Succession Matters Pension Business Development Manager For adviser use only – not for use with retail customers
Important information This presentation is for adviser use only and not for retail customers, and contains some forward thinking statements which should not be taken as fact. Information given is based on our current understanding, as at September 2018 of current taxation, legislation and HMRC practice, all of which are liable to change and subject to an individual’s own circumstances. Terms and conditions of products are available on request. The level of charges may change in the future. For webex presentations, the event may be recorded for training purposes. No reproduction, copy, transmission or amendment of this presentation may be made without the written permission from Prudential. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling, FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. This presentation contains past performance information which is not a reliable indicator of future performance. The value of investments can go down as well as up. Clients may not get back what they put in. Any examples included are designed to represent a typical situation and are not related to any particular individual. They do not recommend that course of action.
Learning Objectives To be able to demonstrate an understanding of: The interactions The impact of between IHT , succession pension planning planning through and death the generations benefits
IHT
IHT Receipts IHT receipts to end of tax year indicated £4.9bn £4.6bn £3.8bn £3.4bn £3.8bn £2.8bn £2.4bn £3.1bn £2.9bn £2.7bn 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: www.gov.uk/government/uploads/system/uploads/attachment_data/file/632797/IHTNationalStatisticsCommentary.pdf We are not responsible for contents/reliability of the website(s) shown.
ILC - Consumption by consumer segment Source ILC Understanding Retirement Journeys Nov 2015
Pensions death benefits
Transfer of Wealth – the value of a pound? Any examples included are designed to represent a typical situation and are not related to any particular individual. They do not recommend that course of action.
Cascading of pension wealth Gerry, HR tax payer spends £10,000 net on his pension = £16,667 • He retires, and becomes a basic rate taxpayer (BRT) • He takes the income of £667 (after tax) for 10 years £6,667 • He dies and passes the fund to his spouse • She takes the income tax free (as Gerry was under 75) for a £16,667 further 20 years • She dies (over 75) and passes the fund to her daughter (BRT) £10,672 • She takes the income(after tax) for another 16 years • She dies (pre 75) and passes it through to her son who takes £16,667 it as a lump sum 9 £50,673 The above example assumes 5% pa growth with income taken at the same level.
Post Freedom Death Benefits - Drawdown Scheme rules, RULE!
How a bypass trust could protect a member’s wishes 1 st Death 2 nd Death Payment Costs Loans Periodic Charges Exit charges Tax @ 75? Members Bypass Intended Payment Trust beneficiaries
Transfers and IHT – The two year rule considerations... In certain cases, pension transfer may give rise to a lifetime transfer for IHT Dies within two years of making the transfer At the time of the transfer, member knew they were in serious ill health Not possible to demonstrate that member had no donative intent The Staveley Case
LTA aspects
Main Benefit Crystallisation Events Number Event Value Number Event Value Drawdown Amount Designated BCE1 Drawdown Amount Designated BCE1 BCE2 BCE2 Scheme Pension 20 x pension Scheme Pension 20 x pension BCE4 BCE4 Lifetime Annuity Purchase price Lifetime Annuity Purchase price BCE5a Drawdown at 75 Drawdown fund BCE5a Drawdown at 75 Drawdown fund Lump Sum Amount of lump sum BCE6 Lump Sum Amount of lump sum BCE6 Pre Pre 1 st post A-day BCE 1 st post A-day BCE 25 x pension/Max GAD 25 x pension/Max GAD A-day A-day
To crystallise or not? Excess benefits…… £200k pot over the LTA, grows to £300k if crystallised, £400k if uncrystallised. Crystallised – £300k Uncrystallised – £400k Pre 75 Pre 75 £300,000 £ 300,000 tax free £300,000 £300,000 (After 25%LTA Charge) Post 75 Post 75 £262,500 £300,000 £210,000 £240,000 £ 262,500 taxable £300,000 taxable £157,500 £180,000 £165,000 £144,375
What about taking income? £200k over the LTA £150k in Drawdown – No LTA Charge £400k £150k taken as income £350k £300k £250k £200k £150k 65 75
Potential solutions to IHT issues What can clients do? Nothing and Spend all Plan pay tax the wealth Pension contributions for self Pension contributions for others
Planning
Using the annual exemption £ 250 per month gift (£3,000 per year) using annual IHT exemption The parent IHT relief – 40% x £3,000 – £1,200 20% rate taxpayer 40% rate taxpayer 45% rate taxpayer The £3,000 + relief at source of £750 = £3,750 ‘child’ Increased income Increased income Increased income £0 £750 £937.50 ‘ Family’ 65% 90% 96.25% tax relief 1 gift = IHT planning, Income Tax Reduction, Retirement Savings 3 benefits
Pensions & Post 75s Investment Value £155,929 Grandparent 5% growth, net of charges Family Surplus Income paid monthly in advance £93,557 £1,000 per month HMRC Inheritance Tax £62,372 10 Years Family Family Pension contributions £194,912 HMRC Increase in Family Annual Income Grandparent Inheritance Tax Surplus Income £0 Higher Additional £1,000 per month Basic rate rate rate taxpayer taxpayer taxpayer £0 £3,000 £3,750
Dedicated Adviser support Source: https://www.pruadviser.co.uk/knowledge-literature/
Learning Outcomes To be able to demonstrate an understanding of: The interactions The impact of between IHT , succession pension planning planning through and death the generations benefits
Thank you If you would like to give us feedback directly or request information not covered elsewhere please email us at speakernotes@prudential.co.uk
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