Pensions, estate planning and IHT

Transcription

1 Session five, track two: Pensions, IHT & estate planning Leanda Cuthbert Standard Life Pensions, estate planning and IHT Leanda Cuthbert, Dip PFS, STEP Affiliate Senior Technical Consultant For Professional Advisers Only 1

2 What I will cover Changes to pension scheme death benefits from 6 th April Some IHT points to be aware of. Planning considerations. The benefits of using a trust. 1. What changed on 6 th April 2011? Scenario Taxation of lump sum death benefit Comparison between Pre-April 2011 position Pre pension date, before age 75 Tax-free No change Post pension date, before age 75 55% tax charge 35% tax charge Post pension date, after age 75 55% tax charge ASP Either no lump sum or 82% tax charge*. *Combined tax charge Unauthorised payments charge and IHT 2

3 1. IHT Changes from 6 th April 2011 After age 75 Old rules - ASP funds assessed to IHT if lump sum was paid to anyone other than charity. New rules - ASP has been abolished and replaced by drawdown, no IHT Failure to exercise a right (Highlighted g in Fryer case 2010) Pension schemes are now exempt from IHT in these circumstances where date of death is after 5 th April Some IHT points to be aware of When can IHT apply to pension schemes? Individual Contracts Retirement Annuities Contract (RAC) Section 32 Buyout Plans (S32) Transfers of value Pension transfers - poor health Pension contributions - poor health Assignment of RAC/S32 lump sum death benefits into trust. 3

4 IHT409 Crown copyright 3. Planning considerations The tax treatment of lump sum death benefits are most favourable for unvested pensions for those under age 75. So consider.. Deferring taking pension benefits Living off other investments Phased drawdown 4

5 3. Planning considerations Ensure that death benefits are paid to the right people, tax efficiently. Unvested Pensions Tax-free lump sums paid to bypass trust or beneficiaries Post Pension date Drawdown fund:- Survivor continues drawdown, to avoid 55% tax charge on a lump sum. Lump sum death benefit less 55% paid to bypass trust or beneficiaries Following death of surviving spouse in drawdown Lump sum death benefit less 55% paid to bypass trust or beneficiaries Keep nomination forms up to date 4 The benefits of using a trust Trust 5

6 The benefits of the Bypass Trust Tax Planning Can reduce IHT burden on surviving i spouse s estate, when compared to paying death benefits to surviving spouse directly. Possibility of loan(s) to surviving spouse in some cases. Asset Protection Bypass Trust can help to protect assets from divorce and bankruptcy, which may be helpful for beneficiaries. Flexibility Discretionary trust has a wide class of potential beneficiaries. The future unknown can be more easily accommodated. Control Special feature - Clients can give a binding instruction to the scheme administrators to pay lump sum death benefits to the Bypass Trust. Is it a contract based or trust based pension scheme? Contract Based Section 32 Buyout Plan Retirement Annuity Contracts Stuck in the middle. Most Personal and Stakeholder Pensions Created by board resolution so contract based Characteristics of Trust. Trust Based Occupational Pension Scheme Most SIPP HMRC considering this point. 6

7 Some IHT points Bypass Trust TBP TBP TBP Some IHT points Bypass Trust CBP CBP CBP 7

8 Some IHT points Bypass Trust TBP 1988 TBP 1996 SIPP 2008 TBP 2004 Maximising the IHT advantages of the bypass trust Record keeping is key; This allows trustees to claim maximum number of IHT nil rate bands for the bypass trust. Value of each settlement within the bypass trust - needed for calculating any periodic charges. Periodic charge dates. 8

9 More info ABI Paper 1, 2009 ABI Paper 2, 2011 Adviserzone.com (Techzone) Summary Unvested pensions = estate planning opportunity Bypass trust = longer term client relationship Get the IHT savings your client deserves! 9

10 The legal stuff! Tax and legislation are likely to change. The information given here is based on Standard Life s understanding of law and HM Revenue & Customs practice at today s date. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this information. Standard Life accepts no responsibility for advice which may be formulated on the basis of these examples. Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH. Standard d Life Assurance Limited it is authorised and regulated by the Financial Services Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary Standard Life. Images reproduced under licence. 10