Editorial: Vision Review – Quarter 1 2017

New Year- New Challenges – Playing the Generation Game

It is so often the smaller changes that often do not reach the front pages of the press that so often make the biggest difference.

In a changing and ever evolving World it is important to take stock of your finances and what better time than the beginning of a New Year.

2016 saw political change in both the U.K and across the waters in the U.S, in addition to the new political landscape we have recently experienced numerous changes expanding across most if not all financial arrangements, from pension freedoms, to tax charges on buy to let properties and the introduction and phasing in of the main residence property relief in April 2017.

Whilst many individuals may be happy with their existing arrangements, it is worth reviewing these through an independent financial adviser, as so often what appears to be a small change often has the largest impact.

One such case is that surrounding death benefits rules and the resultant estate planning that can be achieved following pension freedom introduction. Where clients have a range of assets, it may now be prudent to spend funds from other assets such as ISA’s and leave the pension fund intact benefitting from greater tax efficiency and particularly in respect to Inheritance tax planning.

Old pension rules allowed a pension holder to pass on assets on death in the form of drawdown to their dependents that is the spouse /civil partner, person financially dependent/mutually dependent or a child under the age of 23. Alternatively a lump sum paid to a trust, nominated beneficiary or charity. Such potential beneficiaries are chosen by the pension plan holder.

New rules continued the concept of dependants but also added the concept of nominees and successors. These are fundamentally different as the pension money remains in the pension plan for the use of the chosen beneficiaries and then potentially for the next beneficiaries. If used correctly it is a real family trust for generations to come.

The taxation of payments from the pension will depend upon the age at which the previous beneficiary died. If under 75 years of age, benefits will be tax free (assuming paid within a two year window) and taxed at marginal rate of income tax aged over 75.

It is therefore important to make sure that any nomination/expression of wishes forms are completed and regularly reviewed.

Case Study

A referred client had a pension plan of £525,000 and sought advice having been unhappy with their existing adviser. Whilst in the process of reviewing their arrangements they fell ill and was subsequently diagnosed with a terminal illness. Their existing arrangements were held under an expression of wishes arrangement passing benefits to the surviving spouse. No changes were made to arrangements as changes made within two years of death could affect the plan being subject to Inheritance taxation.

Following death and after understanding our client’s objectives; considering the different tax treatments before and after 75 years, the plan was subsequently transferred to a suitable Self Invested plan for the surviving spouse. An appropriate successor form completed which allowed the trustees to pass on the pension plan to the next generation, which includes the choice of a lump sum and/ or regular income immediately or in the future. The benefits in most circumstances being free from inheritance tax and the potential for tax efficient income.

An investment portfolio was arranged through a Discretionary Fund Manager to meet our clients need for growth and their objectives, including a restriction not to invest within tobacco companies. This style of active investment management provides our client with peace of mind, including phasing in of investment funds into their diverse portfolio according to market conditions, valuations and future outlook.