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Tips to limit impact of tax on death with pensions

Solicitors in Northwich

Tips to limit impact of tax on death with pensions are available from diverse places, whether a charity, solicitor, accountant or IFA but it can be piecemeal and Michael Brennan at Northwich solicitors Stonehewer Moss gathers bits of information that a blog post should help to keep together a range of cost saving steps if you look through the tagged blog items. A recent discussion about inheritance tax planning with Jamie Phythian  of Liverpool IFAs ES Walton, brought to light a couple of simple steps that could have a significant impact on tax. This is a summary:-

  1. Pension funds usually are discretionary payments to your estate on death but the fund holder can nominate who he or she wants to benefit. A letter will usually suffice. You might think, why bother as my nearest relatives will be given the benefits by the fund. Please make the nomination; if paid out to the nominated person no tax is payable, if paid without a nomination it is paid through the estate and potentially creates an inheritance tax liability;
  2. Make appropriate use of your lifetime allowance (LTA) £1.25m, reducing to £1m from April, any excess could be taxed at 55% if not planned for. Pension funds are unique assets for inheritance tax planning purposes. let us suppose you could invest £40,000 in a fund this year, Jamie explains the most efficient use of the investment has to take account of your tax position as follows:-
  3. The tax rules change and you should keep an eye on lifetime allowances with the help of an IFA. For example, you can protect against the £250,000 LTA reduction, thus mitigating the 55% tax charge. Michael suggests you take IFA advice as there are many pro’s and con’s to consider, its complex.
  4. Your nominated person should be advised of their position and advised by you to seek advice before choosing how to withdraw the fund or some of it. Depending on whether you die before or after age 75, it will have a vastly different outcome and resulting options for your chosen beneficiaries.

Michael says, “Death and Tax go together like a couple of things you cannot avoid but making a will and taking some advice can really help. The simple step of a letter of nomination could make a huge difference at no real cost to you.”

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