‘Pension Freedom Day’ (6 April 2015) was a watershed in making pensions more relevant to farmers. It is no longer compulsory to use a pension fund to purchase an annuity by age 75. Instead, from age 55, you can draw down any amount (or leave it invested for your future or your heirs).
The following example illustrates the flexibility:
A 57-year-old farmer has £200,000 in a pension fund but needs £50,000 to pay for a new building.
One option is to draw down the 25% tax-free lump sum, taking £50,000 from his pension with no tax. The remaining £150,000 can be left in the pension to provide future income.
An alternative option is to sell say £50,000 of land to the pension fund to release personal cash. There might be a capital gains tax liability – or there might not! The business will in future have to pay rent to the pension fund for the land – but the rent payments will qualify for tax relief and increase the value of the pension. What’s
more, the opportunity to take a future tax free lump sum remains intact.
- Make sure you have sufficient provision to live off in your later years.
- Don’t forget the State Pension –make sure you have got sufficient ‘qualifying years’ to receive a full state pension. Class 2 National Insurance Contributions (around £3.00 per week) may be the most profitable investment you ever make.
- Find out how much tax-free lump sum you can draw down from your pension pot. Other drawdowns and income are taxable.
- Check if your pension fund can be left Inheritance Tax free to your family.
- Keep a record of historic and current pension providers.
- Check what would happen to your pension plans on death – some older policies may pay out as cash while newer policies probably provide wider options. But some older policies have attractive guaranteed annuity rates.
- Seek independent financial advice.
We can put you in touch with an independent financial adviser if you would like to explore your options in more detail. Please contact us on 01392 211 233.