![]() ![]() Those aged 75 or over when they die will be able to pass their defined contribution pension fund to any beneficiary who will then be able to draw down on it as income or as a lump sum at their marginal rate of income tax. ![]() ![]() The fund can be paid out as a lump sum to a beneficiary or taken out by the beneficiary through a ‘flexi-access drawdown account’. Under the revised rules, anyone who dies under the age of 75 is able to give their remaining defined contribution pension fund to anyone completely tax free, whether it is in a drawdown account or untouched. The government introduced significant exceptions from the tax charges for benefits first paid on or after 6 April 2015. It was (and still is) possible to pass on a pension fund as a tax free lump sum where the individual has not taken any tax free cash or income from the fund and they die under the age of 75. There were some exceptions from the 55% charge. if the fund was placed in a drawdown account to provide income to a ‘dependant’ (for example a spouse), the income drawn down was taxed at the dependant’s marginal rate of income tax.if the fund was paid as a lump sum to a beneficiary, tax at 55% of the fund value was payable.Prior to 6 April 2015, there were other tax charges on death to reflect the principle that income tax relief would have been given on contributions into the pension fund and therefore some tax should be payable when the fund is paid out. If an individual’s intention has not been expressed the funds may be paid to the individual’s estate resulting in a potential IHT liability. Inheritance tax (IHT) can be avoided by making a ‘letter of wishes’ to the pension provider suggesting to whom the funds should be paid. If an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries. This factsheet summarises the rules which may allow a pension fund to pass free of all taxes on the estate of the deceased and free of all taxes on the beneficiaries of the pension fund. At PHM, we can provide guidance on the rules which allow pension funds to pass free of all taxes in the Northamptonshire area.Īlongside the changes from April 2015 to the access of pension funds, significant changes were made to the tax treatment of pension funds on death. Significant changes have been made to the tax treatment of pension funds on death. ![]()
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