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Newsletter issue – September 2026
Q: I have three pension pots (each over £50k) that I will be able to take my 25% lump sums from soon. Is there a most tax efficient way to do this?
A: It is important to remember that your pension withdrawal strategy should be shaped by your spending needs and not just tax optimisation. Also, you do not need to take the full 25% tax-free cash (up to the value of £268,275) all at once.
It has no impact on tax efficiency how much you take from each pot (up to the limits mentioned above). But you could stagger the overall amount that you take to avoid pushing yourself into a higher income tax band.
From April 2027, anything left in your pension will be included in your estate for Inheritance Tax (IHT) purposes. If it is likely your beneficiaries will be liable for an IHT charge, they will also pay income tax at their marginal rate when they draw from those funds. However, if you move your tax-free cash into an ISA, it will only be liable to IHT.
Q: I'm the owner of my limited company and have been told that transferring shares to my spouse (who works in the business) can save tax. Can you explain how please?
A: Firstly, I will have to assume that you pay yourself a salary up to your Personal Allowance (£12,570) and take the rest of your income in the form of dividends. I will also assume that you are being taxed on those dividends at the higher rate of income tax.
If you transfer some shares to your partner, your family can use two sets of the personal allowance, dividend allowance, and possibly basic-rate dividend band (if the amount of dividends you take is now below the higher-rate threshold). This reduces the total tax paid on the same income pot, increasing the family take-home pay.
These shares must carry full voting, capital, and dividend rights. You cannot create "dividend-only" shares to funnel income to a partner as HMRC will treat the income as still belonging to the original owner if the shares lack genuine economic rights. Married couples can transfer shares at no gain, no loss for Capital Gains Tax (CGT) purposes. Any restructuring must be done properly, i.e. update Articles, notify Companies House and involve an accountant / solicitor.
There's an additional tax benefit should you sell the business. If both partners own shares, they each access CGT allowances and reliefs on the sale.
Q: I have a large life insurance policy that will put my estate over the threshold for Inheritance Tax. Is there anything I can do to mitigate this?
A: Whilst life insurance payouts themselves aren't taxed, they become part of your estate. If your estate exceeds £325k (or £650k for couples), the excess is taxed at 40%.
You can avoid IHT entirely on your life insurance policy by writing it into a trust to separate it from your estate. You appoint trustees, which can be done at any time, often free of charge for straightforward cases. They manage the policy for the benefit of the dependents you'd like the money to go to. You also avoid any probate delays in releasing the funds.
If you'd like to find out more about this, please get in touch with us.
