The Inheritance Tax change could see pension pots becoming liable for descendants (Image: GETTY)
Starting this year, a number of Labour’s tax changes and the annual benefits rises will come into play, crafting a new and different financial background for many people this year.
Not even pensioners will be spared as inheritance tax changes are likely to see many leaping to decisions in an attempt to keep their funds flowing to their descendants instead of , but one thing they do have is time to prepare.
In 2027, previously tax-free pension pots and benefits will start counting towards your estate as David Piltz, CEO at Employee Benefits & HR Consulting Division in the UK, warned Reach: “In the past, unused pension benefits were generally exempt from inheritance tax.
“But under the Autumn Budget, some pension assets will need to be included in the value of the estate. This could lead to a greater amount of the estate being above the ‘nil rate band’ which is subject to an inheritance tax charge of 40%.
“The changes are due to be implemented from April 2027, but the pensions industry is providing significant feedback on the practicalities of the reforms and so the shape of the proposals could change.”
:
For those in retirement, or about to hit age, and wanting to protect their funds from this added potential tax, the finance expert recommended: “A key first step is to consider the potential exposure.
“The government still expects that the majority of estates will not pay inheritance tax, whether through the assets of the estate being below the nil rate band or because the exemption for benefits paid to a spouse or civil partner applies.”
For most, the nil rate band threshold is £325,000 with estates valued under this being free from inheritance tax liability.
However, in some circumstances taking into account properties, marriages or civil partnerships, this threshold could be pushed up to £1million being inherited tax-free.
Don’t miss…
David assured people who have calculated, or believe, they will be liable for inheritance tax they still have a “range of possible options” to bring their tax bill down such as cohabiting partners getting married, gifting non-pension assets in accordance with inheritance tax rules and changing the form of pension benefits.
He warned: “Each option comes with advantages and disadvantages and many options are irreversible and so it is imperative that financial advice is taken. Even where advice has been taken in the past, this should be reconsidered in light of the possible changes.
“Whatever steps are taken, an eye should be kept on these proposals as they develop, given the potential for changes.”
Alongside the usual estate and inheritance finance specialists that could help with this pension scheme administrators could now also be an unlikely source of advice as they give an insight into a person’s unique pension position in terms of inheritance tax too.