On death, the full value of an individual’s estate is assessed for Inheritance tax and is charged at 40% on everything in excess of the nil rate band – currently at £325,000. But note pension death benefits can sit outside of an individual’s estate and these days it is possible to pass that money to anyone, completely tax free before age 75 or subject to income tax at the recipient’s marginal rate if death occurs after age 75. The trick is to make sure that your pension plan offers appropriate flexibility and that you have set up your pension nominations correctly.
Getting the right money, in the right hands, at the right time is crucial so:
1. Make a will.
2. Place life insurance in trust, which means that on death policy proceeds can be paid out immediately with no IHT.
3. Pension death benefits should be correctly appointed.
Personal pensions usually pay a lump sum to nominated beneficiaries, while company schemes may pay a lower lump sum plus a widow’s pension. So, my first question is: have you nominated a beneficiary for what may be a very significant sum? You need to check. But then it gets interesting, because under the pension freedom rules introduced by George Osborne in 2015 you can now nominate just about anyone to receive your pension death benefits and remember all this money sits outside your estate for IHT purposes – there are real planning opportunities so tune in to Money Talk with Simon Webster on Friday 5th July on www.channelradio.co.uk/2 at 13.00. #MTRadioUK