Latest news with #Sipps
Telegraph
28-07-2025
- Business
- Telegraph
‘My wife and I have £700k pensions written in trust – can we dodge Labour's inheritance tax grab?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, My wife and I both have Sipps (self-invested personal pensions) with a combined value of around £700,000. When they were set up over 20 years ago, the documents referred to how they are 'written in trust'. I understand that changes are because of inheritance tax rules from April 5 2027, but I'm now worried as our other assets already take us up to the inheritance tax allowances. We've given the pension providers details of who our preferred beneficiaries are upon death. But if we die after the changes in 2027, will both of our Sipp funds be subject to inheritance tax at 40pc? Or does the 'written in trust' have any relevance to the tax payable? We don't have a financial adviser. Many thanks, – Don Dear Don, Thank you for writing in. Your question is very timely, as the Government has just provided an update and the draft rules for how pensions and inheritance tax will work. At present, pensions are generally not included in the value of your estate when you die. For pensions written under trust (like your Sipps), the trustees and/or the scheme administrators have full discretion as to whom any death benefits are paid. It's very rare that nominations are not followed, but this discretion is currently what helps to keep pensions outside of estates and out of the clutches of inheritance tax. Unfortunately, the Government has confirmed its plans to include unused pensions in the value of an estate. As you've mentioned, the new rules would apply for deaths on or after April 6 2027. This is despite receiving hundreds of responses highlighting problems with the proposals and alternative ways to raise the same amount of tax revenue from pensions on death in a more straightforward way. Although your Sipps will continue to be trust-based pension schemes, and trustees should retain discretion over who can be paid death benefits, I'm afraid this will no longer exempt them from inheritance tax. The Government did announce an important change to the proposals – the executors or personal representatives of an estate will now be responsible in the first place for handling the reporting and payment of any inheritance tax on unused pensions, not the pension provider. This is consistent with non-pension assets, and could mean the tax can be settled from other accounts, but still undoubtedly adds to the burden on the bereaved. What will be included? The changes don't mean that all pensions suddenly get hit with 40pc tax. Whether any tax applies will depend on the value of your pension when you die, your other assets, and who you plan to leave them to. There will still be exemptions for dependents' pensions provided by defined benefit schemes (like those enjoyed by the public sector), survivors' pensions paid under an annuity and eligible lump sums paid to charities from unused pensions, including Sipps. Anything left to a surviving spouse or civil partner will also be exempt from inheritance tax, but this could mean potential tax is stored up until the date they pass away if they don't spend the funds in their lifetime. If you both plan to leave your respective assets (including Sipps) to each other, there will usually be no inheritance tax to pay on the first death. When the survivor passes away, their estate will be able to use both of your standard nil-rate bands (£325,000 each), and potentially both of your residence nil-rates bands (up to £175,000 each). This extra band is available to set against a residential property left to your direct descendants, but starts to be tapered away for estates worth more than £2m. Inheritance tax will apply above allowances and reliefs, usually at a rate of 40pc. This could be taken from the pension assets, or from other cash or assets held in the estate. It will be for the personal representatives of the estate and the beneficiaries to decide who pays and from where. What can I do if I'm concerned about inheritance tax? You've told me you don't have a financial adviser, but estate planning and tax can get very complex. A good financial planner will be able to talk you through possible strategies for making the most of your pensions and other savings in your lifetime and plans for when you are gone. They can also help you avoid costly mistakes of getting it wrong. It's likely that we will see more people spend more of their pensions on themselves in their lifetimes. But people often also ask me about giving money to others from their pensions. While you cannot directly gift your pension to another person, you can use withdrawals from it to fund gifts to loved ones. If it doesn't leave you short of funding your own retirement plans (or any care you might require), taking regular extra income to fund gifts could be a way of reducing your taxable estate and bringing forward some of the legacy gifts you might have in mind. After any tax-free cash allowance you have left, you'll pay income tax on the withdrawals and that might tip you into a higher income tax bracket. I've outlined the rules that can apply to making gifts in a previous letter, and explained how to make pension contributions now to your intended beneficiaries. The proposals will feel particularly unfair to older pensioners, who perhaps do not have as long left to reorganise their finances to minimise tax. It's unlikely they will be able to get insurance to help their loved ones meet the increased cost of any inheritance tax bill at a reasonable price either, although it might be an option for some people to consider. I'm afraid this is unlikely to be the positive answer you were hoping for, but I do hope it can help give you clarity and perhaps some next steps towards any plans or changes you might be considering. Best wishes, – Charlene Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Times
02-07-2025
- Business
- Times
Why the pension death tax could destroy thousands of family businesses
Thousands of family firms face being wiped out by a little-understood tweak to inheritance tax rules, experts say. The move by the chancellor, Rachel Reeves, to charge death tax on pensions could force the liquidation of businesses, jeopardising jobs and the broader economy, according to the wealth manager Evelyn Partners. It said that about 15,000 businesses are at risk. From April 2027 unspent pension assets will be subject to inheritance tax and, crucially, pension schemes will have to settle their share of the tax bill within six months of the pension holder's death. This shift, which was revealed in the autumn budget, will hit business owners who have held commercial property — such as company premises, workshops or machinery — within their self-invested personal pensions (Sipps) or small self-administered schemes.
Glasgow Times
30-06-2025
- Business
- Glasgow Times
Lifetime ISAs are penalising benefit claimants say MPs
They added the products may need to carry warnings for some people, they may be diverting people away from more suitable products. Under the current system, any savings held in a Lisa can affect eligibility for universal credit or housing benefit, despite this not being the case for other personal or workplace pension schemes, the committee said. The report said: 'The Government provides higher levels of contribution through tax relief to many other pension products that are not included in the universal credit eligibility assessment, such as workplace pensions and Sipps (self-invested personal pensions). Treating one retirement product differently from others in that regard is nonsensical.' Lifetime ISA win coming in budget?! Good news! @POLITICOEurope has a scoop by @JamesFitzJourno that Chancellor will follow my suggestion and wipe the 6.25% Lisa withdrawal fine for anyone buying a home. If true, this'd fix the current dire system whereby when people are priced… — Martin Lewis (@MartinSLewis) February 22, 2024 The report added: 'If the Government is unwilling to equalise the treatment of the Lifetime Isa with other Government-subsidised retirement savings products in universal credit assessments, Lifetime Isa products must include warnings that the Lifetime Isa is an inferior product for anyone who might one day be in receipt of universal credit. 'Such warnings would guard against savers being sold products that are not in their best financial interests, which might well constitute mis-selling.' The savings accounts enable people to save for their first home or their retirement in one pot. But the Treasury Committee said the dual-purpose design of the Lifetime Isa, or Lisa, may be diverting people away from more suitable products. MPs found that the objectives to help people save for both the short and long term make it more likely that people will choose unsuitable investment strategies. Lisas held in cash may suit those saving for a first home, but may not achieve the best outcome for those using accounts as a retirement savings product, as they are unable to invest in higher-risk but potentially higher-return products such as bonds and equities, the committee said. If the Government is unwilling to equalise the treatment of the Lifetime Isa with other Government-subsidised retirement savings products in universal credit assessments, Lifetime Isa products must include warnings that the Lifetime Isa is an inferior product for anyone who might one day be in receipt of universal credit Savers can put in up to £4,000 into a Lisa each year, until they reach 50. They must make their first payment into their Lisa before the age of 40. The Government will add a 25% bonus to Lisa savings, up to a maximum of £1,000 per year. People can withdraw money from their Lisa if they are buying their first home, aged 60 or over or terminally ill with less than 12 months to live. People withdrawing money from a Lisa for any other reason face a 25% withdrawal charge, and can end up with less money than they put in. The report said: 'The withdrawal charge of 25% is applied to unauthorised withdrawals, causing Lisa holders to lose the Government bonuses that they have received, plus 6.25% of their own contributions. 'Several witnesses described that loss of 6.25% as a 'withdrawal penalty'.' What is a Lifetime ISA? A LISA is a savings product for people under 40 and saving for either a first home or retirement. Damien Jordan, founder of Financial Interest and Damien Talks Money says: "The government adds a 25% bonus to your contributions, which is unmatched by other savings accounts, and you still generate interest on top of this. However, there are penalties if you wish to withdraw the money for any reason other than buying your first home or retirement. You should also be aware that a LISA can only be used on house purchases worth £450,000 or less. This in particular has been an issue for home buyers in the South of England where property prices often exceed this limit." He adds: "Personally, I would use a Cash LISA to save for a home as I'd want to take advantage of the 25% top up (up to £1,000) from the government, but I wouldn't want to risk a short-term drop in the stock market affecting my ability to buy a home when I planned. For retirement, because the time scales are much longer, I would suggest a Stocks & Shares LISA in order to maximise potential growth." What's the problem been with Lifetime ISAs? Many people have lost a portion of their savings due to a lack of understanding of the withdrawal charge or because of unforeseen changes in their circumstances. There are also restrictions on when Lisas can be used to buy a first home, including that the property must cost £450,000 or less. The report said: 'Many people have lost a portion of their savings due to a lack of understanding of the withdrawal charge or because of unforeseen changes in their circumstances, such as buying a first home at a price greater than the cap. 'However, the case for reducing the charge must be balanced against the impact on Government spending. The Lifetime Isa must include a deterrent to discourage savers from withdrawing funds from long-term saving.' It also added: 'Before considering any increase in the house price cap, the Government must analyse whether the Lifetime Isa is the most effective way in which to spend taxpayers' money to support first-time buyers.' The committee noted that in the 2023-24 financial year, nearly double the number of people made an unauthorised withdrawal (99,650) compared to the number of people who used their Lisa to buy a home (56,900). This should be considered a possible indication that the product is not working as intended, the committee said. At the end of the tax year 2023–24, around 1.3 million Lisa accounts were open, the report said. The Office for Budget Responsibility predicts spending on bonuses paid to account holders will cost the Treasury around £3 billion over the five years to 2029-30 – and the committee questioned whether this product is the best use of public money given the current financial strain. MPs also raised concerns that the product may not be well enough targeted towards those in need of financial support and could be subsidising the cost of a first home for wealthier people. It said the data on this issue remains unclear. The report also highlighted the benefits of certain elements of the Lisa, including being an option for the self-employed to save for retirement. The question is whether the Lifetime Isa is the best way to spend billions of pounds over several years to achieve those goals Treasury Committee chairwoman Dame Meg Hillier said: 'The committee is firmly behind the objectives of the Lifetime Isa, which are to help those who need it onto the property ladder and to help people save for retirement from an early age. The question is whether the Lifetime Isa is the best way to spend billions of pounds over several years to achieve those goals. 'We know that the Government is looking at Isa reform imminently, which means this is the perfect time to assess if this is the best way to help the people who need it. 'We are still awaiting further data that may shed some light on who exactly the product is helping. What we already know, though, is that the Lifetime Isa needs to be reformed before it can genuinely be described as a market-leading savings product for both prospective home buyers and those who want to start saving for their retirement at a young age.' Recommended reading: Brian Byrnes, head of personal finance at Lifetime Isa provider Moneybox said: 'Having campaigned for many years on behalf of the UK's largest community of Lifetime ISA savers, we welcome the report today from the Treasury Select Committee as another step towards future-proofing this vital, incentivised saving and investing product." He added: "Nearly 3 million young savers and investors have already benefited from using a LISA, developing healthy saving and investing habits that stick with them for life and nearly 250,000 first time buyers have used the LISA to purchase their first home. All of this has been achieved for a fraction of the overall government budget. 'The LISA has proven particularly valuable for first time buyers on lower to middle incomes, with 80% of Moneybox LISA savers earning £40k or less. Reducing the unauthorised withdrawal penalty to 20% would be particularly beneficial to this group, especially in light of persistent cost of living pressures. In 2024, emergencies were the leading reason for LISA savers making unauthorised withdrawals (57%) so this change alone could remove a significant barrier to saving and encourage more young people to open and stay invested in a LISA'
North Wales Chronicle
30-06-2025
- Business
- North Wales Chronicle
Lifetime Isas may need to carry warnings for some savers
The savings accounts enable people to save for their first home or their retirement in one pot. But the Treasury Committee said the dual-purpose design of the Lifetime Isa, or Lisa, may be diverting people away from more suitable products. MPs found that the objectives to help people save for both the short and long term make it more likely that people will choose unsuitable investment strategies. Lisas held in cash may suit those saving for a first home, but may not achieve the best outcome for those using accounts as a retirement savings product, as they are unable to invest in higher-risk but potentially higher-return products such as bonds and equities, the committee said. It also described current rules penalising benefit claimants as 'nonsensical'. Under the current system, any savings held in a Lisa can affect eligibility for universal credit or housing benefit, despite this not being the case for other personal or workplace pension schemes, the committee said. The report said: 'The Government provides higher levels of contribution through tax relief to many other pension products that are not included in the universal credit eligibility assessment, such as workplace pensions and Sipps (self-invested personal pensions). Treating one retirement product differently from others in that regard is nonsensical.' The report added: 'If the Government is unwilling to equalise the treatment of the Lifetime Isa with other Government-subsidised retirement savings products in universal credit assessments, Lifetime Isa products must include warnings that the Lifetime Isa is an inferior product for anyone who might one day be in receipt of universal credit. 'Such warnings would guard against savers being sold products that are not in their best financial interests, which might well constitute mis-selling.' Savers can put in up to £4,000 into a Lisa each year, until they reach 50. They must make their first payment into their Lisa before the age of 40. The Government will add a 25% bonus to Lisa savings, up to a maximum of £1,000 per year. People can withdraw money from their Lisa if they are buying their first home, aged 60 or over or terminally ill with less than 12 months to live. People withdrawing money from a Lisa for any other reason face a 25% withdrawal charge, and can end up with less money than they put in. The report said: 'The withdrawal charge of 25% is applied to unauthorised withdrawals, causing Lisa holders to lose the Government bonuses that they have received, plus 6.25% of their own contributions. 'Several witnesses described that loss of 6.25% as a 'withdrawal penalty'.' There are also restrictions on when Lisas can be used to buy a first home, including that the property must cost £450,000 or less. The report said: 'Many people have lost a portion of their savings due to a lack of understanding of the withdrawal charge or because of unforeseen changes in their circumstances, such as buying a first home at a price greater than the cap. 'However, the case for reducing the charge must be balanced against the impact on Government spending. The Lifetime Isa must include a deterrent to discourage savers from withdrawing funds from long-term saving.' It also added: 'Before considering any increase in the house price cap, the Government must analyse whether the Lifetime Isa is the most effective way in which to spend taxpayers' money to support first-time buyers.' The committee noted that in the 2023-24 financial year, nearly double the number of people made an unauthorised withdrawal (99,650) compared to the number of people who used their Lisa to buy a home (56,900). This should be considered a possible indication that the product is not working as intended, the committee said. At the end of the tax year 2023–24, around 1.3 million Lisa accounts were open, the report said. The Office for Budget Responsibility predicts spending on bonuses paid to account holders will cost the Treasury around £3 billion over the five years to 2029-30 – and the committee questioned whether this product is the best use of public money given the current financial strain. MPs also raised concerns that the product may not be well enough targeted towards those in need of financial support and could be subsidising the cost of a first home for wealthier people. It said the data on this issue remains unclear. The report also highlighted the benefits of certain elements of the Lisa, including being an option for the self-employed to save for retirement. Treasury Committee chairwoman Dame Meg Hillier said: 'The committee is firmly behind the objectives of the Lifetime Isa, which are to help those who need it onto the property ladder and to help people save for retirement from an early age. The question is whether the Lifetime Isa is the best way to spend billions of pounds over several years to achieve those goals. 'We know that the Government is looking at Isa reform imminently, which means this is the perfect time to assess if this is the best way to help the people who need it. 'We are still awaiting further data that may shed some light on who exactly the product is helping. What we already know, though, is that the Lifetime Isa needs to be reformed before it can genuinely be described as a market-leading savings product for both prospective home buyers and those who want to start saving for their retirement at a young age.' Brian Byrnes, head of personal finance at Lifetime Isa provider Moneybox said: 'The report marks a further opportunity to engage with policymakers and continue the conversations needed to ensure the Lisa continues to offer the best level of support to those that need it most.' He added: 'While it is right that the Government ensures the Lisa provides value for money as part of its review of the product, it is our view that it absolutely does… 'The Lisa has proven particularly valuable for first-time buyers on lower to middle incomes, with 80% of Moneybox Lisa savers earning £40,000 or less.' He continued: 'We firmly believe that by future-proofing the house price cap and amending the withdrawal penalty, the Lisa would continue to serve as a highly effective product, helping young people build and embed positive saving behaviours early in life, get more people onto the property ladder, and prepare for a more secure retirement.'
South Wales Guardian
30-06-2025
- Business
- South Wales Guardian
Lifetime Isas may need to carry warnings for some savers
The savings accounts enable people to save for their first home or their retirement in one pot. But the Treasury Committee said the dual-purpose design of the Lifetime Isa, or Lisa, may be diverting people away from more suitable products. MPs found that the objectives to help people save for both the short and long term make it more likely that people will choose unsuitable investment strategies. Lisas held in cash may suit those saving for a first home, but may not achieve the best outcome for those using accounts as a retirement savings product, as they are unable to invest in higher-risk but potentially higher-return products such as bonds and equities, the committee said. It also described current rules penalising benefit claimants as 'nonsensical'. Under the current system, any savings held in a Lisa can affect eligibility for universal credit or housing benefit, despite this not being the case for other personal or workplace pension schemes, the committee said. The report said: 'The Government provides higher levels of contribution through tax relief to many other pension products that are not included in the universal credit eligibility assessment, such as workplace pensions and Sipps (self-invested personal pensions). Treating one retirement product differently from others in that regard is nonsensical.' The report added: 'If the Government is unwilling to equalise the treatment of the Lifetime Isa with other Government-subsidised retirement savings products in universal credit assessments, Lifetime Isa products must include warnings that the Lifetime Isa is an inferior product for anyone who might one day be in receipt of universal credit. 'Such warnings would guard against savers being sold products that are not in their best financial interests, which might well constitute mis-selling.' Savers can put in up to £4,000 into a Lisa each year, until they reach 50. They must make their first payment into their Lisa before the age of 40. The Government will add a 25% bonus to Lisa savings, up to a maximum of £1,000 per year. People can withdraw money from their Lisa if they are buying their first home, aged 60 or over or terminally ill with less than 12 months to live. People withdrawing money from a Lisa for any other reason face a 25% withdrawal charge, and can end up with less money than they put in. The report said: 'The withdrawal charge of 25% is applied to unauthorised withdrawals, causing Lisa holders to lose the Government bonuses that they have received, plus 6.25% of their own contributions. 'Several witnesses described that loss of 6.25% as a 'withdrawal penalty'.' There are also restrictions on when Lisas can be used to buy a first home, including that the property must cost £450,000 or less. The report said: 'Many people have lost a portion of their savings due to a lack of understanding of the withdrawal charge or because of unforeseen changes in their circumstances, such as buying a first home at a price greater than the cap. 'However, the case for reducing the charge must be balanced against the impact on Government spending. The Lifetime Isa must include a deterrent to discourage savers from withdrawing funds from long-term saving.' It also added: 'Before considering any increase in the house price cap, the Government must analyse whether the Lifetime Isa is the most effective way in which to spend taxpayers' money to support first-time buyers.' The committee noted that in the 2023-24 financial year, nearly double the number of people made an unauthorised withdrawal (99,650) compared to the number of people who used their Lisa to buy a home (56,900). This should be considered a possible indication that the product is not working as intended, the committee said. At the end of the tax year 2023–24, around 1.3 million Lisa accounts were open, the report said. The Office for Budget Responsibility predicts spending on bonuses paid to account holders will cost the Treasury around £3 billion over the five years to 2029-30 – and the committee questioned whether this product is the best use of public money given the current financial strain. MPs also raised concerns that the product may not be well enough targeted towards those in need of financial support and could be subsidising the cost of a first home for wealthier people. It said the data on this issue remains unclear. The report also highlighted the benefits of certain elements of the Lisa, including being an option for the self-employed to save for retirement. Treasury Committee chairwoman Dame Meg Hillier said: 'The committee is firmly behind the objectives of the Lifetime Isa, which are to help those who need it onto the property ladder and to help people save for retirement from an early age. The question is whether the Lifetime Isa is the best way to spend billions of pounds over several years to achieve those goals. 'We know that the Government is looking at Isa reform imminently, which means this is the perfect time to assess if this is the best way to help the people who need it. 'We are still awaiting further data that may shed some light on who exactly the product is helping. What we already know, though, is that the Lifetime Isa needs to be reformed before it can genuinely be described as a market-leading savings product for both prospective home buyers and those who want to start saving for their retirement at a young age.' Brian Byrnes, head of personal finance at Lifetime Isa provider Moneybox said: 'The report marks a further opportunity to engage with policymakers and continue the conversations needed to ensure the Lisa continues to offer the best level of support to those that need it most.' He added: 'While it is right that the Government ensures the Lisa provides value for money as part of its review of the product, it is our view that it absolutely does… 'The Lisa has proven particularly valuable for first-time buyers on lower to middle incomes, with 80% of Moneybox Lisa savers earning £40,000 or less.' He continued: 'We firmly believe that by future-proofing the house price cap and amending the withdrawal penalty, the Lisa would continue to serve as a highly effective product, helping young people build and embed positive saving behaviours early in life, get more people onto the property ladder, and prepare for a more secure retirement.'
