Tag: Pensions

IHT on Pensions – It’s Iniquitous 

As you may be aware, the Chancellor in her last budget speech announced that unused pension funds would be brought into the scope of Inheritance Tax (IHT) from April 2027. There is a public consultation on this proposal, specifically to cover the administrative arrangements to enable collection of the IHT due on the death of a pensioner, but you can no doubt expand your explanations as to why this is a most iniquitous proposal.

I have already submitted a personal response to HMRC which is here: https://www.roliscon.com/_files/ugd/8ec181_315301fc03f24c828a7eceea00349a23.pdf . You are welcome to copy it. There is a link to the consultation in there. Please do respond to it.

As was said in an article in Investors Chronicle, “IHT on pensions will be a bureaucratic nightmare for grieving families”. It will inevitably slow down payments to inheritors or beneficiaries and will make for a considerably more complex tax system. Steve Webb, former Pensions Minister, said that bereaved families already face “huge challenges in winding up the financial affairs of a loved one”. This proposal will make their task even harder.

Not only will this proposal create needless work for lawyers and accountants, it will also mean more work for HMRC staff. All of this unproductive work could be avoided if the objective is simply to raise more tax revenue.

It is an ill-thought through proposal which has been rushed forward in the Labour Government’s hurry to raise more tax from the wealthy. It needs a rethink.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

Budget Comments – Follow Up

 Here are some more comments on the Chancellor’s Budget to follow on from my previous blog post.

Certainly one big issue for those trying to plan for their mortality is the statement that pensions will be brought into Inheritance Tax. AJ Bell have published a good summary of the current position which I reproduce here: “Under current rules, defined contribution pensions can be inherited tax-free if you die before age 75 and are taxed in the same way as income if you die after age 75. But Labour has announced plans that inherited pensions will count towards inheritance tax on death.

Applying any new tax on death will come with substantial challenges, which is why the changes aren’t being brought in until 2027, with a consultation period on how the rules will work having been opened. A major obstacle centres around how to treat people who have made decisions about their retirement pot based on the pensions death tax rules as they are today. Anyone who made larger contributions into their defined contribution pension to make the most of the existing rules will also now be wondering what could happen to their pot when they die. If all of a sudden that money became subject to a new pensions death tax, those people would, understandably, feel like the rug had been pulled from under them. We need to await more detail on this change”.

Certainly I plan to respond to any consultation on this issue when it appears (I can’t find it at present – where is it?). One problem I see is that SIPPs are usually written in trust, i.e. the owner on death of the pensioner is the trust and the nominated beneficiaries not the estate of the deceased. So how is this legally going to work?

There have been many criticisms of the Budget and interest rates have been rising as a result of the increases in Government expenditure. The Budget was worded so as not to scare many people immediately but the bad news is now sinking in now the detail has become more apparent. Farming families are particularly irate as only very small farms will be capable of being passed on without hefty IHT bills.

Well that’s some bad news and today’s other bad news is I have just been told one of our close neighbours has died. He was quite decrepit of late but even so this is a bit of a surprise. I hope he has taken good advice on IHT where clearly the position is getting ever more complex. I will certainly be taking expert advice on this when the details become clear.

P.S. The pension/IHT consultation is here:  https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment

This will require some consideration but I will certainly be responding to it and I will ask ShareSoc and UKSA to get involved too. Whoever wrote this proposal up simply has not thought this through properly. The legal implications are a nightmare. Make sure you respond to the consultation if you are affected by this.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

How Long Will You Live?

There was an interesting article recently published by Schroders on life expectancy. This can be quite critical to making investment decisions when you retire, if not before, or if you are living off your capital. It included the chart below which has been issued by the ONS.

How male life expectancy changes over time.

For example, a 60-year old man now has a 1 in 4 chance of living to 93 and a 1 in 10 chance of reaching 98. As you can see from the chart, once you get past 70, the chances of you living to a ripe old age substantially increases. This is probably because if you have reached 70 then you are either made of strong stuff or have been looking after yourself well. Or you have good doctors.

Of course within these figures there is a large variation in individuals so betting on the numbers can be tricky. But don’t ask your doctor for an estimate – from my experience they tend to be pessimistic to avoid disappointing the patient and their relatives. Being wealthy seems to help with life expectancy though, and you probably know all the unhealthy lifestyle choices that reduces it.

However it is a truism that you might live longer than you were expecting from this data and ensuring you have enough income to last out if you are self-investing means you almost certainly need to invest in the stock market as that is probably the only way to ensure your savings will not be eroded by inflation in the long term. That is particularly the case with current annuity rates which make no sense to use at present because of the very low rates imposed by Government manipulation of bond rates.

In summary it’s best to be conservative and minimise your erosion of capital. But those following the debates on Brexit in Parliament and on television of late may have lost the will to live, which is of course one of the most damaging factors in life expectancy. I hope the situation gets sorted out soon.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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