Defined Contribution pension schemes

Providing an income in retirement

With a Defined Contribution (DC) pension, you build up a pot of money that you can then use to provide an income in retirement. Unlike Defined Benefit schemes, which promise a specific income, the income you might get from a DC scheme depends on factors including the amount you pay in, the fund’s investment performance and the choices you make at retirement. Continue reading…


Tax relief on pension contributions

Annual and lifetime limits to consider

Tax relief means some of your money that would have gone to the Government as tax goes into your pension instead. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions. Continue reading…


Ten tips to make the most of pension freedoms

Planning for retirement in the new pensions landscape

The new pension savings market offers much more flexibility and choice post–6 April this year, which is a positive, but it can be overwhelming. For people planning for retirement in the new world of pension freedoms, there are both risks and opportunities – from passing on your pension to loved ones, to making the most of tax relief. Continue reading…


Pension earmarking orders

Divorcees may need to take action to protect benefits following pension reforms

An unintended consequence of the pension reforms is that any divorcee with a pension earmarking order may need to act fast to protect their benefits. Any earmarking order that provides the ex-spouse with a fixed percentage of the pension income in retirement should be checked to ensure benefits are protected now that the member no longer needs to take their pension as an income and can instead take all the cash out as a lump sum. Continue reading…


Best of British

UK PLCs most widely held by investment companies

Which UK companies have investment company managers been favouring? With the UK in the spotlight, the Association of Investment Companies (AIC) has published details of which UK companies are held by the highest number of investment companies in their top holdings. Continue reading…


Generation Y

More than one in ten would use parents’ pension on mortgage deposit

More than one in ten (12%) 20-35 year olds are prepared to ask their parents to access pension savings to help pay for a mortgage deposit, research from Old Mutual Wealth[1] shows. But only half as many over 55s are willing to use their pension to help children or grandchildren buy a home. Continue reading…


Essentials and indulgences

UK parents spend £28 billion on nation’s under-fives each year

UK parents spend around £35,000 on their children by the time they reach their fifth birthday, according to research released by Aviva. This adds up to a total of more than £28 billion[1] spent on the nation’s 4 million under-fives each year. Continue reading…


Compulsory financial advice

Two-thirds of people aged 55 and over believe financial advice should be compulsory at retirement

Two-thirds (65%) of people aged 55 and over who are not yet retired believe that it should be compulsory to receive financial advice at retirement according to findings from Retirement Advantage. Continue reading…


Passing on your pension savings

It’s never been more important to plan whom you’d like to inherit them

Your pension is your life savings you’ve built up to give you the retirement you want. Since new pension rules came into effect from 6 April this year, pensions have become more flexible – including a cut in tax when a pension is passed on. Continue reading…


Valuing a deceased person’s estate

Responsibility for paying Inheritance Tax

To arrive at the amount payable when valuing a deceased personís estate, you need to include assets (property, possessions and money) they owned at their death and certain assets they gave away during the seven years before they died. The valuation must accurately reflect what those assets would reasonably receive in the open market at the date of death.

Inheritance Tax is payable by different people in different circumstances. Typically, the executor or personal representative pays it using funds from the deceasedís estate. The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax – but this is not common.

Valuing the deceased personís estate is one of the first things you need to do as the personal representative. You wonít normally be able to take over management of their estate (called applying for probate or sometimes, applying for a grant of representation/confirmation) until all or some of any Inheritance Tax that is due has been paid.

The valuation process
This initially involves taking the value of all the assets owned by the deceased person, together with the value of:

their share of any assets that they own jointly with someone else
any assets that are held in a trust, from which they had the right to benefit
any assets which they had given away, but in which they kept an interest ñ for instance, if they gave a house to their children but still lived in it rent-free
certain assets that they gave away within the last seven years

Next, from the total value above, deduct everything that the deceased person owed, for example:

any outstanding mortgages or other loans
unpaid bills
funeral expenses

(If the debts exceed the value of the assets owned by the person who has died, the difference cannot be set against the value of trust property included in the estate.)

The value of all the assets, less the deductible debts, gives you the estate value. The threshold above which the value of estates is taxed at 40 per cent is currently £325,000 (frozen until April 2014).

When the executor pays Inheritance Tax
Usually, the executor, personal representative or administrator (for estates where thereís no will) pays Inheritance Tax on any assets in the deceasedís estate that are not held in trust.

The money generally comes from the deceased personís estate. However, because the tax must be paid within six months of the death and before the grant of probate can be issued (or grant of confirmation in Scotland), sometimes the executor has to borrow the money or pay it from their own funds. This can happen if it hasnít been possible to get the money from the estate in time because itís tied up in assets that have to be sold.

In these cases, the executor or the people who have advanced the money can be reimbursed from the estate before itís distributed among the beneficiaries.

When a trustee pays Inheritance Tax
Inheritance Tax on transfers into trust is only necessary if the total transfer amount is above the Inheritance Tax threshold. Itís usually payable by the person making the transfer(s) – known as the settlor – not the trustees.

The trustees must pay any Inheritance Tax due on land or assets already held in trust. The occasions for this include:

a transfer out of trust (known as the exit charge)
every ten years after the original transfer into trust (known as the ten-year anniversary charge)
when the beneficiary of the trust (known as the life tenant) dies – interest in possession trusts only

When a beneficiary or a donee has to pay Inheritance Tax
If the executor or the trustees canít pay the Inheritance Tax, the beneficiaries or donees (recipients of gifts made during a personís lifetime) may have to pay it. A beneficiary or donee only has to pay Inheritance Tax in this case if:

they receive a share of an estate after a death
they receive a gift from someone who dies within seven years of making the gift
they benefit from assets in a trust at the time of death or receive income from those assets
they are the joint owner – other than a spouse or a registered civil partner – of a property