SIPP and approaching 75

[bluedonkey]

The next generation could keep it for their own retirement while it continues to accumulate.

[thebarns]

Dod, yes you may well be right to run it down post 75.

Inherited SIPPs are significantly tax advantageous if the deceased dies before aged 75.

I also suspect Labour will seriously consider removing the tax free status of inherited SIPPs under the age of 75 whether via annual drawdowns or one cash lump sum and will probably make the rules the same for all beneficiaries, and thus align them with the current rules of anyone dying at 75 or above.

With many “professional” or transferred out from defined benefit pension schemes SIPPs now worth significant 6 figure sums and above, the tax differences depending on whether one died at 74 or 75, could easily run into 6 figure sums with the beneficiaries either being the heirs or the Treasury/HMRC depending on which side of 75 death fell.

It is completely arbitrary and fairly nonsensical with no tapering and just a massive cliff edge fall off in terms of bequests and tax receipts.

[kiloran]

With many “professional” or transferred out from defined benefit pension schemes SIPPs now worth significant 6 figure sums and above, the tax differences depending on whether one died at 74 or 75, could easily run into 6 figure sums with the beneficiaries either being the heirs or the Treasury/HMRC depending on which side of 75 death fell.

One option is to leave the SIPP to a charity. It is then tax-exempt regardless of age at death

--kiloran

[Steveam]

Although I’m not too concerned with minimising tax this thread has made me realise that I might be setting up a problem as one of the nominated beneficiaries is a dual U.K./US citizen tax resident in the US. I suspect she would be forced to take the full lump sum (but I’ll need to check) and I’ve no idea how tax would work.

Best wishes, Steve

[Dod101]

With many “professional” or transferred out from defined benefit pension schemes SIPPs now worth significant 6 figure sums and above, the tax differences depending on whether one died at 74 or 75, could easily run into 6 figure sums with the beneficiaries either being the heirs or the Treasury/HMRC depending on which side of 75 death fell.

One option is to leave the SIPP to a charity. It is then tax-exempt regardless of age at death

--kiloran

Agreed but then of course any gift left to a charity is tax exempt. The point I am making though is that for relatively small SIPPs if they are left to the next generation they are still small and since it seems that they cannot transfer them to their own SIPP, the amount remains small and the recipient may decide to cash it in paying their marginal rate of tax. Small SIPPs at least do not quite provide the IHT benefits that at first glance they seem to.

Dod

[Wuffle]

Innocent question, can non - earning grandchildren be the recipient and extract tax free?
With the caveat that grandchildren cannot be generated out of fresh air.

W.

[Dod101]

Innocent question, can non - earning grandchildren be the recipient and extract tax free?
With the caveat that grandchildren cannot be generated out of fresh air.

W.

Good question. This subject is not quite as simple as. ‘Retain your SIPP because it can be passed on IHT free’

Dod

[GeoffF100]

Innocent question, can non - earning grandchildren be the recipient and extract tax free?
With the caveat that grandchildren cannot be generated out of fresh air.

"Should we make our grandson a beneficiary of a Sipp?":

https://www.investorschronicle.co.uk/id ... of-a-sipp/

[Dod101]

Innocent question, can non - earning grandchildren be the recipient and extract tax free?
With the caveat that grandchildren cannot be generated out of fresh air.

"Should we make our grandson a beneficiary of a Sipp?":

https://www.investorschronicle.co.uk/id ... of-a-sipp/

It seems to be paywalled sadly.

Dod

[DrFfybes]

So although leaving a SIPP to say children will save IHT it will actually incur complexity if left to more than one beneficiary and of course on the tax theme, if the beneficiary decides they want the cash, they will pay tax at their marginal rate on the proceeds. This could be higher than the IHT rate!
Dod

This could be a serious issue for many. My SIPP for instance is only just over six figures and I have asked for it to go to my two children equally. I can see them saying ‘I will just take the cash’ That will cost them. I suppose if the SIPP manager will split it as described above, they might be more inclined to add it to their own SIPPs. Could that be done tax free?

The difference with a SIPP under current rules is that the recipient has the choice of whether to pay the tax or not. They can retain it as a SIPP, or cash it in. And if the recipient already pays 45% tax, and are likely to breach the SIPP LTA, then personally I'd be nominating someone else as the beneficiary who would benefit from the extra money rather than worrying about how to avoid tax on it.

Paul

[SebsCat]

"Should we make our grandson a beneficiary of a Sipp?":

https://www.investorschronicle.co.uk/id ... of-a-sipp/

It seems to be paywalled sadly.

Dod

Try this archived version https://web.archive.org/web/20220501220 ... of-a-sipp/

[thebarns]

Short answer as to whether non earning grandchildren can be the beneficiaries of the deceased’s SIPP is Yes.

And thanks for posting the archived version, I managed to access that.

Broadly I think the ability to pass on a SIPP tax free was only brought in around 10 years ago.

With so many in the population now in auto enrolled defined contribution schemes, all of these pension pots, under current legislation, will be able to pass tax free, if the deceased dies under the age of 75.

So it will be an issue for many to consider, albeit as I think will happen, Labour are likely to remove the under 75 tax free exemption as cumulatively the potential amounts of lost or deferred tax will run to increasingly very large amounts over the coming years.

[Dod101]

It seems to be paywalled sadly.

Dod

Try this archived version https://web.archive.org/web/20220501220 ... of-a-sipp/

Many thanks for that. It is a helpful article even if we knew about most if it before because it is good to see it all in one place.

Dod

[Dod101]

My SIPP is with II and they tell me that if 50% of my SIPP is transferred to each of my children on my death, they can if they wish, add the inherited SIPP to their own SIPP if they have one. That is contrary to my earlier understanding but would make sense. Otherwise, the same tax rules apply, that they must pay tax at their marginal rate if they withdraw funds from it, (since I am over 75).

Dod

[Laughton]

they can if they wish, add the inherited SIPP to their own SIPP if they have one. That is contrary to my earlier understanding but would make sense

If they were to do that though would they then be unable to draw any money until they reach 55 (I can't remember if that's still the lowest age at which one can draw income form a SIPP)? That might not be what you or they wish. Or would the "two" SIPPS be treated separately and possibly lead to two lots of charges, in which case what's the point?

[Dod101]

they can if they wish, add the inherited SIPP to their own SIPP if they have one. That is contrary to my earlier understanding but would make sense

If they were to do that though would they then be unable to draw any money until they reach 55 (I can't remember if that's still the lowest age at which one can draw income form a SIPP)? That might not be what you or they wish. Or would the "two" SIPPS be treated separately and possibly lead to two lots of charges, in which case what's the point?

In my case the age limit does not or will shortly not apply as both my children are either over 55 or shortly will be. The way the reply reads the inherited SIPP would just be subsumed into any existing one and thus be subject to its rules. That actually helps me because my SIPP is not very big and a standalone 50% of it would be relatively trivial.

Dod

[ursaminortaur]

If they were to do that though would they then be unable to draw any money until they reach 55 (I can't remember if that's still the lowest age at which one can draw income form a SIPP)? That might not be what you or they wish. Or would the "two" SIPPS be treated separately and possibly lead to two lots of charges, in which case what's the point?

In my case the age limit does not or will shortly not apply as both my children are either over 55 or shortly will be. The way the reply reads the inherited SIPP would just be subsumed into any existing one and thus be subject to its rules. That actually helps me because my SIPP is not very big and a standalone 50% of it would be relatively trivial.

Dod

If Labour reintroduces the LTA would that mean that the merged SIPPs would be that much closer to that limit - before the abolition of the LTA charge and plans to abolish the LTA inherited SIPPs didn't count against the beneficiary's LTA limit.

Also how would the company handle the tax free lump sum ? If you inherit a SIPP from someone who died after age 75 you can't take a tax free lump sum from that inherited SIPP. Merging them seems too complicated to me.

[Dod101]

In my case the age limit does not or will shortly not apply as both my children are either over 55 or shortly will be. The way the reply reads the inherited SIPP would just be subsumed into any existing one and thus be subject to its rules. That actually helps me because my SIPP is not very big and a standalone 50% of it would be relatively trivial.

Dod

If Labour reintroduces the LTA would that mean that the merged SIPPs would be that much closer to that limit - before the abolition of the LTA charge and plans to abolish the LTA inherited SIPPs didn't count against the beneficiary's LTA limit.

Also how would the company handle the tax free lump sum ? If you inherit a SIPP from someone who died after age 75 you can't take a tax free lump sum from that inherited SIPP. Merging them seems too complicated to me.

I am not even sure if it is allowed but II certainly think they can be notwithstanding the snags that you have mentioned. Anyway, not for me to worry about. Best I think for my successors simply to run down the inherited SIPP but sadly pay tax at their marginal rate in doing so.

Dod

[hiriskpaul]

If Labour reintroduces the LTA would that mean that the merged SIPPs would be that much closer to that limit - before the abolition of the LTA charge and plans to abolish the LTA inherited SIPPs didn't count against the beneficiary's LTA limit.

Also how would the company handle the tax free lump sum ? If you inherit a SIPP from someone who died after age 75 you can't take a tax free lump sum from that inherited SIPP. Merging them seems too complicated to me.

I am not even sure if it is allowed but II certainly think they can be notwithstanding the snags that you have mentioned. Anyway, not for me to worry about. Best I think for my successors simply to run down the inherited SIPP but sadly pay tax at their marginal rate in doing so.

Dod

If you can draw at a lower rate than your beneficiaries are likely to be able to then another option might be for you to draw and give the money away. The gifts from income rules could then be used to bypass IHT. If your beneficiaries were not using all their pension Annual Allowance, they could use the money you give them to make pension contributions. For some this might prove a more tax efficient way of passing on a SIPP.

[Dod101]

I am not even sure if it is allowed but II certainly think they can be notwithstanding the snags that you have mentioned. Anyway, not for me to worry about. Best I think for my successors simply to run down the inherited SIPP but sadly pay tax at their marginal rate in doing so.

Dod

If you can draw at a lower rate than your beneficiaries are likely to be able to then another option might be for you to draw and give the money away. The gifts from income rules could then be used to bypass IHT. If your beneficiaries were not using all their pension Annual Allowance, they could use the money you give them to make pension contributions. For some this might prove a more tax efficient way of passing on a SIPP.

Now that is an idea. I will look in to that. Thanks.

Dod