Private pension. I don't understand!

[True-Blue]

What do you mean with the exempt bit for a couple? If one dies, isn’t the house free of iht for the remaining partner or did I read that wrong and it is about the children?

If the Will leaves everything to spouse then:

If the surviving spouse / civil partner is uk domiciled then on 1st death surviving spouse receives everything without paying IHT due to spousal exemption.

If the couple are not married or in a civil partnership then only the first £325k is exempt. This is a massive problem that many unmarried couples don’t know/understand!

If either spouse is non-uk domiciled at the time of death it’s more complicated.

The £175K residential nil rate band (RNRB) is available when the main residence is left to a direct descendant (there’s a definition which includes step children etc.).

If everything passes from Spouse A to spouse B on first death, and then from Spouse B to direct descendants on second death (and assuming the main residence is worth at least £350k) then the executors cain claim 2 x £325K NRB’s and 2 x £175k RNRB’s - which is where the £1m exemption comes from.

It’s potentially a lot more complicated than that depending on gifts made within 7 years of death. Technically gifts to discretionary trusts can have an impact on the final tax bill within 14 years of death

[Pondrew]

And we won’t mention train drivers ….

Not a fan are you mate?

[buzyg]

What do you mean with the exempt bit for a couple? If one dies, isn’t the house free of iht for the remaining partner or did I read that wrong and it is about the children?

If the Will leaves everything to spouse then:

If the surviving spouse / civil partner is uk domiciled then on 1st death surviving spouse receives everything without paying IHT due to spousal exemption.

If the couple are not married or in a civil partnership then only the first £325k is exempt. This is a massive problem that many unmarried couples don’t know/understand!

If either spouse is non-uk domiciled at the time of death it’s more complicated.

The £175K residential nil rate band (RNRB) is available when the main residence is left to a direct descendant (there’s a definition which includes step children etc.).

If everything passes from Spouse A to spouse B on first death, and then from Spouse B to direct descendants on second death (and assuming the main residence is worth at least £350k) then the executors cain claim 2 x £325K NRB’s and 2 x £175k RNRB’s - which is where the £1m exemption comes from.

It’s potentially a lot more complicated than that depending on gifts made within 7 years of death. Technically gifts to discretionary trusts can have an impact on the final tax bill within 14 years of death

Succinct as any explanation I have heard.

[Pondrew]

It’s potentially a lot more complicated than that

You're not kidding!
I am in the middle of a probate 'application' for my late mother. The application has now been submitted but we (my sister and I) still have no idea whether HMRC will deem my late mother's estate as being liable for IT or not! Despite both of us being trained accountants (me many years ago admittedly) and both of us dealing with money, accounts, VAT, PAYE, revenue stuff every day.
We don't know whether HMRC will class the estate under the £325k or £500k limit for IT. The rules are so ambiguous with words like "maybe, possibly, depending on....". We had to employ a probate lawyer to be on the safe side and the estate in question is very simple.

[pvr]

Yep, thanks for that explanation True-Blue

[pvr]

It’s potentially a lot more complicated than that

You're not kidding!
I am in the middle of a probate 'application' for my late mother. The application has now been submitted but we (my sister and I) still have no idea whether HMRC will deem my late mother's estate as being liable for IT or not! Despite both of us being trained accountants (me many years ago admittedly) and both of us dealing with money, accounts, VAT, PAYE, revenue stuff every day.
We don't know whether HMRC will class the estate under the £325k or £500k limit for IT. The rules are so ambiguous with words like "maybe, possibly, depending on....". We had to employ a probate lawyer to be on the safe side and the estate in question is very simple.

Why do you give them the option? Give them an option and they will make the worst decision for you. When I dealt with my FIL’s estate I just followed the calculation rules and decided it was outside IHT. They never commented as I guess they never knew.

[DevonPaul]

What do you mean with the exempt bit for a couple? If one dies, isn’t the house free of iht for the remaining partner or did I read that wrong and it is about the children?

OK, you are correct that anything left to a spouse (or civil partner) is exempt from IHT.

Also everyone has their own Personal Allowance (Nil Rate Band, NRB) of £325k to leave to anyone else. So if someone died in 2007 they could leave £325k to their kids and everything else to their spouse, and no IHT was due. However in 2008 (IIRC) the govt made the NRB transferrable, so if parent 1 dies and leaves EVERYTHING to parent 2, then when parent 2 dies they can use both NRBs when they die and the first £650k of their assets are IHT free.

Then the Govt pledged to raise the IHT threshold to £1m. However rather than do this simply and raise the individual NRB, Sir Humphrey and his mates came up with a fiendishly complex method that only benefits those with children and large houses.

So what they did is that on top of the personal NRB, they introduced a Residential NRB of £175k per person. Similar rules apply, if you leave your house to your spouse then they also get your £175k on top of their own so have another £350k they can leave outside of IHT.

However...... the RNRB only applies to your main residence, so if your residence is worth than £350k then the first £350k is IHT exempt and the rest goes into your general Estate, BUT ONLY if you leave the money to direct descendants. So if you have no children, you get no RNRB. If your home is worth less than the RNRB then you only get the value of the home discounted, unused RNRB can't be added to the normal NRB.

The good news is that if you downsize, or sell the home to pay for care fees, the full value of the original home is the value that is counted.

There's a reason I gave up the Financial Advisor courses and went into Genetic Engineering

[Pondrew]

Why do you give them the option?

It's not about giving them the option, it's the £175,000 RNRB which Martin spoke about above. My mother's will didn't specifically leave her property to her children, just her estate, which includes the property. So there is an argument there for both IT thresholds. Devil is in the detail (or not).

[pvr]

I have literally submitted my mum’s inheritance tax form last week (in NL) and grateful that there is non of this ambiguity (nor tax %).

[True-Blue]

Why do you give them the option?

It's not about giving them the option, it's the £175,000 RNRB which Martin spoke about above. My mother's will didn't specifically leave her property to her children, just her estate, which includes the property. So there is an argument there for both IT thresholds. Devil is in the detail (or not).

PM’d you’d mate

[DonDon]

I am going through all of this pension malarkey right now. I used https://www.sheratonfp.co.uk/. They are near Southampton and usually want a visit to their offices after an initial free online discussion, but may do it remotely if you are a long way away.

I am very impressed with them and they charged me a flat £1,500 for a full analysis and proposal for retiring and future income for my wife and me. I believe that is their standard fee, but I may be wrong. They can then manage your funds on an ongoing (chargeable) basis, but don't insist on doing so.

[TitanTim]

I am going through all of this pension malarkey right now. I used https://www.sheratonfp.co.uk/. They are near Southampton and usually want a visit to their offices after an initial free online discussion, but may do it remotely if you are a long way away.

I am very impressed with them and they charged me a flat £1,500 for a full analysis and proposal for retiring and future income for my wife and me. I believe that is their standard fee, but I may be wrong. They can then manage your funds on an ongoing (chargeable) basis, but don't insist on doing so.

£1500 wow I guess monies well spent though to ensure you're on the right track.

Tim.

[DevonPaul]

I am going through all of this pension malarkey right now. I used https://www.sheratonfp.co.uk/. They are near Southampton and usually want a visit to their offices after an initial free online discussion, but may do it remotely if you are a long way away.

I am very impressed with them and they charged me a flat £1,500 for a full analysis and proposal for retiring and future income for my wife and me. I believe that is their standard fee, but I may be wrong. They can then manage your funds on an ongoing (chargeable) basis, but don't insist on doing so.

£1500 isn't bad, was that plus VAT? We also used an IFA to look at our assets. He came up with a couple of suggestions that were completely obvious with hindsight but because of how we'd focussed our planning they hadn't occurred to us but will save a lot of tax long term. Armed with the new info I went searching and found a way of replicating his suggestion using Vanguard and avoiding his upfront fee

Note that everyone is entitled to a free assessment from Pensionwise, a Govt funded arrangement, although they won't go into the same sort of detailed advice as an IFA.
https://www.moneyhelper.org.uk/en/pensi ... nsion-wise

There are also several UK based Financial forums that deal with all aspects of saving/investing and have quite knowledgable people on them - lemonfool.co.uk is a good one as long as you don't mention Brexit

[DonDon]

£1500 isn't bad, was that plus VAT?

That didn't include VAT, unless it was included but not separated out.

When I mentioned putting my consolidated pension funds in a Vanguard cash drawdown account directly and managing it myself, he didn't try to argue me out of it. I now need to decide whether paying him an annual management fee is worth the extra cost; I haven't decided yet.

[DevonPaul]

When I mentioned putting my consolidated pension funds in a Vanguard cash drawdown account directly and managing it myself, he didn't try to argue me out of it. I now need to decide whether paying him an annual management fee is worth the extra cost; I haven't decided yet.

Actually sounds like reasonable impartial advice I learnt a long time ago I was just as capable of investing badly as someone charging me 3% to do it for me

Vanguard's fees are very low, and they don't charge for Drawdown. Various platform fees are on Moneyvator...
https://monevator.com/compare-uk-cheape ... e-brokers/

It is complicated as some like HL charge a percentage but it is capped on certain types of investments but at different rates depending upon if you have a SIPP or ISA, so you need to think about whether to use a Fund or an equivalent ETF.