By Craig Reid, Partner
Despite some concern and protest, the Government has recommitted its intention to make unspent pension pots a part of a person’s estate for Inheritance Tax (IHT) calculation.
The change is still set to come into force from 6 April 2027, and will have a profound impact on the way that people structure their finances.
If you have been saving into a pension pot for years, you might now be worried that your family will miss out.
We are going to look at the proposals and see how you can handle the changes to protect your family.
How will pensions now be impacted by Inheritance Tax?
Your pension savings have long lived in a vault outside your estate and have been fully exempt from IHT.
This has meant that pensions were a good way to have tax-efficient savings that could pass to loved ones untouched.
That exemption made pension planning a cornerstone of efficient wealth transfer, resulting in many people forgoing pay rises and putting the money into pensions instead.
The dream of pension points turned sour with the 2024 Autumn Budget announcing that any “unused” pension funds, even death in service benefits, would be added to your estate value.
Most troubling is that the burden of handling the IHT admin falls to personal representatives, or executors.
These are often grieving family members who are not likely in the best headspace to deal with tax filings while mourning their loss.
However, they will have to work within a tight six-month deadline to avoid facing penalties and fines.
This was why the move faced considerable backlash, yet the Government has declared it will press on regardless.
How will the changes impact my family?
It is estimated that 10,500 estates that previously paid no IHT will become liable under these new provisions.
Alongside this, a further 38,500 estates will see higher bills as the changes will add roughly £34,000, on average, to their liability.
It is entirely possible that you are now facing down the threat of an IHT bill where once it might not have affected you.
The changes to pension considerations are only one part of the tapestry of IHT reform that serves to pull more and more people into the firing line.
There had been some hope that pension providers could have dealt with IHT on behalf of bereaved families, but this seems not to be the route the Government is pursuing.
As such, it may be time to rethink your investment strategy to spare your family the additional challenge of navigating IHT filings.
We are on hand to help you and your family understand the changes and mitigate as much of the impact as possible.
There is still time to address where your money resides ahead of the implementation of the policy in 2027.
Your money should help you and your family, and we can help make sure that you retain control over your financial future.
Take back control of your family’s finances. Speak to our team today!