Beat Inheritance Tax by Utilising your Pension Fund

Oct 1, 2018 | Retirement Planning

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Inheritance tax has become the big fear. With rising house prices and a complex and unwieldy set of tax rules, navigating inheritance tax is both difficult and time consuming. This is one of the reasons that this tax can catch you out and cause all sorts of dilemmas to your beneficiaries after you pass. In the tax years 2009/10 and 2015/16, inheritance tax payments rose by 89%. More than ever it is important to have sound financial planning to beat the tax.

The good news is that thanks to changes brought in 2015, it is possible to take the teeth out of the tax by utilising your pension fund. From 2015, pension funds do not count as part of your estate and are inheritance tax-free.

Important Pension Fund Aspects

Should you pass before you are aged 74 your pension is passed tax-free to a beneficiary. If you pass after your 75th birthday, your pension is passed on to your beneficiary and they only pay tax at their marginal rate. Also, your beneficiary does not have to wait until a certain age to withdraw the money and start using it. They can take it at any age.

With this information, you may want to talk to your financial planner about restructuring your inheritance strategy. If you don’t have a financial planner, talk to me today. I can help you get your new wealth planning strategy established quickly.

Alternative Income

The key thing is to not to touch your pension if you can possibly do so but instead live of an alternative income. This could be the interest on your savings or proceeds from your investments. It is important to establish if you can live without touching your pension and if you can still meet your financial goals.

Pilot Trusts

When putting your inheritance strategy in place it is important to think carefully. You want your inheritance passed on to your family, not a future ex-spouse for example, so you may want to establish a pilot trust.

The advantage of having the money paid into a private trust is that the money is protected from bankruptcy or ex-spouses. The disadvantage is that there are tax implications. Your financial planner should be able to help you decide whether this is a good option for you.

Make a Will

If you haven’t done so already it is important to make a will. This makes passing on inheritance easier, avoids disputes, and makes the whole process a lot faster.

When you make your will it is important to make an expression of wish document. This document informs your pension provider or trustees which beneficiaries should receive your pension after you pass. The expression of wish document isn’t legally binding, but it will speed up the inheritance process.

Both your will and the expression of wish document should be kept up to date and reviewed regularly.

Next Steps

Talk to me about using your pension to beat the inheritance taxman, an award winning financial planner. We can discuss your aspirations look at your finances and make the best decisions to minimise tax liabilities after you pass. Click here and complete the Call Back Services form to ensure your family gets your inheritance and not HMRC.

Source: Financial Planning Matters

For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]


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