Pension Post 2027 question
Jimbo
Member
Hello,
Interested to see what people think about this.
Client, married, got £1m house and £1m pension, so house will use up NRB & RNRD. Plans to use up £1m pension to have zero by estimated date of death, going for 100 but lets see how it goes. My question is, as he plans to use up pension, would you think of putting anything in place for IHT purposes in case him and his wife die early. Bypass trust, WOL, term assurance?
I understand dealing with monies that aren't needed, but interested to see what people are thinking about monies that are needed if they live long enough!
Thanks for any suggestions!
Comments
Will the pension withdrawals create a regular surplus income, which could be used to pay for WOL?
Could they afford to make pension contributions for the beneficiaries, from the taxable withdrawals?
Hi Tim,
Thanks for the response.
Issue being, I am saying in this example I have calculated they will need the £1m to fund their lifestyle, should they live to 100, so they can't afford to give it away.
My point being if they live to 100 there will be on IHT liability. If they drop dead on 7 April 2027 they have a £1m pension pot which would get a 40% charge. So with WOL, they would get a payout on death which would be pointless if they lived to old age as no IHT liability. Thats why I am asking about term assurance perhaps?
There's lots we don't know about the clients here, but based on what we have I don't think there is an ideal protection option. Best fit would probably be reviewable premium WoL for the current liability. They will get regular premium/cover level review points along the way and then once they don't need it simply cancel it.
They almost certainly won't both live to 100. They almost certainly will reduce their spending in later life (unless they are already on a shoestring). Either or both may need care in the years before death, which will significantly increase spending and may involve the sale of the home.
Sometimes there simply isn't a great way to solve for IHT and this may be one of those times.
The variety of solution combinations and the vast majority of cases having a unique outcome is far more rewarding.
I had an individual case recently where we were combining Rysaffe planning with trusts, WOL using gifts out of excess income and Business Relief Schemes and the impact that was going to have on the client was huge. Being able to get all that across to the client was very satisfying and it all went ahead.
We've been doing a case study at seminars this year (real life person suitably anonymised) and the solution is making their legacy well in excess of £500k higher (and £100k higher if the changes get cancelled).
I've always found IHT planning the most interesting.
Being brave cracking on before everything rules wise finalised?
I'm finding many options are weirdly neutral. eg withdraw pension funds to create income to buy an exempt WOL - you're giving HMRC the income tax now instead of the IHT later.
Certainly there are a lot of good and workable options - but are any of them truly 'new' ideas that weren't available before, or are they simply more suitable now that pensions are in scope for IHT? The profile of a client's assets will be a significant determining factor in how a particular option can work. For example, the OP in this thread appears to be a cul-de-sac of simply accepting that death will bring more IHT.
A lot of my current conversations are along the lines of "Government wants your wealth, and it knows how to get it, so yes we can tweak here and there, but there is no magic wand and you are definitely going to pay more tax than before."
Our clients are the target market for the tax hikes that came out of Autumn Statement 2024, so it's naive to think that we can create outcomes where our clients can get the pre-change tax profile by moving stuff around. Sadly, there will be many, many firms promising that they can do exactly that, using superficially complex solutions that do little more than move the proverbial deckchairs around.
Yes, mitigate not eliminate for many.
Planning hasn't changed, there's nothing new - I think there's just a new asset in the mix you didn't have to consider before (other than for post 75 income tax mitigation where funds were available tax free).
Thanks for your reply — just to clarify, when you say I ‘appear to be a cul-de-sac of simply accepting that death will bring more IHT’, do you mean it sounds like I’ve ruled out planning options too early? That’s not my intention — I’m genuinely interested in what people are putting in place when the pension is expected to be used during life, but there’s still a potential liability if death comes earlier than planned.
@Jimbo no, it's not you in the cul-de-sac, it's the client.
In this case, on the face of it at least, I think they are caught fully in the sights of the changes and they're not going to get away from the future liability to IHT on the pension funds. If the client is intending to use the pension and doesn't really have any spare income or capital to mitigate it, what other option is there?
It's going to be a bitter pill to swallow for a lot of people who can't do anything about it, including the advisers who have to tell the clients.
Here's hoping that @les_cameron Techy Thursday this month proves me wrong!
The ones that can't afford to give away their pots are in a bit of a muddle. They'll need to accept they'll be paying something but there will be options to mitigate I think.