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In the October 2024 Budget the chancellor Rachel Reeves made several changes to the Inheritance Tax (IHT) regulations, with a view to increasing the tax collected.

With the announcement that the government are continuing the freeze on the IHT Nil Rate Band at £325,000 and the Residential Nil Rate Band at £175,000 until 5^th April 2030 it became apparent that more estates could potentially become liable to pay IHT than ever before.

The change that seems to have had the most press coverage is the change to the Agricultural and Business Property Reliefs available for farming businesses, but another change was made that we believe could impact far more people.  This is the change to the Inheritance Tax provisions around pension pots.

Currently pension pots are largely ignored for IHT purposes.  It may therefore come as a surprise to anyone inheriting someone’s hard-earned savings, after 6^th April 2027, that they have a tax bill waiting for them because of the funds in the pension pot. 

These changes won’t affect everyone.  If the pension holder dies before the age of 75, or their pension pot isn’t very large, most of their pension can still be inherited tax free.  However, if they are over 75 then a significant tax bill might arise where a sizable pension pot has been built up.

This means that a significant shift needs to be made in financial planning strategies for many families where it was intended that the pension pot would be used to pass on wealth down the generations free of IHT.  

There are some simple steps that we would recommend to check your position:

1. We would recommend talking to your family about your pension pot and inheritance plans. You may you know what your family expects or believes will happen to your estate, but they may have very different ideas.
2. We suggest that you take financial and legal advice. It is vital that you understand what your current position is and what you can do to improve that.

 

A Financial Advisor can help you to understand your current position with any investments and pensions that you hold and the changes that you can make.

A lawyer can look at the bigger picture with you, consider all of your assets and your family dynamics to try to ensure that you take any necessary steps during your lifetime and set up your Will so that the administration of your estate runs smoothly after your death.

As an aside we would also recommend doing a full financial audit and making sure that either your family or your trusted advisors know the extent of your assets and investments.  Getting all of your documentation up to date and in order can be one of the kindest things you can do for your family.

If you would like to discuss your situation please contact Cath Collins on 01945 898090 or contact her via email at This email address is being protected from spambots. You need JavaScript enabled to view it..