Pension planning


The new pension reforms since April open up new opportunities and below we have looked at some of the ways our clients have been using pensions in their wider financial planning.


Inheritance Tax planning


Many of the articles in the press have been talking about taking money out of pensions but our tax and financial planning experts are seeing much more opportunity in the ability to pass money to the next generation tax-efficiently by keeping pensions invested.


For some, the most important strategy for Inheritance Tax (IHT) planning is ensuring their affairs are structured to benefit from attractive Agricultural and/or Business Property Relief (APR and BPR) in respect of business assets.


The business can then be passed on Inheritance Tax-free without falling into the estate, and the pension (which is outside of your estate) can be passed over as well, minimising any assets that will then potentially be at risk of creating an IHT liability.


Land or business premises in pensions


You have long been able to purchase farmland and commercial premises within your Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS).


Farmland in pensions is often not advisable due to the attractive Agricultural Property Relief benefits they receive when held outside a pension fund but existing


commercial property or constructing new buildings within your pension scheme has a number of benefits.


This strategy has been used by many of our clients to good effect with a gross rent going into the pension from the business and allowing commercial property to be purchased from funds already accumulated within one’s pension (rather than funding from other sources or loans). There is also the benefit from rising values in a tax- free pension environment without Capital Gains Tax to worry about.


However, the major drawback of this strategy has been the issue regarding what to do with the buildings when you come to draw pension benefits. Often the rental income is not sufficient to cover the income you may need from the pension and your children inheriting the business may not be able to afford to buy out the assets from the pension.


Would you like to know more? Contact Steve Woodham on 01749 335027 or email


steve.woodham@oldmillgroup.co.uk


In the past if the property remained in the pension fund on death the land may have had to be sold to a third party to cover a 55% death tax. Fortunately, this very high tax charge has now been removed.


Now that the pension funds can potentially be passed on free of tax, this last point disappears.


As such, a building held within a pension fund could in theory be passed down through the generations, allowing it to stay in the family and ensuring that the business can continue to operate as before. This represents a significant improvement over the previous more restrictive situation.


Succession planning and equalising an estate between children


The new pension rules will effectively allow wealth accumulated in pensions to be passed through generations, creating further opportunities.


For example, it is sometimes difficult to ‘compensate’ children who do not inherit the main business with other assets. The ability to pass your pension to these children can help your estate planning be more equitable as the pension fund will no longer suffer a tax charge when it initially passes to the family.


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