Following the Budget announcement that unspent pension pots will be liable for Inheritance Tax (IHT), many people will be wondering how this impacts their retirement plans.
Previously, pensions were used by many people to mitigate IHT because they fell outside of someone’s estate for Inheritance Tax purposes, and could be passed on tax efficiently. Now, the Budget reforms may force people to reconsider how they plan to store pension money for this purpose.
Under the new rules, upon death, an estate’s IHT liability will be determined by the cumulative value of your pension(s) and other assets. If they exceed £325,000 (or £500,000 if bequeathed to a direct descendant), any pension money above that threshold will be taxed at 40%.
Following the changes, it is estimated that around 10,500 more estates will pay Inheritance Tax at 40%, with a further 40,000 subject to more IHT. The Government is hoping that by bringing pension pots into estates, this will generate an extra £1.46 billion for the Treasury by April 2030.
The good news is that the changes won’t come into effect until 6 April 2027, which is when unused pension funds and death benefits are brought into an estate for IHT purposes. The details have yet to be ironed out, and the Government is still consulting on how to implement the new tax regime. Draft legislation is planned to come into effect in 2025.
Retirees who are inheritance tax planning in Cheshire should contact the financial planning specialists at Hartey Wealth Management today to discuss their options.
