Pensions and Estate Planning

As a result of the pension reforms introduced by George Osborne, the UK Chancellor at that time, which took effect from 6 April 2015, a drawdown pension fund has become an important part of estate planning.

The fund itself is not subject to inheritance tax and, where the pensioner dies under the age of 75, there is no charge when the beneficiary draws the remaining capital. Where the pensioner dies over the age of 75 then the beneficiary is taxed at their marginal tax rate on any amounts drawn.

Where an individual has both ISA savings and a drawdown pension fund, they would generally be advised to spend their ISA savings in priority to drawing down on their pension as the ISA is subject to inheritance tax whereas the pension fund is not.

Again, this is an area where specialist advice is required but it should be noted that where the pension fund is used to buy an annuity, the annuity will lapse on the death of the annuitant, unless a joint life annuity is purchased.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.