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For many years, willing assets to beneficiaries has been fraught with concerns relating to death benefit rules, chief amongst which was a rate of 55% of inheritance tax. However, changes made in the 2015 summer budget will come into effect in April 2016, and you need to know how best to take advantage of these! Thanks to these changes, pensions are emerging as a key tool for inheritance tax planning!
The new death benefit rules have effectively abolished the 55% inheritance tax. This allows the full value of your pension to be passed to a beneficiary at a rate of 0% tax provided the death occurs before the holder is under the age of 75.
For any death occurring after the age of 75, the pension can still be bequeathed tax-free, but the beneficiary will pay tax on any income taken from this at a marginal rate. It’s important to be aware that when a pension is taken as a lump sum, tax of up to 45% could be applied.
A pension is the practical way to bequeath your assets.
Lump sums are vulnerable to a variety of situations, including:
- Creditors or bankruptcy
- Remarriage of the surviving spouse
- Care costs
Unless specifically nominated, the beneficiary cannot gain all of the tax-free benefits that have come into place with these new legislations. These changes mean that it is essential that you make sure your nominations are up to date, to make the most of the new planning opportunities that the new rules present.
Pensions make sense as the vehicle of asset distribution, as they are held in a trust outside your estate and so continue to be free of IHT in most cases.
How do I nominate my beneficiaries?
At Pension Practitioner we like to keep things simple and we make it easy to change your beneficiary easily, as your wishes can alter subject to your circumstances and the economic landscape. To ensure that your nominated beneficiaries are up to date and accurate, call us at Pension Practitioner to have a chat with an advisor, or get in touch with firstname.lastname@example.org