Nothing is certain except… death and taxes

Posted on Apr 19, 2019

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In a previous blog, we discussed the importance of making sure that the death benefits nomination form associated with your pension is up-to-date. Once you’ve made the decision about who you’d like to receive your pension on your death, it’s also sensible to consider the tax implications of your decision for those beneficiaries.

As part of our annual review with clients, we will consider their inheritance tax (IHT) position. Interestingly, most pensions are excluded from the total amount that you are entitled to pass on to heirs, without any tax being due. As we discussed before, the funds you have invested in a defined contribution pension can be left to whoever you chose – whether that’s your partner, other relatives or even, perhaps, to charity. That’s assuming you’ve filled in that all-important death benefits nomination form.

How your chosen beneficiaries benefit depends on the age at which you die. If you pass away before the age of 75, they can receive your pension savings tax-free. This is assuming they are paid within two years. 

If you are aged 75 or over when you die, then it’s usually the case that your nominated beneficiaries will be expected to pay income tax at their highest marginal rate on what they receive.

It makes sense to sit down and discuss this with your chosen beneficiaries – but we appreciate this can be a tricky subject, as it concerns your eventual death.

There’s an Awareness Week every May called ‘Dying Matters’ (organised by the charity Hospice UK) – which encourages people to talk about dying, death and bereavement and everything it involves. In 2019, the week will run from 13 to 19 May and, this year, has the theme Are We Ready?’. 

This could be a time to talk about funeral arrangements, making Wills, telling people what our wishes might be at the end of our life and, also, mentioning anything money-related. Letting people know your wishes and tying up some of the related paperwork can make what will be a difficult time for your loved ones, a little less stressful. 

If you’ve got any questions at all about the tax implications of passing on your pension, then please do get in touch with The Goodman Partnership – offering IHT advice Tunbridge Wells - at our website or telephone: 01892 500600.

While this blog has looked at how pensions can be part of your inheritance tax planning, please do click here to read our previous blog about who you might leave your pension benefits to.

 


Goodman Chartered Financial Planners is a trading name of Fairstone Financial Management Ltd. Fairstone Financial Management Ltd., is authorised and regulated by the Financial Conduct Authority – FRN: 475973 Registered in England and Wales no: 05574120. Part of the Fairstone Group. Where you have a complaint or dispute with us and we are unable to resolve this to your satisfaction then we are obliged to offer you the Financial Ombudsman Service to help resolve this. Please see the following link for further details: www.financial-ombudsman.org.uk.