22 June 2018

Passing the buck – without the tax burden

Most of us want to plan our finances so that the tax burden is lessened on either yourself, or those you’ll be passing your estate onto in the future. Pension funds can be a good way to extend your tax efficiency.

Why? Because, unlike Inheritance Tax bands which have been rising steadily but have failed to keep pace with house price inflation, pensions can be inherited tax-free.

However, there are some rules and regulations you need to be aware of.

Possibilities for your pension

If a company pension holder dies before they are 75, then all inherited pensions, be they cash and investments or in a draw down, are all tax-free. What's more, it is not only the spouse that can inherit the partner's pension, children can also be named as beneficiaries. This isn't an uncommon practice, as long as these forms are kept up-to-date in case former husbands or wives benefit when perhaps they shouldn't!

The introduction of pension freedoms has meant some savers opt to take a tax free lump sum of 25% from their pot, but this can bring with it certain risks. If any of this cash remains when the pension owner dies it could be subject to inheritance tax. If the saver is 75 or over, the beneficiary will have to pay tax at their marginal rate. 

Knowledge is power

The launch of the pensions dashboard in 2019 will be hugely beneficial for savers, as it will allow them to view their entire retirement savings in one place. The Government first made a commitment to Pensions Dashboards during the 2016 Budget, saying it would be created by the pensions industry, enabling everyone to view details of all their pensions together. The Government has said that every pensions provider will, after time, move to sharing data with their customers via the portal.

It says that having this holistic view will ""help consumers to stay in touch with their savings, get a sense of their overall readiness for retirement, and feel empowered to make decisions about their finances"". We believe this will encourage people to regard their pensions as a vital part of their over-arching financial plan much earlier in life.

Want help with your financial planning?

This is where RWB's experienced tax team comes in. It's our job to keep up to date with regulations to make sure your money is ready for when you decide it's time for you to enjoy it. Contact our expert tax team on 0115 964 8888 or email enquiries@rwbca.co.uk today.


The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.