12 November 2014

Using your Pension to Pass your Assets on

Until the latest announcements relating to pensions - George Osborne's comments at the party conference - it was not sensible to use your pension to pass on your assets on your death. That's because on death that pension, if held in a drawdown arrangement, would have been taxed at 55% -which is higher than the 40% of Inheritance Tax for other assets.

But now, or at least from when the announced changes come into force, that 55% tax has been removed and the situation may have reversed. In fact, for some people it may even be good financial planning to put money into a pension even if you don't receive tax relief on those contributions*, specifically as part of your estate planning to pass assets on in a tax-efficient way. And you don't have to wait seven years!

Beneficiaries - who no longer have to be financial dependants - will be taxed on the value they receive as if it were earned income (unless death occurred before 75), so that needs some thought. But with some careful planning - perhaps skipping a generation and passing assets to the grandchildren, or withdrawing over more than one tax year - that tax can be minimised.

Pensions for estate planning - now there's a new concept.

*either because you are over 75 or because you have little or no earned income (or both).

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