you live and cease when you die. From 2027 you can opt out of getting a pension pension to have your money as a pot – like it was when you were saving and if you die with a pot, that pot will be taxed for inheritance tax and if you are stinking rich you will have to pay40% tax if you are the lucky beneficiary of the money as an inheritance. But there’s nothing to pay if the person who died was the last survivor of a pension. Yes, that’s right – pensions won’t be taxed – only pension pots!
You will note , if you study these things , that this is a change of tax, previous to 2027 you didn’t have to pay IHT on an inherited pot if the money was part of a filthy rich estate. You will also note that the law making it “default” for a pot to turn to pension is happening will be brought in in 2027. Now of course , if you don’t swap to a pot but stick to a kind of pension that is infact a pot, you will get caught. But you can avoid that!
The reason behind this is simple, the Government give us lots of tax relief to save for a pension not a pot. Pensions are good because they make us take our money and hopefully spend our money and pay some tax along the way. This is what a pension does and rich people would rather sit on their money and not spend their money despite them getting the bulk of the tax relief to get it in the first place. I’m a relatively rich person- I know!
So there is nothing wrong in the Government asking us to give some of the money if we die before spending the pot on a pension or drawing it down to pay cash and taxes!
Think swapping your pot for a pension good news if you’re rich!
Pension companies that allow people to keep their pots in taxable state, explained to HMRC that it wouldn’t be proper for them to guess what tax was owing. Infact there was pretty well unanimous rejection of the job of tax collector. Now the FT tells us that bereaved families shouldn’t pay their tax.
“HM Revenue & Customs has blown its opportunity to bin the original proposals, stubbornly sticking with a system that will create confusion, complexity and additional costs for bereaved families,” said Rachel Vahey, head of public policy at AJ Bell.
I’m not quite sure who should pay the tax if not the people who owe it. People who have the wealth to inherit IHT bills generally have the wealth to find help.
The FT makes what I can only see be a positive
The removal of the inheritance tax exemption on pensions will lead to a fundamental shift in how wealthier individuals think about accessing money in retirement.
Let’s hope us rich folk start taking pensions as was intended.
They will be happy to know that if they are in a pension scheme which pays life insurance with “death in service”, they can leave what is life insurance without IHT. The HMRC have cleared this up and it is good news for the decreasing numbers of wealthy savers who are in occupational pension schemes paying this kind of benefit.
You can’t blame the Government for doing what it’s asked on payment of IHT or clarifying the situation on death in service. And they’re making a pension a default option, so long as you use one of those type that die with you!
You can’t blame the Government for creating the same law for the rich as for the poor. We all get the state pension , all us wealthy folk have the privilege of being in private pensions.
Let’s remember, being paid a pension is a lot better than hoarding a pot!
