Are Institute for Fiscal Studies (IFS) dumb?

Or is it me?

Didn't find your answer?

This could be misreporting by TJ, but why are pensions (in trust that do not benefit the deceased's estate) within the IHT net in the 1st place?

‘Overly generous’ pensions tax relief should be reformed, says IFS (taxjournal.com)

https://www.taxjournal.com/articles/-overly-generous-pensions-tax-relief...

"That could include – among other things – a more generous annual allowance, a reduction in the cap on the amount that can be taken from a pension pot completely free of income tax and a new cap on the amount of pension wealth that can be bequeathed at death free of inheritance tax."

Replies (10)

Please login or register to join the discussion.

By ireallyshouldknowthisbut
06th Jun 2024 10:46

Becuase its cash like what the dead person earned and stuffed away tax free innit and clearly didnt need as they havent spent it as they are somewhat dead.

I see no reason why if you die before 75 your money purchase pot is effectively tax free. Its a very odd rule and one i have exploited several times with clients with a terminal diagnosis.

I also see no reason why the tax free 25% shouldnt be a cash sum, say £25k rather than %. Or exist at all. Which will stuff my exit planning, but i am rich enough to shrug and pay the tax.

Ditto overly generous pension carry backs to earlier years only really benefit people who have some serious money. One year would be fine.

Thanks (3)
Replying to ireallyshouldknowthisbut:
avatar
By Justin Bryant
06th Jun 2024 10:54

Yes; I think the IFS must have meant the death <75 y.o. income tax exemption for beneficiaries (up to the £1,073,100 limit in some cases) and not IHT.

https://www.thepfs.org/news-insight/news/articles/updated-the-abolition-...

Thanks (0)
Replying to Justin Bryant:
avatar
By FactChecker
06th Jun 2024 14:25

That was my interpretation (well guesswork really given that the article wording was so clumsy) as otherwise it was a toss-up between that extract merely being wrong or containing malfunctioning logic.

FWIW I've never understood the 'logic' behind two of the consequences of the <75 y.o. rule:
- if at 74 I've not been found to have a short-term terminal disease, I'm told that I should take the 25% tax-free pot in order to avoid it being part of what will be taxed next year (but most, maybe all, schemes won't allow that extraction unless it is accompanied by the rest being 'converted' into some form of annuity that isn't required);
- if at 75 there is anything left in the pot then it is immediately liable to 45% tax, even if my annual income (without any extraction from the pot) is barely into the 20% band.

To borrow your sub-heading ... "is it me?" or does it feel like a bunch of rules that have no cohesive purpose?

Thanks (2)
Replying to FactChecker:
avatar
By Justin Bryant
06th Jun 2024 15:29

I'm not a pensions expert, but if there wasn't a penalty/disincentive like that then there would be an incentive not to take your (full) 25% tax-free lump sum until after 75 to maximize gross roll-up (and IHT exemption) after 75 (on that 25% amount).

See also:

"Inheritance Tax
You do not usually pay Inheritance Tax on a lump sum because payment is usually ‘discretionary’ - this means the pension provider can choose whether to pay it to you.

Ask the pension provider if payment of the lump sum was discretionary. If it was not, you may have to pay Inheritance Tax."

https://www.gov.uk/tax-on-pension-death-benefits

Thanks (0)
avatar
By David Ex
06th Jun 2024 10:50

Given the excessively generous pension benefits that MPs enjoy, I suspect there won’t be too many changes - unless they legislate special privileges for themselves ….

Thanks (1)
avatar
By Justin Bryant
09th Jun 2024 13:03

This IFS story now makes sense if you read this:

https://www.express.co.uk/finance/personalfinance/1909039/General-Electi...

https://www.msn.com/en-gb/money/other/death-tax-on-pensions-a-real-threa...

But how can Labour justify both marginal income tax and (40%?) IHT on the same (death benefit) pension funds (not to mention reintroduction of the LTA charge)? I guess (dead) people who work and save hard all their lives are fair targets for the left. (Even DTs don't have an IHT exit charge if there's IT on the way out.)

Thanks (0)
Replying to Justin Bryant:
avatar
By FactChecker
09th Jun 2024 18:17

If I heard correctly this morning, Labour announced a commitment (if they're in power) to no 'increases to IT or NICs or VAT' (supposedly a 'triple lock') for 5 years.

Leaving aside what that might mean in practice, the first thought that jumped feet first into my mind was ... 'they might as well have said that ALL other taxes will be going up one way or another' - and that IHT and Pensions will be in the vanguard.

Thanks (2)
Replying to FactChecker:
avatar
By Justin Bryant
10th Jun 2024 08:58

Yes; they will likely take their lead from the way Gordan Brown raided pension funds in the late 1990s (before selling most of our gold bullion reserves at the bottom of the market - that has since gone up around 10-fold I note).

Thanks (0)
avatar
By Justin Bryant
10th Jun 2024 17:43
Thanks (0)
Replying to Justin Bryant:
avatar
By FactChecker
10th Jun 2024 18:33

No longer need to take that 'Charles Atlas' course if intending to rip up a stack of papers on which are written the main policy differences between Labour & Tories?

Thanks (2)