Being tax efficient around Inheritance Tax is something that investors should consider and plan out in advance. UK families have paid an extra £600 million in death duties after missing out on tax reliefs? The Government were expected to have raised £6.7 billion in 2022 from Inheritance Tax.
Inheritance Tax
Inheritance Tax is a tax levied on your estate after your death. Each individual in the United Kingdom has a personal allowance for Inheritance Tax of £325,000.
Anything over £325,000 upon death is normally levied on your estate. The advantage of a Pension is that money within the Pension isn’t included as part of your estate.
With this in mind, it could be wise to keep money in your Pension to protect it from Inheritance Tax. Anything that goes over the £325,000 per individual is levied at 40%. That’s quite a high amount of tax for you to consider.
Residence Nil Rate Band
The Inheritance Tax rate is 40% and each individual has a nil rate allowance of £325,000 – anything over that is liable to Inheritance Tax. However, under current 2023/24 tax rules, most individuals also have a further allowance which can be offset against your main residence, this is called the Residence Nil Rate Band.
The Residence Nil Rate Band (RNRB) is an allowance which reduces the amount of Inheritance Tax an individual might pay when passing on a qualifying residence to a direct descendent. In the current 2023/24 tax year, the Residence Nil Rate Band is currently £175,000 and is in addition to the Nil Rate Band.
Pension
The advantages of having a pension is that the funds within this type of tax wrapper can normally be passed down to your loved ones free of Inheritance Tax. Your beneficiary may still need to pay their marginal rate of tax when withdrawing the Pension. You should also consider what is best for your own circumstances, and you may want to speak with a financial adviser or estate planner to see if a Pension is the right choice for you.
Beneficiaries
You can name as many beneficiaries as you want within an expression of wish in your Pension account. You can also express the percentage that you wish to give to each individual.
A beneficiary could be your partner, spouse, your children or anyone you wish to name – including trusts and charities. You can have as many beneficiaries as you want and your pension may be split accordingly to the percentage that you put down on your expression of wish. Any payments to beneficiaries are made at the Pension Trustees’ discretion, with the Expression of Wish assisting this process. There is no guarantee that the benefits will be paid in line with the Expression of wish, as this is just one piece of information considered by the trustees.
If you would like to give yourself the best chance of passing on a legacy that suits your family’s circumstances, arrange a Discovery Call with one of our FCA authorised wealth managers [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.