Will my Pension be included in Inheritance Tax Calculations?
Posted on 1st November 2019
When a person dies and their estate is above a certain value (currently £325,000.00 unless a nil-rate band or other exemptions can be applied), they will usually have to pay inheritance tax.
The majority of assets will be taken into account for these calculations, and the rate payable, as of October 2019, is 40%. So, for example:
Elaine and John are married. Elaine dies first, leaving everything to John. John then dies, and his executors (in this fictional case, the executors are not your local probate solicitors!) are trying to calculate the amount of inheritance tax payable.
First of all, they would need to calculate the total value of the assets in John’s estate. Let’s say these total £1,000,000.00.
John’s executors would be able to use both Elaine and John’s nil rate bands (currently set at £325,000.00), so there is no tax payable on the first £650,000.00 of John’s assets. The chargeable estate is therefore £350,000.00 (£1,000,000.00 - £650,000.00 = £350,000.00).
The inheritance tax payable will therefore be calculated based on 40% of the chargeable estate of £350,000.00. The total inheritance tax payable is therefore £140,000.00.
Does my pension get included in my Inheritance Tax calculations?
Well, in our solicitors in Preston’s experience, this can depend on how your pension is taken.
If you take a lump sum payment, provided that you have spent it all and there is none of the money left sitting around in your bank account, then this will not be taken into account in your estate value.
The remainder of your pension will generally not be taken into account in your inheritance tax calculations. This is because, unlike the majority of other investments, pension schemes are generally written in a form of trust, and would not form part of a person’s chargeable estate.
How will my pension pass on my death?
When you sign up for your pension, you will often be asked to complete a nomination form, in which you will include details of who you would want to receive your pension if you died before taking the same (or who your monthly payments should go to).
In some pensions, the lump sum payment is made on a discretionary basis by the trustees, which means that they may leave this to your children, or an unmarried, dependant partner.
It can all depend on your pension provider, and their terms, so if you have any questions about your pension, you should contact them directly.
To make sure that your estate passes in the best possible way for you, contact our team on 01772 783 314 or email firstname.lastname@example.org.
MG Legal – Your Local Solicitors
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