It may not be something that you like to dwell on, but what will happen to your loved ones after your death should be an important part of your retirement planning. After all, wouldn’t it be nice to pass as much as possible onto the next generation?
If you stay in the United Kingdom…
Unfortunately, if you stay in the United Kingdom when you retire, the Chancellor has designs on your money. With the coalition now in government, who knows what, if anything, will happen to the inheritance tax threshold. The IHT threshold may have been tweaked slightly with every Budget, but that does not change the fact that more and more people are getting caught in the inheritance tax net.
If you have already annuitized your pension, the UK rules are particularly scandalous, as the taxman virtually helps himself to the residue when you have died.
What is IHT planning?
IHT planning is what happens when a person plans their affairs in such a way that their loved ones do not have to pay as much inheritance tax. This can involve making sure that the value of your estate is below a certain level on your death, perhaps by giving away assets to your would-be beneficiaries or by using trusts.
Like any type of financial planning, it is better to start doing thinking about this sooner rather than later, although with IHT financial advisers typically understand that the investor does not want to dwell on the idea of their own death!
What does QROPS have to do with it?
QROPS are only worth considering if you are not going to be tax resident in the United Kingdom for at least 5 years. The scheme permits members of United Kingdom pension schemes to transfer their UK pension funds into approved foreign schemes without attracting an income tax charge.
However, depending on what country you choose to host your QROPS, you may be able to find a jurisdiction that does not charge IHT on it.
While you are on the subject…
While you are thinking about getting a QROPS, you may also want to review your other financial commitments and investments. After all, you may be able to carry out some inheritance tax planning on them too. But perhaps most importantly, you should consider making a fresh will. If your current will has become out of date due to the arrival of more grandchildren or other changes you might want to make to who gets what, take the opportunity to make a new one and make sure that your assets are distributed how you want them to be.