Potential Inheritance Tax changes to pension pots – What it could mean for you

Speculation is mounting after the Institute for Fiscal studies (IFS) suggested changes to Inheritance Tax (IHT) on defined contribution pension pots, which could make estate planning more complex.

These rumours have come about as people speculate as to where the new Government will fill the so-called £22 billion black hole.

Current Inheritance Tax rules on pension pots

Currently, defined contribution pension pots are exempt from IHT. If the pension pot owner dies before age 75, the funds can typically be withdrawn tax-free.

If the owner dies after age 75, any withdrawals are subject to Income Tax, but not IHT at present.

Potential changes and their implications

David Sturrock, an economist at the IFS, has suggested that introducing IHT on pension pots could generate between £1 billion and £2 billion annually by the end of the decade.

If such changes are implemented, it could drastically affect estate planning.

Including pension pots in your taxable estate would demand precise valuations, potentially complicating and delaying the estate settlement process.

Accurate and up-to-date estate documentation will become even more vital.

Preparing for potential changes

To prepare for potential changes, consider reviewing and updating your estate planning documents, including your Will, to ensure they accurately reflect your wishes.

It will also help to remain informed about possible legislative changes in the coming weeks and months.

While no official action has been taken yet, being proactive in your estate planning can help ease any future complications.

If the rumoured changes come into action, it is likely they will be revealed in the next Budget, which has been scheduled for 30 October.

Our team specialises in IHT and estate planning services, providing expert advice to help you pass assets to your beneficiaries in the most tax-efficient way.

For further advice on the rumoured changes or for assistance with your IHT and estate planning, contact us today.