Newspaper article The Journal (Newcastle, England)

Pension Planning to Protect Your Assets; as the New Tax Year Approaches, Wealth Management Expert David Dale Looks at the New Pension Rules and the Need for Careful Financial Planning

Newspaper article The Journal (Newcastle, England)

Pension Planning to Protect Your Assets; as the New Tax Year Approaches, Wealth Management Expert David Dale Looks at the New Pension Rules and the Need for Careful Financial Planning

Article excerpt

AS the new financial year draws closer, pensions and the changes soon to be implemented regarding succession and taxation are a key concern among high-net-worth individuals.

Bond Dickinson's Private Wealth team discuss the new pension freedoms being introduced at the beginning of the 2015/16 tax year and how they can help wealthy clients and their families benefit from these changes.

One of the most interesting planning opportunities within the new rules is the scope to use pensions as a mechanism for cascading wealth to future generations tax-efficiently.

The new rules take effect from next month and will make access to pension funds far more flexible. Limits on the amount you can draw per year will be removed, meaning the whole fund can be taken in one go, subject to the large caveat that 75% of it will be exposed to Income Tax.

The second big change is that the tax treatment of pension funds on death will become less restrictive allowing assets to be passed on more efficiently through a pension, in many cases significantly reducing the rate of tax the assets would have otherwise been subject to.

Other changes to death benefits include nominating wider family members to receive pension assets.

This includes the option of cascading the deceased individual's pension fund into a pension arrangement for their heirs and the 55% tax charge is no longer applicable or the distinction between pension funds in drawdown and "unvested" funds.

Should an individual pass away before the age of 75, it will now be possible to pass on their pension fund to a wide range of beneficiaries, as a tax-free lump sum. Or, indeed, for them to receive an income from the fund tax-free.

If an individual lives beyond 75, any income paid out will be treated as the recipient's taxable pension income, so subject to Income Tax when drawn, at the normal rates for an individual.

Any lump sum drawn would be taxed at 45%.

This poses implications for intergenerational tax planning as the majority will live beyond 75 and therefore will not be able to take advantage of these generous rules.

However, the post-75 rules do provide clients and their advisers with the ability to plan the drawing of benefits with proper regard to the Income Tax situation, which is far better than the arbitrary 55% tax charge being replaced.

For those with larger estates who are looking to cascade wealth down several generations, via each generation's pension fund, it becomes even more attractive, creating the possibility of building up a large ring-fenced fund which is insulated both from tax on investment growth, and from Inheritance Tax when it eventually moves to subsequent generations in the future. …

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