IHT (Inheritance Tax) is Britain’s most hated tax, and it is no longer a tax on the very wealthy.
We’re paying more (IHT) than ever before, and we are about to pay more!
Consultation is now well underway to bring pensions inside estates from 2027. How does this affect me you ask?
Here’s the thing, on your death, unless your married (as there’s no IHT between spouses, they’ll tax that later!) if the value of your pension pushes you above the IHT threshold (currently frozen at £325,000 per person), will cost your family an eye watering 40%.
To add insult to injury, because of a little-known rule depending on what age you die i.e. before or after age 75, then whoever you nominate to inherit your pension could also pay income tax when drawing funds.
Worst case scenario- If the pension trustees use their discretion to pay the pot to a non-exempt beneficiary i.e. anyone who’s not a spouse or a charity, and they happen to be a higher rate taxpayer, the effective rate of tax for accessing the funds will be up to 67%!
An expression of wish guides the pension scheme administrator on what the scheme member would like to happen to their pension when they die. This is crucial to get right pre and post 2027.
If you think you are unlikely to spend your pension savings in your lifetime it’s important to think about what the funds means to you and how you want them to be used.
So, who would you rather inherit your pension funds then? The Chancellor or your Children? I think I could guess but if you want to do everything in your power to make sure all those hard-earned savings go to who you want, call us.
We’re having lots of conversations with clients about this right now and with careful planning the outlook needn’t be so bleak.
The first hour is free.
Pippa Vaughan-Avery is the Executive Director and Chartered Financial Advisor at Abacus Assurance