International SIPPs for Wealth Transfer
The appeal of international SIPPs extends well beyond retirement planning and into the realm of estate planning and wealth transfer. This is largely due to the tax advantages they offer. In the context of a SIPP, money can be passed on to the next generation without being subject to the 40% inheritance tax that typically applies to wealth in the UK.
Pensions, including SIPPs, fall outside of an individual’s estate for inheritance tax purposes. So, if the SIPP member dies before the age of 75, the beneficiaries can inherit the remaining pension pot tax-free, provided it is withdrawn within two years of the member’s death. After the age of 75, beneficiaries would typically pay income tax at their marginal rate on any withdrawals.
It’s important to note that SIPPs allow you to nominate who should benefit from your pension if you die. You can choose any individual or trust, providing significant flexibility for wealth planning.
For UK domiciles living overseas, international SIPPs offer distinct advantages when it comes to wealth transfer. The tax treatment of inheritance can be complex in cross-border situations, and can potentially expose the estate to double taxation – in both the UK and the country of residence.
International SIPPs can help to mitigate this risk. By using a SIPP, the pension wealth is held within a UK tax wrapper that is recognised in many countries worldwide, protecting it from potential inheritance tax issues. This is particularly beneficial for those domiciles in countries that have a double tax treaty with the UK, as it typically ensures that the pension will only be taxed in the UK, preventing the double taxation issue.
Estate Planning and Asset Protection
The inherent tax-efficiency and flexibility of international SIPPs make them an important tool in estate planning for UK domiciles. They enable wealth to be passed down through generations in a controlled and tax-efficient manner, while also offering significant asset protection benefits.
The SIPP structure itself is protected from creditors, which can be especially valuable for those with substantial business interests or who face personal liability in their professional lives. The ability to draw benefits flexibly, often while continuing to invest, also provides opportunities to maximise the growth of the fund and thereby increase the potential inheritance for beneficiaries.