Q. I am a married 51 year old surgeon, and have several large pension funds which have built up over many years, with a combined value of around £400k. I dont intend to cash in my pensions until age 60 plus, and have recently turned my attention to the subject of Inheritance Tax.
Our estate is worth perhaps £2m, with the house and contents £900k of this, and various investments on top of the pensions worth another £700k or so. Using an online tool, my understanding is that if we both died the bill would be over £500k in tax for our children to pay.
Someone has told me that you can name children as beneficiaries on my pension plans, and therefore bypass our estate? My understanding is that this would mean we could save 40% of £400k, meaning a £160k reduction in this £500k tax bill?
A. What you have said is correct. It should be possible to name your children as beneficiaries of the pension funds’ fund value if you were to die before vesting your pensions.
Of course, it is important to check that your wife would not require these monies herself. Secondly, this strategy will only work if you were to die, and so although this is valid for now, you will need to think of other ways to mitigate this large tax hit.
One option is that you could simply insure yourselves on the second death for the amount needed to pay the taxman. In your case this could be quite cost effective for a 10 year period, when the life assurance would be reviewed and would likely become more expensive.
At this point you may wish to consider gifting money to the children, whilst ensuring you have enough for yourselves.
As ever we would recommend you seek professional advice to ensure that any decision you make is an informed one.
