Spend the money, save your pension

The revised rules on taxation of pension funds mean it now makes sense to spend other capital and keep your pension fund intact, says the Telegraph.

If your estate will be subject to inheritance tax, you will pay less tax if you spend money that you hold in ISAs and other investments and leave the money in your pension fund to pass tax-free to your chosen heirs. If you die after age 75, the beneficiaries will pay tax at their personal rate of income tax when they withdraw money, but no inheritance tax is payable, and until the fund is drawn it can stay invested with no income tax or capital gains tax being paid.

This ploy is only relevant for people whose estates will be subject to inheritance tax – but unless there is a big rise in the ‘nil rate band’ from the current £325,000, the proposed change in strategy will make sense for growing numbers of people over the next few years.