Is my pension affected by Inheritance Tax?

Inheritance Tax (IHT) can be a concerning topic for many people. Understanding how it applies to your estate and your pension can help ease those worries. Let’s break it down simply!

What is Inheritance Tax?

Inheritance Tax is a tax on your estate, which includes your property, money, and belongings, minus any debts, when you die. But not everyone has to pay it.

When You Might Be Exempt:

• If the value of your estate is below the £325,000 threshold.

• If you're married or in a civil partnership and leave everything above the threshold to your spouse or partner.

• If you leave everything above the threshold to an exempt beneficiary such as a charity or community club.

If your estate exceeds the £325,000 threshold, the excess amount could be taxed at 40%, which can lead to a substantial tax bill.

Good News About Pensions

Here’s the good news: Inheritance Tax usually doesn't apply to your pension pot! Pensions are treated differently from other investments.

Unlike your other assets, your pension plan typically isn’t part of your taxable estate. This distinction makes your pension a tax-efficient tool for passing on savings to your loved ones.

Money left in your pension savings can usually be passed on to your dependants or family members quite efficiently.

If you have a defined contribution pension like those offered by Penny, passing your savings to your beneficiaries is relatively straightforward.

• If you die before age 75: Your beneficiaries can claim your entire pot tax-free within two years.

• If you die at age 75 or older: Your pension isn’t subject to inheritance tax, but your beneficiaries will pay income tax at their usual rate on any withdrawals.

How Penny Can Help

At Penny, we offer defined contribution pensions. We can assist you in locating your old pensions and consolidating them into one easy-to-manage account. This makes managing your pension simpler and more efficient.

We also make it easy for you to select a beneficiary—the person who will receive your pension when you die. This ensures that your loved ones are taken care of and can access your savings with minimal hassle.

Pensions offer an efficient way to leave money for your loved ones without the burden of high taxes. Understanding the rules can help you make informed decisions about managing and passing on your savings. At Penny, we're here to make that process as smooth as possible.