The UK government is introducing major changes to inheritance tax planning from 2027.
People inheritance tax planning in Cheshire or Oswestry may be aware of the proposed changes, with financial advisers reporting an increase in the number of affluent families trying to beat the new inheritance tax regime. They have observed mounting concern from clients over potential tax hikes on higher-than-average defined contribution pots.
Some affluent families have been fast-tracking ‘gifts’ to their adult children and withdrawing lump sums from their pensions, ahead of schedule. This is because unused retirement savings are set to be absorbed into overall estates and taxed accordingly, from April 2027 onwards. Thereafter, most unused pension wealth will fall within the scope of inheritance tax.
The government is predicting that in 2027-28, a further 10,500 estates will be liable for IHT following the rules change, whilst an estimated 38,500 will pay an average of £34,000 more in liabilities. With under a year to go, some financial experts claim people are being forced to rethink their retirement plans, having not previously factored in a new tax when setting up their pension pots.
Effective from April next year, unused pensions could be hit by a 40% IHT charge in situations where the value of the total estate is over the £325,000 nil-rate band. This explains why ‘gifting’ has become a useful vehicle for reducing inheritance tax liability. The key exemptions are the £3,000 annual gifting allowance, and the ‘seven-year rule’ which stipulates that no tax is normally due on gifts provided you live for seven years after formally agreeing them.
