Have you considered what you will do with your pension in retirement?
If I told you that the last thing you should do when you retire is start spending your pension fund you’d probably think I’d gone completely mad!
And with the introduction of ‘Pension Freedom’, why shouldn’t you take advantage of your hard earned savings to live your retirement dreams? But if Inheritance Tax affects you, how you fund those dreams is worthy of some further consideration.
Imagine the cost of your dreams is £20,000 per annum, for 15 years after retiring – total cost = £300,000. How much is left for your beneficiaries when you die?
Using your pension plan…
| Total Non-Pension Estate | £900,000 | Pension Fund | £500,000 |
| Less Nil Rate Band (until2020/21) | £325,000 | Less Cost of Dreams | £300,000 |
| TAXABLE ESTATE | £575,000 | ||
| Tax due on death@40% | £230,000 | ||
| Net Inherited Estate | £670,000 | ||
| Inherited Fund | £200,000 | ||
| Net Inherited Estate £670,000 + remaining pension fund £200,000 = Total inherited £870,000 | |||
Using other assets…
| Total Non-Pension Estate | £900,000 | Pension Fund | £500,000 |
| Less Nil Rate Band (until2020/21) | £325,000 | Less Cost of Dreams | £300,000 |
| TAXABLE ESTATE | £275,000 | ||
| Tax due on death@40% | £110,000 | ||
| Net Inherited Estate | £490,000 | ||
| Inherited Fund | £500,000 | ||
| Net Inherited Estate £490,000 + remaining pension fund £500,000 = Total inherited £990,000 | |||
Pensions are generally outside your estate for Inheritance Tax purposes but death after 75 may result in income tax payable by the beneficiaries. However, from 2016/17, only at their marginal tax rate. Also, if they do not need the money, it can remain in a tax efficient environment and cascade down the generations until required.
As ever, planning is the key and discussing your own situation with a qualified professional is essential and that’s where talking to us can make a difference. Visit www.hghwealth.co.uk to find out more.
Contact us
Contact Nick Lawson on 01904 655202 or email: nick.lawson@hghwealth.co.uk
