Farmers Should Review Pension Now or Risk Losing Out

The Government has introduced a number of sizeable changes to pension rules in recent months, which should make farmers’ Inheritance Tax planning considerably easier.

However, many of the benefits do not apply automatically, so it’s essential that farmers are proactive, warns Julia Banwell, director at accountant Old Mill Accountants and Financial Planners.

Julia Banwell, director at accountant Old Mill Accountants and Financial Planners

Julia Banwell, director at accountant Old Mill Accountants and Financial Planners

“A key change is that you can now leave your pension fund to your children Inheritance Tax free – but you must fill out a nomination form,” she says. “In the past, a pension could be left to a spouse, which can still be done, but if you want the potential to provide benefits to your children while your spouse is still alive – or bypass your spouse altogether - you must nominate them in your lifetime.”

If the pension holder dies before 75, their beneficiaries can draw from the pension Income Tax free, but if they die after 75 any payments will be subject to Income Tax, says Mrs Banwell. That also holds true for anyone who holds an annuity jointly with their spouse – although annuities cannot be passed down the generations.

The new rules introduce a considerable amount of flexibility: The pension holder can withdraw 25% tax-free after reaching 55, and upon retirement can take the whole lump sum if they wish (although it will be subject to Income Tax). They can keep it invested and draw down as little or as much as they want, or purchase an annuity to give them a guaranteed payment for life. They can even cash in existing annuities for a lump sum.

“Because the rules are so much more flexible, we expect more people to be putting greater sums into their pension,” says Mrs Banwell. “It’s an extremely tax-efficient way to save for the future and reduce Income Tax bills right now. But you need to check that your pension offers the new range of benefits and that you fill out the required forms to ensure you can access them.”

Other changes include a £40,000 annual limit on payments into a pension – although taxpayers can carry forward unused allowances up to a maximum of £180,000. “There is also a reduced annual lifetime allowance of £1m – so if your pension fund is approaching that level you may be subject to additional tax, unless you register for protection.”

Farmers also shouldn’t rush to cash in their pension, as many older schemes have extremely attractive annuities at rates of up to 15% per annum of the pension fund, warns Mrs Banwell. “You won’t get that sort of return anywhere else, so be very careful – make sure you understand the full implications before making any changes.”

Old MIll

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