Money Week - UK (2021-10-08)

moneyweek.com 8October 2021 MONEYWEEK

T

herehasbeenasharp
increaseininheritance-tax
(IHT)bills.Britonspaid£2.1bn
ofIHTinthefirstquarterofthe
2021 -2 022 taxyear,£5 00 m
morethaninthesameperiod
ayearago.Thegoodnews,
however,isthatyourpension
savingscouldhelpyoucutyour
potentialIHTbill.
Pensionsalmostalwaysfall
outsideyourestateforIHT
purposes;theyarenotincluded
inthecalculationofwhether
yourestateisworthmorethan
£3 25 ,0 00 ,thelevelatwhich
IHTtypicallybecomes payable.
Even better,the pension
system makesitv erysimpleto
pass on unused pensionsavings
to your heirs,particularly
with defined-contribution or
money-purchase plans. If you
diebeforethe ageof75, your
heirs areentit ledtoall of the
moneywithnotax to pay; if you
dieafter age75, your heirsstill
getthe cash,but will need to pay
incometaxonitatwhatever

rate they normal ly pay. Even

if youhaveusedyourpension

savings to buyanannuity –an

insurancecontractpayingyou

aregular incomefor life –you

maystill be able to pass on cash

to your heirs. However, to do so,

youmustset theannuity up in

theright waywhenyou buyit,

selectingoptions that allow you

to pass on payments in th eform

of income or alumpsum.

Therules forpeoplein

defined-benefit pension

schemes, whereyouget

aguaranteedincomein

retirement,are more re strictive.

If youhaven’t retiredand die

beforeage 75,

your benefic iary

will usua lly

receive atax-

free lump sum.

Ensure youtell

your pension

scheme who

your benefic iary

should be.If

youhavebegun

taking apension,

or you’re older

than 75 when

youdie,your

chosenheirs

mayreceiveaportion of your

pension, typicall ywithincome

taxtopay.

Giventhese rules,families

worried about inheritance

taxneedtothinkabout their

pensionarrangementsinp lenty

of time.How youorganiseyour

retirement finances mayhavea

significant impact on what your

heirs receive.For ex ample, if

youhavesubstanti al savingsand

investme ntsoutside of pension

schemes, it maymakesense to

live of fthese,rather than your

pensionsavings,inr etiremen t,

at leasttobegin with .Thatway,

youwill be usingupthe portion

Your retirementsavings can help you maximise the amount of moneyyou leave to your family

How pensions can cut IHT bills

©iSt

ock

phot

os

of your wealth th at does count

forIHTpurposes.

Anotherstrategy to consider,

if you’re in adefined-benefit

plan, is shiftin gyourmoney

into adefined-contribution

alternative .Finan cialadvisers

counselagainst such transfers

in most circumstances, since

it is very diff iculttomatch the

benefitsthatyou’reentitledto

from adefined-benefit scheme.

Buttransferring forIHT

planning purposes is one of the

very fewexamplesofwhena

switch mig ht make sens e.

If you’re alreadyina

defined-contributio nscheme

andconsi dering usingyourpot

to buyan annuityortodraw

an in comedirectlyfrom, IHT

planning mayinfluence your

decision. Thesecondoptionis

likely to work better foryour

heirs. Finally, keep your pension

affairsing ood order so that

your heirs don’tmiss out.Make

sure youkeepgoodrecords of

all your pensionschemes,so

that it is easy to trackdownyour

savingsinf ull. Andlet all your

employ er-run schemes, where

rele vant,knowwho youwant

your moneytogoto.

Pensions 31

Keeping it in thefamily

Protectingfamily wealthacrossthegenerations

Contact ustoday to arrangeacommitment free consultationto find out

if tMe &croGat9rust Gy<&>9rustees is rigMt for you and yourfamily

01202 890895 |[email protected] |www.acrobattrust.co.uk

&croGat9rust is Gy

<&>9rustees Uartof

tMe <&>,rouU

Inheritancetaxplanningcan

bemadesimplewithpensions

DavidProsser

Businesscolumnist