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Life Centred Financial Planning

Did you know that you no longer need to crystallise your pension plan when you are 75 years old?

Posted by Andrew_Smith on Thursday 30th of May 2019.

The extra freedom granted by the pension changes introduced in April 2015 is good news for all pension savers. However, the increased options could lead to many people making the wrong decisions and paying unnecessary tax, making professional financial advice all the more important.

In the event of your death, the money and estate that is left behind for your loved ones may be subject to tax and the amount of tax they may have to pay can be quite complex to work out. The government have provided the table below to give a bit more of an understanding on these payments.

In many cases, if you unfortunately die before you are aged 75, you may be able to leave your residual pension savings to your beneficiaries as a lump sum or regular income without any tax being payable.

If you die aged 75 and above, any tax payable is dependent on your beneficiaries’ rate of income tax and how they access the money.

Tax your beneficiary pays

Inheritance

Your age when you die

Tax they pay

Unused cash you took from your pot

Any age

Inheritance Tax based on the size of your estate

Money still in your pot

Under 75

Zero, if they take it within 2 years

Money still in your pot

75 or older

Income Tax

Adjustable income

Under 75

Zero

Adjustable income

75 or older

Income Tax

Joint, guaranteed period or capital protected annuity

Under 75

Zero

Joint, guaranteed period or capital protected annuity

75 or older

Income Tax

 

If your beneficiaries choose to leave the pension fund invested and access the money as and when they need it, they will only pay tax on the amount they access, at that time, at their current income tax rate.

This means, with careful financial planning, the tax paid by them can be minimised.

However, it is vital that you review your existing pension plans. Many will not offer the flexibility introduced in April 2015 and your beneficiaries may not benefit from these.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.