For many of our high net worth clients, one of the most important goals on their journey to financial freedom is the accumulation of a substantial pension fund. We ensure that our clients make use of all available tax allowances, and employ a blend of strategies designed to ensure that when they choose to retire they have built up substantial assets. In retirement, our focus is on the tax-efficient release of income.
Whilst retirement planning has become increasingly complicated for high net worth individuals, we create specific wealth management strategies that match your individual aims, objectives and circumstances, that utilises not only a range of pension structures, but also makes use of other tax allowances. These include building an ISA portfolio or a general investment account which can accumulate over a period and is subject to the potentially more advantageous capital gains tax regime, when compared to the income tax regime.
For those with a higher risk appetite, then investment vehicles such as Enterprise Investment Schemes, Seed Enterprise Investment Schemes and Venture Capital Trusts can be effectively deployed. Our independence means we have access to the whole of market to find the best solutions for your needs.
If you are self-employed, in a partnership, a company director, business owner or executive, we can advise you on a wide range of pension arrangements, including Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSASs). As part of our holistic approach to your finances, we will also advise you on income drawdown, cashflow management and Inheritance Tax planning.
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Back in April 2015, the government introduced some of the most significant and far-reaching changes to pension legislation in almost a century. Launched under the banner of ‘Freedom & Choice’, this raft of measures brought greater flexibility and choice to individuals and their families, including the option to flexibly access money in a Defined Contribution (DC) plan from age 55 (this rising to age 57 on 6 April 2028). We help clients ensure that financial freedom is reached as early as possible, meaning that the choice to work is often based on intellectual or entrepreneurial passion.
The Lifetime Allowance (LTA) was abolished with effect from 6 April 2024.
Historically, the LTA capped the amount of tax-relieved pension savings an individual could accumulate over their lifetime without incurring additional taxes.
Starting from 6 April 2024, this cap was replaced by two new allowances:
The LSDBA applies to the payments that use up the lump sum allowance as well as the tax-free element of serious ill health lump sums and certain non-taxable lump sum death benefits.
Under the new regime, any lump sum paid within two years of a member’s death are tax-free up to the LSDBA limit of £1,073,100 (The LSDBA may be more than this if an individual holds a valid lifetime allowance protection). The £1,073,100 is reduced by any amount withdrawn under the LSA.
Amounts exceeding the LSDBA will be subject to the beneficiary’s marginal rate of income tax. This applies regardless of whether the funds are crystallised or uncrystallised, simplifying the tax treatment of these benefits.
For individuals who die after age 75, the treatment of death benefits remains largely unchanged. Beneficiaries will continue to be taxed at their marginal income tax rates, whether they receive the benefits as a lump sum, through drawdown, or as an annuity.
Alternatively, if pension funds are passed into a beneficiary drawdown pot upon the members death, pre or post age 75, then different rules apply:
The standard Annual Allowance remains at £60,000, following the increase in the 23/24 tax year, allowing individuals to pay into their pension each tax year and receive tax relief. Individuals are still able to carry forward any unutilised allowances from the previous three tax years.
The ‘adjusted income’ threshold for Annual Allowance tapering, remains at £260,000. Again, this was increased in the 23/24 tax year, and the minimum tapered Annual Allowance remains at £10,000 (meaning that individuals with annual adjusted income of £360,000 or more will have an Annual Allowance of £10,000).
The Money Purchase Annual Allowance (MPAA) is still £10,000 in the 24/25 tax year, again following the increase in the 23/24 tax year.This increase was to encourage those who have flexibly accessed a money purchase pension to continue working.
Pensions provide a tax-efficient way of providing for your future income needs. For example, subject to the limits and thresholds, an additional rate taxpayer (45%) receives immediate tax relief of 20% and can claim a further 25% through their tax return. This means that they can contribute £8,000 to their pension, the provider adds and invests 20% tax relief (£2,000) and then they reclaim a further 25% in respect of additional rate tax (£2,500) which in effect means £10,000 is invested and it costs them only £5,500.
For further information on how we can help you build and protect your wealth, please contact us.
