A new report by NFU Mutual reveals that thousands could face higher IHT liability by cashing in large pension pots without seeking prior advice.
Analysis showed that in the last year 15,296 pension pots worth over £50,000 were fully withdrawn, and around 2,777 pension pots worth over £100,000 were fully cashed, approximately 61.3% of which were taken without advice.
Estate planners are therefore warning clients that the cashing of large pensions could result in paying 40-45% income tax and loss of vital IHT protection.
Sean McCann, a Chartered Financial Planner at NFU Mutual, said:
“Those cashing in large pension funds not only risk a large income tax bill, they also lose the favourable tax treatment on any future growth as well as exposing the money to a potential inheritance tax charge.
Some cash in their pension funds without a clear idea of what they plan to do with the money, often putting it into a bank account.
Although it sounds counter-intuitive, for those that can afford to, pensions should be the last investment they access in retirement, because of the protection they offer from inheritance tax.
It’s concerning that more people are fully cashing in large pension pots without taking advice first.
If investors are concerned about market volatility, talking to their pension provider about lower risk funds may help them avoid an unnecessary tax bill.”
More people are now however taking advantage of early gifting to offset hefty IHT bills. It is thought that as more people become savvy to maximising inheritance wealth through early gifting measures in order to avoid high death taxes, more of the younger generation will benefit by getting on to the property ladder much earlier in life.
