From April 2015, new pension rules have been introduced offering far greater flexibility on how income can be withdrawn from your pension fund. Also the taxation of undrawn funds passed to your beneficiaries on death has been significantly reduced, potentially turning pension funds into a highly effective Inheritance Tax shelter.
Prior to April 2015 undrawn pension funds were subject to a 55% ‘death tax’ for people aged over 75. This has now been abolished, giving you the freedom to pass unused funds to your beneficiaries.
Pension funds do not form part of your estate for Inheritance Tax purposes and will pass to your beneficiaries either free of Income Tax on the beneficiary if you die before aged 75 or at their marginal rate of tax if you die aged over 75. Even then, Income Tax is only levied on the beneficiary when they withdraw funds from the pension, meaning the funds could effectively pass from generation to generation completely tax free.
Self Invested Personal Pensions (SIPP’s) also provide greater flexibility on the type of investment you can make within your pension fund, including agricultural land and commercial property. SIPP’s can even borrow money (up to 50% of the fund value) to fund certain investments.
The new pension rules are complex and we would recommend seeking specialist advice from an Independent Financial Advisor before making any decision relating to your pensions. Townends Wealth Management Ltd (TWM) can advise you on all aspects of your pension needs including the creation and management of a SIPP if required. For further information, please contact Paul Moutrey, the managing director of TWM, on 01405 720559.