Pension Practitioner
The SSAS Experts
25
NOV
2015

SSAS: a smarter approach to inheritance tax

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Since 6th April this year, huge legislation changes have started to come into effect concerning Inheritance Tax rules and death benefits. These new changes effective from April 2016 will allow the full value of your pension to be passed to any beneficiary tax-free if the pension holder dies before the age of 75. If death occurs after 75, the pension can still be bequeathed tax-free but the beneficiary will pay tax on income taken at their marginal rate. If the whole pension is taken as a lump sum, tax of up to 45pc could be applied. When the beneficiary dies, the money can again be passed on under the same tax treatment.
The debate on which assets to spend in your life has shifted, now it’s perfectly valid to use other assets before your pension because of the abolition of the death tax.

Using your SSAS pension scheme to bequeath assets can be a better way to avoid IHT than gifting. The rules covering gifts say that you can give away £3,000 annually, and distribute regular sums of proven “surplus” income. You can also give away other cash or assets but to avoid an IHT charge you must live for at least seven years afterwards. This is known as a “potentially exempt transfer” (PET).

Any lump sum payable from your SSAS can be assessed and vulnerable to any of the following if thought is not given to the succession of the fund available to the beneficiaries

  • Creditors or Bankruptcy If the surviving spouse/partner or a nominated Beneficiary under the new rules is subject to creditor claims,
  • Bankruptcy or Divorce, the fund is fully at risk where the Beneficiary takes the benefits as a lump sum.
  • Where a Nominated Beneficiary receives the benefit under the new Flexible Pension Legislation, the fund is also at risk if they Divorce or become Bankrupt.
  • Remarriage of Surviving Spouse On first death if all the assets become solely owned by or are available to the surviving spouse/partner, what happens if the surviving spouse/partner remarries? All or part of the pension fund could be lost to your children upon the spouse’s/partner’s subsequent Death or Divorce.
  • Care Costs Following first death, should the surviving spouse/partner need Care, then the whole estate including the family home would be assessed to pay for the cost of that Care. This may include Pension benefits considered ‘available’ to the care user even if they are not taking benefits. ! ! !
  • One concern here is that unless specifically Nominated, the Beneficiary cannot gain all the Tax free benefits. Even if that Beneficiary has decided not to take benefits, could their right to take all or any part of the Pension fund be assessed as if their asset or right to income? By not taking these benefits could they be challenged as depriving their estate and Creditors?

The Solution is a family pension death benefit trust where the nominations are contingent on the Trustees accepting or refusing to accept the funds.  . We would guide you on how to Appoint Trustees to the Family Pension Death Benefits Trust who can then make the decision to accept the pension funds on death or optimise the flexibility and the tax benefits of the new pensions freedom legislation and this may involve keeping it within the pension fund. This solution allows you to hedge your bets, ultimately it may be difficult to predict he best route to follow. This is because the disposition and character of beneficiaries can change. In such cases, it may be better to “hedge one’s bets” by the member establishing the family death benefit trust as a fall back position.

For further information on how you can benefit from the affects of Pension Freedom with the help of a SSAS, please get in touch with our friendly team – the SSAS and Asset Protection experts.

davidn@pensionpractitioner.com

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