Budget

[blup]

Isn’t the point that these pension schemes were principally used as a tool to avoid IHT rather than set up a retirement pension

 

[aveatry]

"Autumn Budget 2024: income tax thresholds to rise from 2028​

Chancellor won't extend the freeze on income tax and personal National Insurance thresholds"

Not before time. The Tory freeze was unfair.

So why dont they do it now then ---- oh let me think - noting to do with 2028 being 12monts away from a general election

 

[aveatry]

People can't afford to live on the wages they currently get, there are millions in full time work and suffering food insecurity
That tells Motorbiming wants people to earn a wage that doesn't given them enough to pay to eat enough.

How will paying people more mean that they can feed themselves any better than now.

 

[motorbiking]

Firstly it's nonsense to say you could have unlimited tax free pension savings. There is a limit of 60k per year tax free contribution, so you cannot simply dump a spare million in to a pension and protect it from Tax or IHT.

Secondly they have dragged those who are asset "rich" cash poor into the IHT bracket by taxing remaining pensions. These are going to be people who have no ability to do anything about their income gaps.

I would have been more supporting of a Stamp duty/Income tax like IHT. e.g. 300k tax free, next 300k at 20%, next 300k at 40% etc.

 

[gas112]

The average person approaching retirement has aound £100,000 in their pension scheme.

Sadly, a great many have less.

Biking does not comprehend the word "modest."

"​

At retirement age the average pension pot is 194k

 

[martygturner]

Pretty good budget.. i have never understood why we pay the wages of a business via tax credits and UC.

And motorbiking yes you can just dump a million into a pension, sure you will have to pay tax on the bit above 60k before it goes in but once there it was shielded from IHT and as IHT is taxed more than tax on a million it was very good value. IHT 40%, CGT on your million is 24%... making a 16% Saving or £160k. Basically reeves has freed up monetary supply, spend your gains now as you get them and to be fair why not spend it having a good time now, help your kids out with a mortgage, give them the deposit enjoy them now.

If you buy an annuity or have a workplace pension then effectively you have no pension pot to be taxed, that includes a spousal pension. All defined pensions are not in this.

 

[motorbiking]

I think you're gonna need to walk me through those calculations. They sound like the sort of savings my other half claims when the new shoes she buys at £200, down to £50, give her a saving of £150.

IHT - Is estates more than £325k. Not £1M. Remember an unmarried cohabiting couple has no ability to pool their allowances.

But to answer your question its better to have people with limited skills to add value to a business, partly subsidised by the UK tax payer, than have them out of work and their job performed by someone in a cheaper economy.

 

[ajohn]

I don't think they are suggesting a cohabiting couple creates a dependant relationship, but it would be a good move if it did.

Until a law is introduced we can only expect and overview. More details will get added and other loops looked into. An example is given

Example 1 ​

An estate is made up of a free estate valued at £1 million and a pension fund valued at £100,000. It benefits from the £325,000 Inheritance Tax nil-rate band. No other nil-rate bands, exemptions or reliefs apply. The pension fund passes to Judy. The Inheritance Tax bill for the free estate (the £1 million) is £281,818.18. The Inheritance Tax bill for the pension fund (the £100,000) is £28,181.82. The PRs pay the whole of the £310,000 Inheritance Tax due, but are entitled to be reimbursed the £28,181.82 from Judy. Judy’s marginal rate of Income Tax is 40%. Judy therefore has to withdraw sufficient funds from her pension so that she has £28,181.82 to pay to the PR after paying Income Tax at her marginal rate.

As her marginal rate is 40%, she has to withdraw £46,969.70 from the pension fund (£46,969.70 income - £18,787.88 Income Tax at marginal rate = £28,181.82 received). So, to settle her Inheritance Tax liability, Judy has had to withdraw much more from her pension. Judy has paid £46,969.70 in Inheritance Tax and Income Tax on the pension fund and will still be liable for Income Tax at her marginal rate when accessing the £53,030.30 remaining in the pension.

 

[martygturner]

I think you're gonna need to walk me through those calculations. They sound like the sort of savings my other half claims when the new shoes she buys at £200, down to £50, give her a saving of £150.

IHT - Is estates more than £325k. Not £1M. Remember an unmarried cohabiting couple has no ability to pool their allowances.

But to answer your question its better to have people with limited skills to add value to a business, partly subsidised by the UK tax payer, than have them out of work and their job performed by someone in a cheaper economy.

Here you go,,,
Generally, you can take a tax-free lump sum from your pension of 25% of your pension pot, up to a maximum across all your arrangements of £268,275. This is your lump sum allowance.

Under certain circumstances, either:

• you can also receive a serious ill-health lump sum
• your beneficiaries can receive a lump sum death benefit

Both are tax-free up to a maximum of £1,073,100. This is your lump sum and death benefit allowance.

Any tax-free lump sums and lump sum death benefits will count towards your overall limit of £1,073,100.

If you have protected allowances, the amount of tax-free lump sum you can take and your overall tax-free limit may be higher. Your entitlement amount depends on the protection or enhancement that you hold.

You may have a protection cessation event that means you are no longer entitled to protected allowances. In this case, you will also no longer have entitlement to a higher tax-free lump sum and higher lump sum and lump sum death benefit allowance.

So on your million that you paid tax on say from share dealing or buying paying if you are a good citizen 24% CGT if you are unscrupled you could net off losses eg write down the value of assets to lower your CGT charge and then by placing ito a defined contribution pension the beneficiaries receive up to 1 million tax free, if it was under IHT then they would pay IHT at 40% over 325K.... its called tax dodging.

And remember that's per person so your spouse, mr/mrs/other, could do excatly the same thus passing on 2.1 million free of IHT... where as you wee man pass on £325k and your beneficiaries get taxed at 40% of any residual, unless of course its the family home... but if you have two children then they will have to pay CGT on any gain from selling said house to get their money out...

 

[ajohn]

Farming needs another look as well
In Wednesday's budget, the Chancellor announced that, while there would continue to be no inheritance tax due on combined business and agricultural assets worth less than £1m, above that there would be a 50% relief, at an effective rate of 20%, from April 2026
So the £1m limit has been around for some time. 84? The real question is just what was the inheritance tax previously. There are other factors mentioned here

Extension of Inheritance Tax Agricultural Property Relief to environmental land management agreements

www.gov.uk

 

[Ihavenojob]

After all, we are saving billions not being in the EU any more, aren't we?

Yes, but then a great deal of that goes on hotel bills.

 

[motorbiking]

Here you go,,,
Generally, you can take a tax-free lump sum from your pension of 25% of your pension pot, up to a maximum across all your arrangements of £268,275. This is your lump sum allowance.

Under certain circumstances, either:

• you can also receive a serious ill-health lump sum
• your beneficiaries can receive a lump sum death benefit

Both are tax-free up to a maximum of £1,073,100. This is your lump sum and death benefit allowance.

Any tax-free lump sums and lump sum death benefits will count towards your overall limit of £1,073,100.

If you have protected allowances, the amount of tax-free lump sum you can take and your overall tax-free limit may be higher. Your entitlement amount depends on the protection or enhancement that you hold.

You may have a protection cessation event that means you are no longer entitled to protected allowances. In this case, you will also no longer have entitlement to a higher tax-free lump sum and higher lump sum and lump sum death benefit allowance.

So on your million that you paid tax on say from share dealing or buying paying if you are a good citizen 24% CGT if you are unscrupled you could net off losses eg write down the value of assets to lower your CGT charge and then by placing ito a defined contribution pension the beneficiaries receive up to 1 million tax free, if it was under IHT then they would pay IHT at 40% over 325K.... its called tax dodging.

And remember that's per person so your spouse, mr/mrs/other, could do excatly the same thus passing on 2.1 million free of IHT... where as you wee man pass on £325k and your beneficiaries get taxed at 40% of any residual, unless of course its the family home... but if you have two children then they will have to pay CGT on any gain from selling said house to get their money out...

Thanks for the details.. So to sum up.

You make a million as income/capital and pay tax on it,
You put this into your pension and pay tax on it.
If you draw it down you pay tax on it as income (above the cash free limit)
If you pass it to "common law spouse" when you die they pay tax on it,

doesn't sound much like a tax dodge to me.

 

[Mottie]

Just the sort of tax-dodging that biking likes.

What’s the sort of 'tax dodging' you employ John? You've never said what your definition of 'tax dodging' is, have you? So what is tax avoidance in your eyes? Tax evasion? ISA's? Personal allowances? Salary sacrifice? Pension payments? Side hustles? Dividend payments? Premium bonds? Something else? All legal as far as I know but feel free to let us know so know where you’re coming from?

 

[motorbiking]

Until a law is introduced we can only expect and overview. More details will get added and other loops looked into. An example is given

Example 1 ​

An estate is made up of a free estate valued at £1 million and a pension fund valued at £100,000. It benefits from the £325,000 Inheritance Tax nil-rate band. No other nil-rate bands, exemptions or reliefs apply. The pension fund passes to Judy. The Inheritance Tax bill for the free estate (the £1 million) is £281,818.18. The Inheritance Tax bill for the pension fund (the £100,000) is £28,181.82. The PRs pay the whole of the £310,000 Inheritance Tax due, but are entitled to be reimbursed the £28,181.82 from Judy. Judy’s marginal rate of Income Tax is 40%. Judy therefore has to withdraw sufficient funds from her pension so that she has £28,181.82 to pay to the PR after paying Income Tax at her marginal rate.

As her marginal rate is 40%, she has to withdraw £46,969.70 from the pension fund (£46,969.70 income - £18,787.88 Income Tax at marginal rate = £28,181.82 received). So, to settle her Inheritance Tax liability, Judy has had to withdraw much more from her pension. Judy has paid £46,969.70 in Inheritance Tax and Income Tax on the pension fund and will still be liable for Income Tax at her marginal rate when accessing the £53,030.30 remaining in the pension.

Yes as per my example - Judy gets f***

 

[martygturner]

Thanks for the details.. So to sum up.

You make a million as income/capital and pay tax on it,
You put this into your pension and pay tax on it.
If you draw it down you pay tax on it as income (above the cash free limit)
If you pass it to "common law spouse" when you die they pay tax on it,

doesn't sound much like a tax dodge to me.

No... You don't pay tax on it whilst its in a pension.
No.. Your spouse does not pay tax on it...its tax free up to 1 million to a beneficiary.....

Its used to dodge IHT...whats not to get...its not for you its for your beneficiaries, you can have a regular annuity pension or defined benefit pension as well..