The Business Bulletin
What you need to know about your pension Throughout their working life, most people strive to provide for their family and at some point, might like to leave a legacy. Pensions often form a substantial part of the mix and with a large pension, comes the potential for additional tax through the lifetime allowance and equally the potential to help minimise inheritance tax. Two points that we’ll explore further here.
Did you know that inheritance taxes do
taken over the years. Skipping this
Both allow a transfer of the remaining
not as a rule apply to pensions? There
part of the process or having it too
pension fund on death to any
are some circumstances where it can
concise does not give your executors
beneficiary you have nominated. This
be argued they should apply but it is
much ammunition if HMRC ever
can be a spouse, children or charities.
quite rare for these to be proven.
tried to attack them for inheritance
To benefit from the exemption though you do need to have your pensions set up correctly and keep an audit trail of the decisions you have
tax on your pensions on death. Not a very cheery topic for a such a piece of narrative, but I would argue a vital one to understand.
pension operator or trustee to have prior knowledge of to whom you would like your pension fund paying to on death. This better facilitates
It is quite often in tax that if you
the investigation they conduct in the
can demonstrate your case clearly that
event (again why it is a good idea to
over time you took a certain course of
have kept detailed annual notes and
action without the primary objective
an advisor to explain them).
of escaping tax, your executors will win any challenge. Naturally, having an experienced financial planner and investment team in your corner also helps! But back to pensions and taxes on death. If you have chosen to draw an
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What is important, is for the
The beneficiaries can then hold their inherited pension alongside their own for lifetime allowance purposes, effectively a double allowance. The tax rules on the inheritance of the pension fund, while not inheritance tax, relate to the age of the member on death. 1. Death before age 75 sees the pension fund tested against
income (or not) from your
the original members lifetime
pension in retirement
allowance (if there is an excess
it is quite common
that will be taxed at 25%) and
you will have a either a
allows the beneficiary to draw
Self-Invested Personal
against the inherited pension
Pension or a Small Self-
fund at any age and without
Administered Scheme.
income tax.
