Death and Taxes

To quote Benjamin Franklin   “In this world nothing can be said to be certain, except death and taxes”.

Well not according to the Chancellor, who has announced the abolition of the 55% lump sum death benefits charge (further details to follow in the Autumn Statement on the 3rd December).  As a result those who die before are aged 75 their fund can pass tax free to their beneficiaries either as an income or lump sum, whilst for those who die after age 75, their beneficiaries can either continue to draw an income and pay their marginal rate of income tax on it, or withdraw it as a lump sum subject to a one-off 45% tax charge. The pension can now be seen as a potentially inheritable asset.

It is unclear at this time what impact these changes will have on investors’ behaviour, although it is yet another nail in the annuities’ coffin. Given the new tax treatment, investors with various assets available, may prefer to draw income and capital from taxed assets first, deferring any withdrawals from their pensions until later, particularly before age 75.

For those with funded final salary schemes, the new rules may encourage members to take advantage of the considerable transfer values available and transfer funds into personal pensions. This would then provide them with greater flexibility on how they draw benefits and any residual funds could be passed down the family line. The potential loss of valuable guaranteed benefits is not a decision to be taken lightly and will require a suitably qualified adviser to complete a detailed transfer analysis before any action is taken.

That said, one certainty arising from this announcement will be the requirement for retirees to seek comprehensive financial advice in order to fully understand the myriad of choices available and to help structure a suitable solution. Furthermore, any structure will need to be regularly reviewed to ensure it remains relevant and appropriate to your changing circumstances.

Cave and Sons is ideally placed to help you consider these difficult questions and advise on the most suitable and affordable solutions.  Our team of Chartered Financial Planners is available offering high quality financial planning advice.  If you would like to arrange an appointment please contact Gregg Taffs at Cave & Sons 01604 621421 for an initial no obligations meeting.

Cave & Sons Ltd is authorised and regulated by the Financial Conduct Authority. FCA number 143715