13th January 2017
It is important to review your pensions. Ideally, one should start at 18 years old although starting anytime after is better than not thinking about it at all. Everyone has a lifetime pension allowance of 1 million pounds after which pension contributions are taxable by the Inland Revenue.
As part of tax planning, it is vital that you choose beneficiaries who will benefit from your pension so that it does not form part of your Estate. If you do so, you lessen the tax burden on your beneficiaries especially those who are liable to pay tax such as children or non spouses.
The second advantage that it reduces your estate for inheritance tax purposes because the pension is not added to your estate. For example, if your estate is worth £500,000 and £175,000 of it is made up of the pension, there will be no inheritance tax to pay if you have nominated a beneficiary for the pension. This is because the first £325,000 of a person’s estate is tax free. This is also relevant to spouses because the beneficiaries of the survivor’s estate will pay inheritance tax if one does not undertake any tax planning.