Since 2015, pensions have been the best Inheritance Tax planning tool available but, as we all know, the Chancellor is set to change that from 6th April 2027.
From 6th April 2027, income tax and IHT will apply to what your beneficiaries take from your pension pot after you die.
With all the potential ramifications, the tax take can be eye-watering, potentially up to 87%, leaving your beneficiary with just 13%!
So, what to do?
Do you remove the tax-free amount from your pension, typically 25% of the fund? What would you do then? If you gift it, you must survive seven years for it to be outside your
estate.
There is a better solution.
If you did not intend drawing on your pension fund, then one assumes that you have sufficient income. So, rather than pull out the lump sum in one go, draw it down on a regular basis as a tax-free income. This can then be gifted and is immediately outside of your estate.
The gifts could go directly to your family or, perhaps better still, into a trust for the benefit of your children, their children and grandchildren, and even beyond. Imagine your great-grand children benefiting from your hard work and foresight through your family legacy fund.
By providing interest free loans to the family, your legacy is protected from future IHT bills, long-term care costs and matrimonial disputes.
If you would like to discuss your own situation, please do get in touch and we will happily provide a free initial consultation.
Our email is contactus@rutherfordhughes.com and office number is 0191 229 9600.
Please note that the FCA does not regulate tax advice.
