For many people, your pension will form a significant part of your estate and may hold significant value by the time you finish paying into it.
Pensions can be passed on to loved ones as inheritance, including spouses, children or grandchildren, if it is unspent in your lifetime.
While many people choose to spend their pension in full, there are many reasons why this might not be the case, including:
Pension pots are a popular way to pass a substantial portion of your estate to your loved ones tax-efficiently as this money is not subject to Inheritance Tax (IHT) – but this is changing.
The 2024 Budget
In a bid to close a £22 billion “black hole” in public finances, Chancellor Rachel Reeves announced changes to the rules around IHT in the Autumn Budget.
From April 2027, unspent pension pots will be brought into the scope of IHT.
This will have a significant impact on your ability to pass down wealth to your loved ones tax-efficiently – making it more important than ever to plan proactively.
The Government is also scaling back key reliefs, limiting the full 100 per cent benefit of Agricultural and Business Property Relief to the first £1 million of combined assets, with relief dropping to 50 per cent beyond that.
With this in mind, you should be looking at planning ahead to minimise the IHT due on your estate.
Reducing your bill
For many estate owners, bringing pensions into the scope of IHT will result in an inevitable increase in the IHT due on their estate.
However, there are steps you can take to mitigate this, including:
Remember that anything passed to your spouse is free from IHT, including gifts made during your lifetime from your pension.
To plan your estate and pass on as much as possible to your loved ones, contact our team to discuss your needs.
