On the 6th April 2015 changes were made to the way you can use your pension savings. This is a summary of what the changes may mean to you. To help you more, we’ve provided a Jargon Buster at the end of this document.
The main changes are:
The main factor to take into account is that should anything happen to you before age 75 the funds can be passed to your spouse, children or Grandchildren or indeed whoever you like (depending upon who you nominate under your expression of wish form) with those funds being payable tax free and Inheritance tax free (IHT).
If something happened to you prior to age 75, the proceeds could pass to a spouse (or named beneficiary) tax free lump sum or could remain as pensions.
The downside of passing the funds in full to a spouse is that those funds would then be entirely in their estate again for inheritance tax purposes (however if the spouse only wanted income when needed from those funds then any income would not be subject to income tax when taken).
Those monies remaining within the pension fund then could be passed on in full free of IHT if the nominated spouse then died before aged 75.
75 acts as somewhat of a cut-off point. If the funds are passed out on death after aged 75 the tax free lump sum options do not exist to the recipient and if proceeds are taken in full they’re taxed presently at 45% until 5th April 2016. The option would be to leave those inherited funds in the pension fund and when income where needed/taken would be taxable only once withdrawn. The value of the inherited fund would still not be subject to IHT even after age 75.
To learn more about how Panoramic Wealth Management can help you complete your Pension Freedom journey contact us now on 01892 559 555.