Bequeathing your pension to family members
Tax-efficient loophole closed
A government loophole that was closed in last year’s Pre-Budget Report could mean that many wealthy individuals who had been planning to leave their pensions to their heirs will no longer have this tax-efficient facility open to them.
The announcement affects ‘small self-administered schemes’ (SSASs) that had allowed individuals to bypass the need to buy an annuity at 75 and bequeath their pension to family members instead. The previous rules had meant this was not subject to inheritance tax (IHT). A special ‘self-invested personal pension’ (SIPP), called the Family Pension Trust, worked in a similar way and offered the same tax breaks.
The possible repercussions of this announcement to an individual could mean that handing money to their family through this facility may result in a considerable tax charge.
The payment could also be subject to IHT if it is above an individual’s IHT threshold of £300,000 (tax year 2007/08).
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Levels and bases of, and reliefs from, taxation are subject to change.
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