The pension I planned to gift to my son is damaged due to inheritance tax

Louise Rollings has worked hard as a single mother raising her son alone – but now she fears the pension she wants to gift him will be damaged inheritance tax fees.

The 64-year-old, from Hadleigh, Essex, had planned to keep his business pension intact so his son Jack could inherit it. after his death.

But following Chancellor Rachel Reeves’ budget last month, the Government decided to include unused pensions in one’s estate. may be subject to inheritance tax.

Mrs. Rollings is told that her inheritance will likely be taxable, which means her son stands to lose out.

Now he withdraws 25 percent of his pension, tax-free, so that he can gift it to his son.

The mother of one retired in February after working for 45 years at a financial services IT company.

He started as a trainee computer operator in 1978 and rose through the ranks over the years, eventually reaching senior management positions.

Ms Rollings says she now has a comfortable company pension worth tens of thousands of pounds and plans to live on it in retirement.

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“I know I will be known in the retirement world as extremely lucky,” he said. I. “I realize I’m doing better than a lot of people.”

But he says he has worked hard for decades and “sacrificed a lot” to get to where he is now.

“As a single parent, I took sole responsibility for my own circumstances and Jack’s upbringing. “I went back to work eight weeks after Jack was born and never relied on benefits,” she said.

Although she didn’t have much savings when her son was growing up, she paid for him to attend kindergarten and then a fee-paying primary school to give him “the best possible start in life”.

“After mortgage repayments, tuition fees and general living expenses, there was little left to put aside in savings at the end of the month,” he said.

She is now “disappointed” that both she and her son are being rewarded for her hard work.

“Jack had to endure a lot as a child. “I had to work and so I wasn’t around him all the time,” he said.

“In his own way he contributed and deserves an award for that.”

Under proposals put forward by the government, income withdrawn from a loved one’s pension could also be subject to income tax once transferred to the beneficiary.

The amount people can generally pass on free of inheritance tax (known as the nil rate band) will also be frozen at £350,000 until 2030, two years longer than originally planned.

AJ Bell, a company that provides online investment platforms and stock market services, said that as a result of this double taxation, pension assets will be subject to a 64 percent effective tax rate on death if the pension fund exceeds the zero rate. the beneficiary is a higher rate taxpayer.

“The changes announced in the budget feel as if people like me are being punished for working hard, prioritizing, budgeting and sacrificing throughout their lives,” Ms. Rollings said.

He said he understood the economic situation the country was in and that changes needed to be made, but that the new system seemed “too crude.”

“It seems there is little room left for people who have worked hard throughout their lives to build modest estates to feel appreciated and rewarded,” he said.

“What’s the point of working hard if the rewards for all that ambition and determination are reaped in later years?”

Ms Rollings said she spoke to Pension Wise in February to seek advice on retirement planning and at that point was not considering taking out a lump sum from her pot.

He has done his own research since the budget and calculated that his best option would be to take the maximum lump sum from his pension within his taxable allowance and leave the rest as is.

“I plan on being around for a while yet, so why wait another 20-plus years for the inevitable to happen? My son has always been a priority. After the budget, ‘What can I do to help him?’ “I thought,” he said.

Following government changes, a snapshot survey of savers by savings platform Flagstone found that only 28 per cent plan to leave their pensions as is.

One in 10 people plan to reduce their pension and invest or reinvest their money elsewhere, while one in 10 will spend the money after withdrawing it.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: I that the inclusion of pensions in inheritance tax is “complicated”.

He says people will base their financial planning on “predictions” because people will need to know when they will die and what they will spend now and to be sure whether they will need to pay inheritance tax later.

“It could cause problems for unmarried couples who are dependent on income from the same pension, because if they are not married or in a civil partnership, the inheritance is taxable after the first death, so there may be tax payable on the pension because they still need to earn income,” he said.

“A terrible penalty could also be paid for those who die relatively young, receiving more money from their pensions.”

Additionally, he says there are also issues about whether annuities are included, and if so, there may be difficulties in determining their value.

He added: “As the government considers the issues, there is also an opportunity for people to consider their situation and whether it makes sense to make gifts to their families during their lifetime to help protect them from the taxes that await them.”