IHT charges can be offset with drawdown: Skandia
People eligible for flexible income drawdown on their pension savings can use the scheme to significantly reduce their inheritance tax liabilities, according to Skandia.
Adrian Walker, head of retirement planning for the firm, said flexible income can be more tax efficient because under capped income the maximum amount of yearly income was limited by legislation.
He said money held in drawdown waiting to be taken as an income was subject to a 55 per cent tax charge on death. Under capped income £53,004 would need to be moved into drawdown to generate a desired initial level of income of £15,000 net of basic rate income tax. However under flexible income, savers only need to move £17,648 into drawdown.
Mr Walker added: “Flexible drawdown was only introduced in April 2011 and it is still fairly new with a limited number of providers offering it. Wealthy individuals could consider using flexible drawdown as a way to deliver retirement income more efficiently from their unused pension savings, avoiding a potential 55 per cent tax liability if they die before age 75.”
Adrian Murphy, associate partner of Ayrshire-based Murphy Financial, said: “Utilising flexible drawdown in itself is unlikely to be an effective way to reduce an IHT liability. While the funds are in the pension, they are outside of the estate for IHT purposes.
“If someone was going to exercise the option of flexible drawdown there would have to be a good reason and a plan in place to manage the IHT generated by the assets. ”
