Inheritance Tax and Pensions: What Business Owners Need to Know Now

Estate planning and retirement planning are usually treated as separate exercises. For anyone with meaningful pension savings they are the same exercise, because the order in which you spend your assets changes what your family eventually receives.

The general position

Pension savings have historically sat outside the estate for inheritance tax purposes, and death benefits are usually paid at the discretion of the scheme trustees. That treatment has made pensions unusually efficient for passing wealth on — and it is an area where rules have been revisited, which is why plans need reviewing rather than setting once.

Why the drawing order matters

If pensions are treated favourably on death and other assets are not, spending the other assets first and leaving the pension untouched can leave more for your family. That is the opposite of what many people do instinctively, which is to preserve the pension and spend savings.

What to check

• Your expression of wish on every pension — out of date nominations are extremely common and can direct money to the wrong people.

• Whether your scheme actually offers the flexible death benefits you assume it does; older contracts sometimes do not.

• How your estate looks as a whole, including property, business assets and any available reliefs.

• Whether gifting during your lifetime achieves more than leaving assets on death.

The point

Tax rules change and depend on individual circumstances. The mistake is not choosing the wrong strategy — it is choosing one years ago and never revisiting it.

If you'd like these questions answered for your own situation, download our free guide, The Pre-Retirement Pension Review, or book a free no-obligation call at www.dmfinancialplanning.co.uk.

Important information

This article is for general information only and does not constitute personal financial advice. The value of investments can fall as well as rise and you may get back less than you invest. Tax treatment depends on individual circumstances and may change. A pension is a long-term investment; funds cannot normally be accessed until age 55 (57 from 2028). DM Financial Planning is a trading style of Aegis Financial Planning Limited, authorised and regulated by the Financial Conduct Authority (FCA No. 624298).