Welcome to our May 2015 Newsletter. In this newsletter we discuss pension reforms introduced in April and how they impact on any tax-planning you may have put in place to mitigate inheritance tax on any lump sum payable on your death.
If you wish to download the newsletter in PDF please click on the link below.
In our November 2013 Newsletter one of our Top 5 IHT Planning Tips was to ensure that any death benefits from your pension was paid to a Family Trust. This not only protects any lump sum on the death of your chosen beneficiary (usually the surviving spouse) from being taxed on their death but also protects the money from being lost through long term care, remarriage, etc.
Since then, however, the pensions industry has been in the throes of a revolution. A wave of reforms introduced in April (which only apply to those with defined contribution schemes) has meant that new advice needs to be issued.
One of the major reforms relates to the so called ‘death tax’ on pensions. The change abolishes the 55% tax which is currently charged on lump sum death benefits from pension funds being used to provide benefits like income drawdown.
From April 2015 pension funds left by anyone dying before the age of 75 will be free of tax if they are taken as a lump sum. They will only be subject to tax if dependents of the deceased choose to buy an annuity. In this scenario it is still best advice to redirect your death benefits to a Family Trust. If the death occurs after the age of 75 then there are different options available to you – all with different tax implications. It is for this reason that, on reaching the age of 75, you should undertake a review of your pension and nomination of any death benefits to determine the most efficient tax solution.
Finally, on a separate but related note, you ought to consider setting up a Lasting Power of Attorney so that someone can manage your health and welfare and your finances (in particular your nomination of death benefits from you pension) should you be unable to make those decisions for yourself