Gifting My Pension And Tax

[Mike25]

My mum has let her pension build up in her savings account. She wants to split the savings between her 4 kids. When she went into the bank to take out 3k in cash the bank refused her the cash. What will be the implications of a bank transfer of the money regarding the tax on the gift? Can she make 4 transfers of 3k? Will the recipient have to pay tax?

[ToraToraTora]

there is no tax on gifts. Why did they refuse her the cash? We need more details. When you say she's let her pension build up in her savings accounts you mean she's be saving some of her pension? The only reason would refuse is if there was some sort of anomoly or they didn't actually have £3k (they carry suprisingly little cash these days)

[Mike25]

The bank said they wouldn't give out the cash for her own protection against fraud. Yes, she let her pension build up in her saving account 

[ToraToraTora]

in that case she can do it by internet transfer, no tax is payable on gifts unless she dies within 7 years then it will be treated as part of her estate for IHT on a taper relief basis. In reality she can insist at the bank but they are doing what they think is correct so do it via the net.

[Mike25]

I have read when transferring your state pension different laws apply regarding gifting etc

[THECORBYLOON]

What have you read about the law and transferring state pension?

[THECORBYLOON]

Are you referring to means-tested benefits and deprivation of capital by any chance?

[ToraToraTora]

yes but it's not her state pension it's savings. Once paid out of a pension it's just cash to do with what she wants.

There may be income tax implications on her overall income including the pension but that's not the same issue.

 

[Peter Pedant]

there is no tax on gifts. yup - unless you give > £325k

Why did they refuse her the cash? - they probably thought she was being puppeted by svengalis outside

yes she can transfer electronically thro her account, she should make it clear that it is a gift  out of income and n nnot capital, by filling the ref box - gift out of income

 

[Peter Pedant]

Gifting the pension is here

Unlike with housing wealth or other savings, if someone dies and passes on a pension pot to a non-spousal heir, the pension does not count as part of their estate for inheritance tax purposes.

but that is not what she is doing

but I say she should, in the post above

[Peter Pedant]

Thing is that there has been a recent case on this - which I wasnt expecting to answer on AB

and that is about inheriting pension pots

there is alot here

https://www.armstrongwatson.co.uk/news/2023/08/pension-tax-break-could-be-lost-hmrc-proposes-significant-change#:~:text=Under%20current%20legislation%3A,pension%20without%20paying%20income%20tax.

Inheriting pension pots is a complex area and you may need advice ( for which you pay)

[Peter Pedant]

I have read when transferring your state pension different laws apply regarding gifting etc

these all have technical meanings - transfer means putting your pension from Co X into  company Y -  she is not doing that

different laws refer to what you are doing to the pension and when  - difft rules if it is not vested ( = drawn) - which hers is.

see my remarks on this is complex and you may beed advice

[Buenchico]

As others have indicated, the source of the money in your mother's account is irrelevant here.  It's her money and she's free to gift it to whomever she likes.

As has also been said, there's no tax on gifts.  They're not regarded as 'income' for the recipients by HMRC.

However if your mother was to die within 7 years of making the gifts then, when calculating the value of her estate for Inheritance Tax purposes, some or all of the value of the gifts could be included in the total figure.  See here:
https://www.gov.uk/inheritance-tax/gifts
[Note that there's never any Inheritance Tax to pay anyway when the value of the estate is less than £325,000.  That threshold would be extended up to £650,000 if your mother's husband, or civil partner, died before her and left everything to her.  (i.e. the two allowances, of £325,000 each, would be added together)].
https://www.gov.uk/guidance/transferring-unused-basic-threshold-for-inheritance-tax

Something else to consider might be that, if your mother was to go into a care home, the value of any gifts that she'd previously made might be included among her assets when calculating the amount of financial assistance that she'd be entitled to from her local council.  (Unlike the Inheritance Tax provisions, there's no limit on how far back a council can go when making such assessments):
https://www.which.co.uk/money/pensions-and-retirement/financing-later-life-care/can-i-give-away-my-property-or-assets-to-avoid-care-fees-aSMvr3r37N9t

Banks will normally allow customers to withdraw large amounts of cash if they've been contacted in advance to explain where the funds are going.  (My bank, Barclays, also allows customers to withdraw up to £2000 a day from the cash machines which are located inside their branches).

[Peter Pedant]

state pension it's savings. Once paid out of a pension...

when paid on the very day, the pension is income and taxed. If you leave it TOO long moudering then it  turns into capital and Yes the HMRC have rules on this.

hence her labelling it: gift out  of income...

[THECORBYLOON]

Reducing capital, if deemed to be deprivation, affects entitlement to or the rate of, means-tested benefits.

[Hopkirk]

Even if she tries to transfer it by the cank website it will probably still trigger an investigation whether she is being scammed. She will probably be forced to talk with someone at the fraud department. However if she explains what she is doing and convinces them it is not a fraud, they will then allow the transfers. (My mother had this very thing happen)

[ToraToraTora]

The usual supects over complicate the issue. My posts are correct and confirmed by beunchico.

[newmodarmy]

The tax (or no tax) aspect has been dealt with fully. The only issue now is how to make the payments.

Cash should be avoided- the bank will question it for the reasons given, she'd need to do it 3 times, and there's a risk of being mugged/losing the cash. There may also be suspicions of money laundering.

If she has online/app banking try making the transfers there. I would try one £3000 transfer a day as the bank may have a daily limit. She will have to answer several questions on line- purpose of payment, are you being pressured, are you really sure you trust the payee etc. She will probably get a text message code to enter. She may even get a call from the fraud dept.

Also, to make sure she gets the right account always do a test payment first-say £1 or £5 and get the recipient to confirm they have received it before paying the balance.

[Mike25]

The money has been saved from her state pension, not a private pension. Will this make a difference? Is she allowed to transfer as a gift?

[ToraToraTora]

no it wont make any difference. Doesn't matter where it came from, it's now savings.

[newmodarmy]

Is she getting pension credit or any other benefit that is means tested?