Legacy planning with a SIPP
Why your pension is a great place to start when thinking about what to leave your loved ones.
Important information - The value of investments and the income from them can go down as well as up so you may not get back what you invest. Eligibility to invest in a SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. You cannot normally access your SIPP until age 55 (57 from 2028). It’s important to understand that pension transfers are a complex area and may not be suitable for everyone.
In the Budget on the 30 October 2024 the government announced changes to Inheritance Tax rules that will mean personal pensions will be subject to Inheritance Tax from 6 April 2027. The rules have not yet been finalised and revisions could happen before they come into force.
Legacy planning at a glance
In this section, we take a much closer look at your pension and how your loved ones can benefit from it when you're no longer around.
Pensions can be a great way to leave something to those closest to you, as they often sit outside your estate, which means they won’t normally count towards your £325,000 inheritance tax allowance (£650,000 for married couples or civil partnerships).
If you have saved into your pension plan you have a number of options to consider when deciding how much to leave your loved ones. We’ve highlighted these below:
If you don't need your pension to provide you with an income you can leave it invested. However, depending on how old you are when you die your family may have to pay tax on any money they withdraw after your death.
If you decide to withdraw money from your pension regularly or in lump sums, whatever remains when you die can still be left to your family.
What this means for the tax they will pay
If you die before age 75
- Anything left in your pension can be paid to your beneficiaries
- This could be paid as a lump sum or they can take regular withdrawals
- Generally, in either case it will be tax free
If you die after age 75
- Anything left in your pension can be paid to your beneficiaries
- This could be paid as a lump sum or they can take regular withdrawals
- Any lump sum or withdrawals paid out will be subject to tax based on the individual tax position of the beneficiary
Things to consider
There are a number of factors that may affect how much you are able to leave to your loved ones.
You should also consider updating your 'Expression of Wish' form if you haven't looked at it for a while. Generally, this should be done every 3 years to help the scheme administrators determine who to pay your pension benefits to if you die.
For your 'estate' (your property, money and possessions) to be distributed when you die, an application for the legal right to deal with your estate will need to be made to the local Probate Registry.
Family homes and inheritance tax
In addition to the existing £325,000 nil rate band, known as NRB, a dedicated main residence nil rate band, known as RNRB, is intended to protect the family home from Inheritance Tax. This applies if a home has been left to children (including adopted, foster or stepchildren) or grandchildren (family homes are transferred to spouses and civil partners tax-free). In addition, if your estate is worth less than your threshold when you die and you're married or in a civil partnership, any unused threshold can be added to your partner’s threshold. This means the tax-free threshold for the surviving spouse could be as much as £1 million.
The RNRB threshold amount for the current tax year is £175,000.
The RNRB may also be available to you if you’ve downsized or sold your home on or after 8 July 2015. This allows assets of an equivalent value to be passed on to your direct descendants.
For estates with a net value of over £2m, the RNRB will be withdrawn at a rate of £1 for every £2 over the £2m threshold.
Growing your wealth and passing it on
Your pension is just one way of passing on your wealth. It's good to understand what else is involved so that you can take comfort in the fact that you're doing all you can now, for when you're no longer here. There's more about this in our 'passing on wealth' section.
If you’re considering transferring a pension to help with your legacy planning, you should seek advice first. We offer advice that’s in your best interests, even if it means recommending that you leave your money where it is.
Call us on 0800 41 41 61. We're open 8.30am to 5.30pm, Monday to Friday and 9am to 12:30pm on Saturdays.
The Government offers a free and impartial guidance service, for those age 50+, to help you understand your options at retirement. This is available via the web, telephone or face-to-face through the Pension Wise service which is now part of MoneyHelper; the easy way to get free help for all your pension and money choices. You can find out more by going to moneyhelper.org.uk or call them on 0800 011 3797.
Important information: This information is not a personal recommendation for any particular product, service or course of action. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our pension transfer factsheet. If you are in any doubt about whether a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from one of Fidelity’s advisers or an authorised financial adviser of your choice.
Trying to manage pensions across different providers can be both time-consuming and difficult. Bringing them together into Fidelity’s Self-Invested Personal Pension (SIPP) can help you take control and plan ahead more effectively.
