Pension funds can be very effective in estate planning

As well as the increased flexibility in terms of drawdown arrangements that were introduced in April 2015 there were some important changes to what happens to the undrawn funds on death. These changes mean that your pension fund can be passed to survivors tax efficiently.

Where the pension scheme member dies under age 75 certain lump sum death benefits are now tax-free. In particular a drawdown or flexi-drawdown pension fund lump sum death benefit or an uncrystallised funds lump sum death benefit.

Where the member at the time of their death was age 75 or older the special lump sum death benefit charge on the fund will be 45%. However, if a nominated beneficiary wants to draw down income each year rather than take the lump sum the amounts drawn would be taxed at their marginal income tax rate. It has recently been reported that there are currently £2 billion of pension assets in drawdown where the beneficiary is aged under 55 suggesting that a significant number of individuals have taken advantage of the new rules.

Note that cash and quoted shares, including those held within an ISA, are subject to inheritance tax on death whereas pension fund assets are generally free from inheritance tax. It may therefore be more tax efficient to spend or give away cash and shares rather than draw on the pension fund.

Please contact us if you would like to discuss estate and inheritance tax planning in more detail.

New inheritance tax rules for passing on the family home started on 6 April 2017

TRADING OR A CAPITAL GAIN

New inheritance tax rules for passing on the family home started on 6 April 2017. This new relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.

From 6 April 2017 an additional nil rate band of £100,000 is now available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. This additional relief is however restricted If your assets exceed £2 million.

The rules are fairly complicated.  Contact us, we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.

New Year resolutions to save tax

new year resolutions to save tax

At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5th April.

An obvious tax planning point would be to maximise your ISA allowances for the 2017/18 tax year (currently £20,000 each).

You might also want to consider increasing your pension savings before 5 April 2018 as the unused annual pension allowance is lost after three years.

For those looking to do some inheritance tax planning it would be a good time to review (or make) your Will in the light of the recent change in the inheritance tax nil rate band.

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