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Tax Efficient Pension Planning

Landmark changes to the way pensions can be accessed came into force earlier this year. This may mean you wish to carefully consider your options for making the most of your money.

The new rules mean that the hefty 55% pension death tax has been abolished and there is now no need to purchase an annuity.

Now, if you die before the age of 75, your family will pay no tax on any pension savings left to them, regardless of whether you have made any withdrawals during your lifetime.

However, after you turn 75, your pension assets become taxable but only at the marginal rate of income tax. Currently, a charge of 45% will apply if you take a lump sum benefit but this is due to change in April 2016 when the marginal rate of income tax will apply.

To make sure you pass on your pension in a tax efficient manner there are a few things to do:

         - Take your 25% tax-free cash lump sum before your turn 75

         - Check the terms of your pension scheme to make sure you can pass on your pension in a tax efficient way. Older schemes may not allow your family to inherit your fund as a drawdown account. You may need to upgrade the pension scheme you are a member of

          - Give up-to-date details of the nominated beneficiaries to your pension provide

You may also want to consider using a Trust to plan for your family. This involves setting up a Trust and then having the pension death benefits nominated to it instead of to individual family members. This allows for greater flexibility and control over how your family benefits and when.

Always, when reviewing your affairs, you should also routinely check that your Will still suits your circumstances and if not make appropriate changes. How you have planned for your pension pot may affect how you structure your Will.

You should also make sure you have a Power of Attorney so that if you can’t make these vital decisions your attorney can continue to do this for you.

For more detailed guidance, speak to Tessa Till, Partner at Pagan Osborne. Email ttill@pagan.co.uk or call 0131 624 6814.

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