Succession Matters Pension Business Development Manager For adviser - - PowerPoint PPT Presentation

For adviser use only – not for use with retail customers

Succession Matters

Pension Business Development Manager

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. 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.

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.

Important information

Learning Objectives

To be able to demonstrate an understanding of: The interactions between IHT , pension planning and death benefits The impact of succession planning through the generations

IHT

IHT Receipts

£3.8bn £3.4bn £2.9bn £2.7bn

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

£3.8bn £2.8bn £2.4bn £4.6bn £3.1bn IHT receipts to end of tax year indicated

Source: www.gov.uk/government/uploads/system/uploads/attachment_data/file/632797/IHTNationalStatisticsCommentary.pdf 2017

£4.9bn

We are not responsible for contents/reliability of the website(s) shown.

Source ILC Understanding Retirement Journeys Nov 2015

ILC - Consumption by consumer segment

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 =

• He retires, and becomes a basic rate taxpayer (BRT)
• He takes the income of £667 (after tax) for 10 years
• He dies and passes the fund to his spouse
• She takes the income tax free (as Gerry was under 75) for a

further 20 years

• She dies (over 75) and passes the fund to her daughter (BRT)
• She takes the income(after tax) for another 16 years
• She dies (pre 75) and passes it through to her son who takes

it as a lump sum

9

The above example assumes 5% pa growth with income taken at the same level.

£16,667 £6,667 £16,667 £10,672 £50,673 £16,667

Post Freedom Death Benefits - Drawdown

Scheme rules, RULE!

How a bypass trust could protect a member’s wishes

1st Death 2nd Death Costs Periodic Charges Exit charges Tax @ 75?

Bypass Trust

Payment

Members Intended beneficiaries

Payment Loans

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

BCE1 Drawdown

Number Event Value

Amount Designated BCE2 Scheme Pension 20 x pension BCE4 Lifetime Annuity Purchase price BCE5a Drawdown at 75 Drawdown fund BCE6 Lump Sum Amount of lump sum Pre A-day 1st post A-day BCE 25 x pension/Max GAD BCE1 Drawdown

Number Event Value

Amount Designated BCE2 Scheme Pension 20 x pension BCE4 Lifetime Annuity Purchase price BCE5a Drawdown at 75 Drawdown fund BCE6 Lump Sum Amount of lump sum Pre A-day 1st post A-day BCE 25 x pension/Max GAD

To crystallise or not? Excess benefits……

Crystallised – £300k

Pre 75

£262,500 taxable

£300,000 tax free Post 75

£300,000 £157,500 £262,500 £210,000 £144,375

Uncrystallised – £400k

£300,000 taxable

£300,000 (After 25%LTA Charge)

Post 75

£300,000 £180,000 £300,000 £240,000 £165,000

Pre 75 £200k pot over the LTA, grows to £300k if crystallised, £400k if uncrystallised.

What about taking income?

£200k over the LTA £150k £400k 65 75 £200k £250k £350k £300k £150k in Drawdown – No LTA Charge £150k taken as income

Potential solutions to IHT issues

What can clients do?

Pension contributions for self Pension contributions for others

Nothing and pay tax Spend all the wealth Plan

Planning

Using the annual exemption

The parent

£250 per month gift (£3,000 per year) using annual IHT exemption

IHT relief – 40% x £3,000 – £1,200

The ‘child’

‘Family’

tax relief 1 gift = 3 benefits

£3,000 + relief at source of £750 = £3,750

Increased income £0 Increased income £750 Increased income £937.50 20% rate taxpayer 40% rate taxpayer 45% rate taxpayer

IHT planning, Income Tax Reduction, Retirement Savings

65% 90% 96.25%

Pensions & Post 75s

10 Years Grandparent Surplus Income £1,000 per month Investment Value £155,929 Family £93,557 HMRC Inheritance Tax £62,372 5% growth, net of charges paid monthly in advance Grandparent Surplus Income £1,000 per month Family Pension contributions Increase in Family Annual Income Basic rate taxpayer £0 Higher rate taxpayer £3,000 Additional rate taxpayer £3,750 Family £194,912 HMRC Inheritance Tax £0

Dedicated Adviser support

Source: https://www.pruadviser.co.uk/knowledge-literature/

Learning Outcomes

To be able to demonstrate an understanding of: The interactions between IHT , pension planning and death benefits The impact of succession planning through the generations

Thank you

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