THE CHANGES IN DEATH BENEFIT TAXATION. Intergenerational tax planning

Transcription

1 THE CHANGES IN DEATH BENEFIT TAXATION Intergenerational tax planning

2 I AM GOING TO COVER: CURRENT AND NEW POSITION NOMINEES DRAWDOWN THE TWO YEAR RULE (S) PENSIONS AS A LEGACY IMPACT ON LEGACY ARRANGEMENTS WHAT IS REALLY IMPORTANT TO CLIENTS? 2

3 CURRENT POSITION ON DEATH BENEFIT TAXATION (PRE 6 APRIL 15) DEATH PRE 75 DEATH POST 75 LUMP SUM DEATH BENEFIT Tax free if uncrystallised 55% if crystallised 55% tax charge whether uncrystallised or crystallised DEPENDANTS DRAWDOWN Subject to tax at dependant s marginal rate of income tax Subject to tax at dependant s marginal rate * Source: Freedom and choice in pensions 3

4 DEATH BENEFIT TAXATION POSITION FROM 6 APRIL 2015 DEATH PRE 75 DEATH POST 75 LUMP SUM DEATH BENEFIT* Tax free 45% tax marginal rate from 2016/17 NOMINEES DRAWDOWN Tax free Tax at beneficiaries marginal rate * Current understanding is that this will also apply to capital protected annuities but not standard annuities THE BIGGEST IMPACT OF ALL 4

5 WHO CAN RECEIVE BENEFITS ON MEMBER S DEATH? LUMP SUM Dependant, including spouse/civil partner, child under 23, dependant on the member because of physical or mental impairment, financial dependant Any other beneficiary nominated by the member Any other beneficiary chosen at the discretion of the scheme administrator 5

6 WHO CAN RECEIVE BENEFITS ON MEMBER S DEATH? FLEXI-ACCESS DRAWDOWN Dependant, including spouse/civil partner, child under 23, dependant on the member because of physical or mental impairment, financial dependant Anyone nominated by the member on their expression of wish If a member does not make a nomination, the scheme administrator cannot use their discretion to provide flexi-access to anyone other than a dependant if a dependant exists. If no dependant exists, the scheme administrator can use their discretion to nominate anyone The scheme administrator cannot use their discretion to give flexi-access to anyone else if there is a nomination on file or a dependant exists 6

7 IN THE SHORT TERM 2 year window in which to determine how death benefit can be distributed for pre 6/4/2015 deaths Don t decide on income solution until beyond 6/4/ taxation of income will be different if client was under age 75 at time of death DO NOT RUSH IN THE SHORT TERM 7

8 CHANGES TO DEATH BENEFIT TAXATION FROM MONEY PURCHASE PENSION SAVINGS POST 5 APRIL 2015 THE NEW 2 YEAR RULE Death benefits will only be tax-free for deaths prior to age 75 if they distribute or provide a beneficiary access drawdown within 2 years of notification of death Failure to do so will see benefits taxable as income, where tested against income they are not tested against the LTA, could a two year delay deliver a better net outcome to beneficiaries? 8

9 CHANGES TO DEATH BENEFIT TAXATION MEANS: DC savings should be last asset to be accessed Opens up opportunity for generational wealth planning Potential beneficiaries must be involved in intended planning Creates financial planning opportunities as to future savings patterns PENSIONS AS A LEGACY 9

10 NOMINEES DRAWDOWN Beneficiaries/nominees won t need to be financial dependants for the future e.g. adult children Can be passed on in perpetuity Not part of beneficiaries/nominees own lifetime allowance 1.25 million plus of pension savings SIGNIFICANT CHANGE will all arrangements have this? Leave funds in pension arena for use as and when needed alternative is lump sum into an inheritable estate with investment outside of pension rules Opens up intergenerational planning from potential funds available Planning while alive for the future? 10

11 DEFINED BENEFIT SCHEMES Nominees drawdown won t be available Those lump schemes may offer a matrix of benefits which could include: - Lump sum on death pre retirement including return of personal counts - Spouse pension death pre/post retirement - Civil partnership pensions - Children s pensions - Guaranteed periods payment of member pension DB nowhere near as flexible 11

12 DEFINED BENEFIT SCHEME ISSUES NEED TO REVIEW What benefits could be available? Any special conditions attached to them? When would they be payable and when may they cease? Guaranteed income trade off to gain additional flexibility? BIG DEMAND FOR TVAS 12

13 NOMINEES DRAWDOWN WON T BE AVAILABLE THROUGH ALL DC SCHEMES Not available from: - S226 Retirement Annuity Contacts - S32 Buy Outs - Most EPPs/CIMPs/COMPs - FSAVCs - GPPs? FACILITY WILL BE AVAILABLE ON CRA no additional cost 13

14 WHAT HAVE WE COVERED IN THIS SECTION? Inheritable residual money purchase funds Lump sum death benefits tax free on death before 75 from 6 April % tax charge on lump sum death benefit beyond 75* Dependant s drawdown changes to nominees drawdown income tax free if member dies before aged 75 Not all schemes will have these new feature Think about what clients actually want! CASCADE WEALTH TO FUTURE GENERATIONS 14 * Proposed option to allow beneficiaries drawdown based on an income tax charge on the recipient from the 2015/16 tax year onwards

15 Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Old Mutual Wealth is the trading name of Old Mutual Wealth Limited which provides an Individual Savings Account (ISA) and Collective Investment Account (CIA) and Old Mutual Wealth Life & Pensions Limited which provides a Collective Retirement Account (CRA) and Collective Investment Bond (CIB). The WealthSelect Managed Portfolio Service is provided by Old Mutual Wealth Limited and Old Mutual Wealth Life & Pensions Limited. (Optional include for WealthSelect material only) Old Mutual Wealth Life Assurance Limited, Old Mutual Wealth Limited and Old Mutual Wealth Life & Pensions Limited are registered in England & Wales under numbers , and respectively. Registered Office at Old Mutual House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. Old Mutual Wealth Life Assurance Limited and Old Mutual Wealth Life & Pensions Limited are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Their Financial Services register numbers are and respectively. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority with register number VAT number for all above companies is Old Mutual Global Investors is a trading name for Old Mutual Global Investors (UK) Limited and Old Mutual Investment Management Limited both of which are authorised and regulated by the Financial Conduct Authority. Their Financial Services register numbers are and respectively. Old Mutual Global Investors is registered in England & Wales under number and its registered office is 2 Lambeth Hill London EC4P 4WR.Old Mutual Investment Management is registered in England & Wales under number and its registered office at Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ. VAT number for all above companies is