Navigating Inheritance Tax and Retirement Planning

This week we have a bunch of questions on the subject of inheritance tax, trusts and estate planning. Fair to say, these stretched us quite a bit and we had some surprises as we researched the answers!

Shownotes: https://meaningfulmoney.tv/QA23 

01:45  Question 1

Hi Pete & Rodger

Love the podcast as it has loads of useful information and you make it very simple (as it can be) and clear. Love how you bounce off each other and make it easy to listen to. My question is - I have a reasonably large SIPP that will if added to my house value push me well over the 1 million level. I see a lot of press articles about how it would be good to start reducing estates that are in this position to mitigate possible IHT.

My stance is that I am only 60 married and feel that - 1. It’s too early to know what the new rules will look like 2. If I die before 75 and my SIPP goes to my wife she can pull whatever out tax free (currently) and gift some IHT free, as long as she lasts 7 years. 3. If my wife dies first I can do some gifting at that stage to reduce estate / possible house downsize to give large gift again with the 7 year IHT rule.

Why do anything at this stage that would incur a tax charge? Your thoughts on this approach would be very much appreciated.

Kind regards, Jules

07:08  Question 2

Gents,

Outstanding podcast which I have listened to for years from overseas in the Middle East. The thing I like most is your consistent message about simplicity, being intentional and using low cost funds. Every season reinforces financial education and I never tire of listening to you. Thank you.

I have a general question that I thought might possibly apply to other listeners regarding income drawdown ie should I use my pension pot or ISA money first?

My situation is slightly complicated as my personal allowance will be used up by a DB pension.

I will have a DB pension at age 55 (approx £30k) plus I have a DC pension pot plus an ISA. If I would like a retirement income (pre-tax) of say £60K (ie over the current 40% tax rate threshold), what is the most tax efficient way of drawing the income?

I'm aware that in future my pension will be liable to IHT so in essence could take a 40% hit on death.

Should I take all additional income from my ISA until that runs out or take money from the pension pot up to the 40% tax rate band (approx £50k) and use the ISA thereafter to save me paying 40% tax on any pension pot money?

Are there any online calculators that can help as I guess it's partly just maths?

Many thanks, Ian

13:48  Question 3

Dear Pete and Roger,

My mum passed away over a decade ago and since then my dad has met a new partner. They live together and own their own home, split 60% (my dad), 40% (his partner).

He has said a “trust” has been set up so that should one of them die, the other can live it for as long as they want before it is sold and the money passed to their children.

With some research, I think he might just mean a “declaration of trust” but I am unsure.

I just want to know if there is anything I should be aware in terms of inheritance tax to make sure his (and my mum’s) residence nil rate bands are still in place, as I remember you saying on a previous episode of the podcast that if a house is left “in trust”, it would wipe out the residents nil rate bands.

The house is valued at approximately £725k and my dad’s assets (including his share of the house) would be about £850k.

Thanks for sharing all your knowledge, really enjoy the podcast. Steven

21:40  Question 4

Hello Pete & Roger

Listening to you both has completely turned my future retirement around!  My trajectory is now very positive as I’m building a decent DC pot to supplement my DB pension several years before I qualify for state pension. That’s not just great financial progress, it’s the life enhancement of  4 additional  years of  retirement at a time when im most likely able to make the most of it! Complete game changer with some knowledge and commitment to build a better future.

Now,  a query on the definition of income from the perspective of the gifts from surplus income exemption from IHT……..

Does regular (quarterly) UFPLS withdrawals count as income for these purposes? I know these gifts need to be from income-they can’t be from capital withdrawals. However, when I take regular UFPLS withdrawals, am I taking capital withdrawals? I’m effectively selling down assets to get the UFPLS payments so really don’t know if this is income or capital withdrawal for gifting purposes.

Keep up the fabulous work.

Thanks, Duncan

24:20  Question 5

Hi There Pete and Rodger,

Long time listener, first time caller - been listening to and recommending your podcast to friends, family and colleagues for some time now! Keep up the great work!

My question relates to Inheritance tax and is a question my mother has been wrestling with for some time.

Long story short, my parents emigrated to south Africa from Scotland in the 80’s where I was born - sadly my father past away when I was an infant. My mother remarried a South African gent and we all then came back to the England on a business secondment that never ended. My mother and adoptive father then divorced - over 20 years ago now! (Maybe not so short!)

My mother has been getting her affairs in order (not due ill health - more my nagging after your fine education via the podcast). She discovered that due to the value of her house and savvy savings she may have an IHT issue. (I’ve told her to spend the lot!)

The question she has been trying to get a straight answer about is whether she would be eligible to transfer the unused portion of my late father’s basic threshold to limit her IHT exposure.

Not sure this is in your wheelhouse given the complexities of foreign countries, remarriage etc. but hoped you might be able to point us in the right direction. She is hoping to get something in writing which solicitors seem to be reticent to do.

Thanks again for the sterling work and look forward to many more episodes in the future!

Kind regards, Craig Bell

31:18  Question 6

Hi there, thanks for a great podcast.

I am a 67 yr old single woman with no children. I have 2 DB pensions + state pension, on which I live comfortably and can afford holidays etc.

I have always been an investor and have £270k in stocks & shares ISAs. My house is worth  £250k. As there are no direct descendants my estate will be liable for IHT under the new rules. Obviously I'd like to avoid that or reduce the amount payable, if possible.

I have nieces and nephews who are at that stage of life at which a financial helping hand would be a great benefit, so can I do that without falling foul of the taxman?

I do use the £3k gift tax allowance, but (ideally would like to give away £100 k). Is there a tax efficient way of doing that?

Thanks for your help. J Harvey