Passing pensions down the generations

Posted by: Duncan Orr ">Duncan Orr, on September 18, 2017.

The obvious personal tax benefits of a personal pension (SIPP) are well known, income tax relief on contributions, tax-free growth inside the pension and the option to take 25% of the accumulated fund as a tax-free lump sum, but what about the Inheritance Tax benefits?

Defined Contribution pensions (Personal pension/SIPP) can be passed to any nominated beneficiary free of Inheritance Tax at any age, resulting in advice to spend other assets which are currently in your estate for IHT purposes first e.g. cash, investments etc.. and leave the pension as the last “pot” to access and spend.

3 ways to tax efficiently pass pension benefits onto future generations

For the ultimate multi-generational planning solution, pensions are hard to beat, here are 3 ways to pass them tax efficiently to your children or grandchildren.

Defined Contributions Pension Plan

Diagram – Fiona Tait, Intelligent Pensions

Option 1

Simply nominate a child/grandchild as the pension death benefit beneficiary and they can receive this free of IHT as a lump sum. You may want to exert more control over the ability to receive and spend the pension, in which case Option 2 or 3 may be more appropriate.

Option 2

By using a Bypass Trust to accept the pension death benefits, your spouse can enjoy or receive an income during their lifetime and the pension capital can be formally and legally set aside for the next generation i.e. children/grandchildren.

Option 3

Using “Flexi Access Drawdown” (assuming this is an option within your pension scheme) can allow multiple generations to enjoy the use of the pension with any unused balance passed down to the next generation all free of IHT.

If you have a question about pension planning, please give us a call on 01825 76 33 66 or send us an email via the contact form.



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