I know we all like to have a good moan about the Forum going down and how frustrating it is but I thought people might like to share something that is happening right now to a family courtesy of the Inland Revenue Capital Taxes Office (CTO).
A gentleman retired using a "Drawdown" arrangement whereby he takes an income but the funds remain invested. Sadly he died after just a few years into retirement and as is allowed his wife took over the scheme and the income was paid to her. Even more sad was the fact that less than a year after her husbands death, the breast cancer she had 7 years before came back and she sadly died.
Under IR for Drawdown (or Pension Fund Withdrawal) rules the fund is paid into the estate less 35% tax. This is OK and usually no further Inheritance Tax is payable. However, because this poor lady had the audacity to die within two years of her husband, the CTO assumes that it is planned "tax avoidance".
So the Capital Taxes Office want to snatch over 60% of the "pot" this gentleman accrued over his lifetime. Why 60% plus?
If we assume that the fund is worth £100,000 then the total tax hit is £61K
£100K less 35% Drawdown Tax = £65K which is then subject to 40% Inheritance Tax = £39K for the family and £61K to Gordon Brown. Thus by far the biggest beneficiary of this poor couples estate is the taxman.
Bear in mind that the income already taken has been taxed and the dividend growth within the fund is taxed and I think you will see that in such circumstances saving in a pension is just not worth it.
Mind you this huge tax hit is required to pay the guaranteed, index linked pensions that the civil servants enjoy - i.e. those people that make these rules so that their pensions can be paid for out of the taxes that we all pay.
A gentleman retired using a "Drawdown" arrangement whereby he takes an income but the funds remain invested. Sadly he died after just a few years into retirement and as is allowed his wife took over the scheme and the income was paid to her. Even more sad was the fact that less than a year after her husbands death, the breast cancer she had 7 years before came back and she sadly died.
Under IR for Drawdown (or Pension Fund Withdrawal) rules the fund is paid into the estate less 35% tax. This is OK and usually no further Inheritance Tax is payable. However, because this poor lady had the audacity to die within two years of her husband, the CTO assumes that it is planned "tax avoidance".
So the Capital Taxes Office want to snatch over 60% of the "pot" this gentleman accrued over his lifetime. Why 60% plus?
If we assume that the fund is worth £100,000 then the total tax hit is £61K
£100K less 35% Drawdown Tax = £65K which is then subject to 40% Inheritance Tax = £39K for the family and £61K to Gordon Brown. Thus by far the biggest beneficiary of this poor couples estate is the taxman.
Bear in mind that the income already taken has been taxed and the dividend growth within the fund is taxed and I think you will see that in such circumstances saving in a pension is just not worth it.
Mind you this huge tax hit is required to pay the guaranteed, index linked pensions that the civil servants enjoy - i.e. those people that make these rules so that their pensions can be paid for out of the taxes that we all pay.
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