Pensions: the next inheritance tax target
When writing your Will, you may want to know if you will have to pay any Inheritance Tax.
Depending on the type of pension you have, your pension may not need to be a part of these tax calculations. Most pensions are paid to a nominee or to whomever the pension company chooses. When this happens, because it is ultimately down to your pension company who will take the benefit, it is therefore not considered to be yours to give away as part of your estate under your Will.
However this is set to change within the year.
For anyone who dies after April 2027, their taxable estate will include the pension death benefit. This change will increase the value of many estates and take them over the taxable threshold.
For those who are affected, this raises questions of how much can be paid to your loved ones, how much tax will they have to pay and most importantly how will they pay it?
Ultimately, your executor is responsible for paying inheritance tax due from your estate.
However they can ask the Pension Company to pay some tax straight to HMRC before distributing the lump sum to any beneficiaries.
To make sure that the tax due from the pension death benefit is paid by the Pension Company, your executor can request your Pension Company to hold back half the death benefit and to ask the Pension Company to pay the share of tax attributable to the pension themselves. But this has to be done quickly otherwise the executor risks having to source the tax due from elsewhere.
Six months from the date of death to pay inheritance tax is not a long time in the grand scheme of things and it can be difficult to elicit a prompt reply from pension providers when time is tight. So it is now more important than ever to choose an executor who is quick on the ball and administratively-minded to help the estate get on top things.
To see if these changes affect you, you should contact your Pension Company(ies) and ask:
1) Is there a death benefit to be paid when you die?
2) Do you get to choose who gets this benefit in the Will or does the Pension company decide?
3) If you can nominate someone, who is the current nominee and can you change it if necessary?
4) How much could be paid?
Once you know how much it adds to your estate, book an appointment with one of our Will specialists to find out what the best Will is for you.
To discuss any of the above issues with one of our experienced Private Client Advisors please contact Emma Sezer or Mollie O’Connor and we will be happy to guide you through the process of making a Will.
(This article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.)
