Part 2/3 of the Investment and IHT newsletter for Financial Advisers | August 2008 Click to go to: Part 1/3 or: Part 3/3

82% TAX & CHARGES ON ALTERNATIVELY SECURED PENSIONS (ASPs)

"Some of your clients could be "taxed" at 82% ..."

82% tax

No one wants to be taxed at 82%. However, if your client enters ASP, their pension fund could be taxed at that rate following their death and that of any surviving dependents. Here is how the 82% rate is made up:

  • Assume your client’s ASP fund stands at £450,000
  • Also assume that your client has used the available Inheritance Tax (IHT) nil rate bands
  • So on death, the fund will be hit with IHT at 40%
  • That leaves £270,000.
  • If this £270,000 is then deemed to be a Transfer Lump Sum Death Benefit and therefore an unauthorised payment (as it will be), then a further tax charge of 40% is made
  • That leaves £162,000.
  • If the unauthorised payment is more than 25% of the original fund (and in this case it is), then a further 15% tax surcharge is added to the tax surcharge, amounting to £40,500
  • That leaves £121,500.
  • Finally, the Scheme Administrator is charged a further 15% for allowing the unauthorised payment, amounting to another £40,500
  • That leaves £81,000 out of an original fund of £450,000, equivalent to tax at 82%.

It doesn't need to be like this. If a 68 year old client was to crystallise their pension fund of £450,000, by initially placing the pension commencement lump sum into the WAY Flexible Inheritor Plan and the maximum GAD (Government Actuary’s Department) income into the WAY Gifts from Income Plan, by the time of death at age 80, and assuming 6% growth a year, £557,728 would be outside of his estate.

It is primarily dependent upon timing. If the client remained fully invested until age 75, entered ASP and died immediately, then potentially the pension fund available to his beneficiaries could be as little as £114,900.

It is also dependent upon the client's own circumstances and we have a dedicated technical team to help IFAs through the process and to give technical guidance to IFAs in relation to our range of product solutions.

How to contact us
To find out more or if you wish to talk to someone about this newsletter or about any of WAY's products, please feel free to call either your local Regional Sales Manager or Tony Lyons, IFA Support Manager, head office telephone number: 01202 890895. Or you can use the website: Contact Form to get in touch. We look forward to hearing from you.

- Ends -

Additional link - the WAY Inheritor Plans:

 Click here to access the: WAY Inheritor Plans

Newsletter: August 2008.

Note: This newsletter commentary has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This information is supplied to you in confidence and you may not pass it on to any other party without prior written consent. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this commentary. The commentary does not constitute investment advice or a recommendation to purchase or sell any security. Neither the author nor WAY Investment Services Ltd accept any liability whatsoever for any loss or damage arising in any way from any use of or reliance placed on the commentary. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority.

Newsletter: August 2008.