It is clear that reviewing the nominations are essential now with these changes already in force. Advisers need to discuss with clients and their families the best option to achieve their wishes after they die. The choice of nomination not only affects how the money is paid and taxed at the point of death but how the investments will be taxed on an ongoing basis.
Claire Trott is head of technical support at Talbot and Muir
KEY POINTS
Death pre-75
Payable to any beneficiary
• Lump sum paid free of tax; or
• Beneficiary’s flexi-access drawdown – growth tax-free under usual pension rules. Income paid free of income tax.
If benefits are uncrystallised they will be tested against the lifetime allowance on death.
Death post-75
Payable to any beneficiary
• Lump sum subject to 45 per cent flat-rate tax (due to change to marginal rate from tax year 2016-17); or
• Beneficiary’s flexi-access drawdown – growth tax-free under usual pension rules. Income paid subject to income tax at beneficiary’s marginal rate.
Government’s view
In his speech at the Conservative Party Conference in September 2014, chancellor George Osborne spoke about pension freedoms, adding:
“But I want to go further. There are still rules that say you can’t pass on to the next generation any of your pension pot when you die, without paying a punitive 55 per cent of it in tax.
“I could choose to cut this tax rate. Instead, I choose to abolish it altogether. People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free.
“The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.
“Freedom for people’s pensions. A pension tax abolished. Passing on your pension tax free.”
