What about my pension and defined benefit pension?
Pensions are usually outside of your estate and not subject to IHT. The tax treatment of personal pensions upon your death is like this:
- Before age 75, the full fund can be passed on to your beneficiaries, free of tax
- After age 75, each beneficiary would be taxed at their own marginal rate on any money they receive. Although, they will have flexibility over how and when they draw the pension and can even pass it on to their own children, so the pensions that are left intact can pass down generations
In regard to other investments, it may be worth using these up first and leaving pensions intact. Pensions tend to have desirable tax breaks and they can be passed on without IHT as explained above.
With Defined Benefit or final salary pensions they can be different. A lot schemes offer a spouse’s pension (provided you have an eligible spouse within the scheme rules) and some of them will provide a lump sum upon death to the surviving spouse. A final salary pension offers valuable safeguarded benefits options. But passing money to beneficiaries other than a spouse is usually limited.
Talk to us at LG Embrey Financial Planning.
We are a firm of Independent Financial Advisers based in Shrewsbury. Please feel free to contact one of our Financial Planners if you would like to find out more about transferring wealth to your children or loved ones. We also serve clients in Shropshire and further afield throughout the UK.