Passing wealth down the generations, for most, is an important part of their inheritance planning process. Until pension freedoms came into force on 6th April 2015, it was difficult to include personal pension funds in this planning.
The introduction of ‘Flexible Pension Drawdown’, not only changed the accessibility of pension funds, but also allowed any such funds remaining on death could be passed free of inheritance tax.
However, the tax treatment of the pension fund depends on the age of the member on death.
Death of the pension fund member before age 75 allows for the individual inheriting to receive the fund as a pension in their own name without tax – they may also withdraw the entirety of this inherited fund without income tax, inheritance tax or capital gains taxes in their own name
On death after age 75, the fund is passed to the receiving individual as a pension, again tax-free. But if they wish to withdraw it (as an income or a lump sum) they must pay income tax at their marginal rate
The pension fund can continue to be passed on free of inheritance tax as long as there are funds available.
Not all older pension plans allow the above flexibility so if you’re not sure then taking advice could be worthwhile. It’s also important to ensure that you have up to date nominations on all of your pension plans to ensure that the funds pass to the people that you would want.
All of our Chartered Financial Planners are specialists in retirement planning and pensions advice so if you feel that a review would be beneficial please get in touch.