Pensions: Your Key to Intergenerational Wealth and Reduced Inheritance Tax

Just in, HM Revenue and Customs (HMRC) reported a record collection of £2 billion in inheritance tax (IHT) for the period between April and June this year. This figure stands as a stark reminder of the significant role IHT plays in the UK’s taxation landscape. It also highlights the importance of seeking effective strategies to minimise one’s tax liabilities, especially in the context of estate planning.

A common misconception amongst many is that pensions expire with you. This couldn’t be further from the truth. Indeed, your pension pot can not only outlive you but also serve as a remarkably efficient tool for wealth transfer across generations – all with no inheritance tax!

Here’s why utilising your pension for intergenerational wealth creation is such an advantageous strategy:

1. Beneficiary Nomination: Your pension pot isn’t destined for the grave with you. You can pass it on to any beneficiary of your choice. This could be your spouse, children, or even a charity close to your heart.

2. No Inheritance Tax: The crown jewel of this strategy is the absolute lack of inheritance tax on your pension pot. This exemption can result in savings of up to 40%!

3. Tax-Free for Under 75s: In the unfortunate event of your demise before the age of 75, your beneficiaries can access the entirety of your pension pot completely tax-free.

4. Only Income Tax After 75: Should you pass away over the age of 75, there is still no inheritance tax due. Your beneficiaries would only be required to pay income tax, which is considerably lower than IHT.

5. Corporation Tax Relief for Limited Companies: If you’re a limited company, contributing to your pension pot is even more lucrative. You can receive up to 26.5% corporation tax relief on your pension contributions, reducing your outgoing tax bill.

In essence, you save 26.5% tax on the way in and a whopping 40% tax when you pass away, all while creating a substantial legacy for your heirs.

Clearly, pensions can be a game-changer in financial planning and wealth preservation. They offer an incredible opportunity to not only secure your future but also leave behind a significant financial legacy for your loved ones, all the while minimising your tax exposure.

For more detailed information tailored to your situation, or for advice on other effective tax planning strategies, feel free to get in touch with us. Let’s navigate the complex world of tax planning together and create a legacy that lasts.

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