Finally, remember the ‘even-year rule’ to further mitigate nasty tax bills for spouses, children and other people inheriting what is left of your wealth. If there is inheritance tax to pay on death, it is charged at 40 per cent on gifts given in the three years before you die.
Gifts made three-to-seven years before your death are taxed on a sliding scale known as ‘taper relief’ until you reach seven years when there is no tax on gifts.
So, encourage clients to start a regime of gifting (to those set to inherit anyway) as early as practicable. If they give to charity, they may wish to increase or regularise gifts to their favourite charities from their early 80s.
• Annual allowance, MPAA and LTA are set low enough to catch more and more in-retirement boomers each year.
Key Points
- Changes in the tax landscape mean that decumulating clients have to be careful about not triggering any tax charges
- Capped arrangements must be reviewed every three years
- Annuities are an increasingly attractive option
The reality is that the three pensions tax allowance thresholds now controlling what benefits are subject to tax when in decumulation are all set low enough to catch more and more in-retirement baby boomers each year.
After all, upwards of 70,000 of them are reaching their 65th birthday every year in the UK for the next 15 years and nearly 19 per cent of the total population of the UK is now over age 65. But there are no signals from HM Treasury that this complex pensions tax web will be made easier anytime soon.
In much the same way that a good snooker player plans several shots in advance, an adviser with clients aged between 50 and 75-years-old needs to build a plan that will dance around these allowances without incurring unwelcome tax charges, whilst retaining the flexibility to deal with modern employment patterns in which, especially close to retirement age, earned income can be volatile.
Adrian Boulding is director of retirement strategy at Dunstan Thomas
