Big changes are coming to inheritance tax in the UK, and it’s time to pay attention! Starting from 6th April 2027, unspent pension savings will be included when calculating inheritance tax for the first time. This could affect around 10,500 estates across the country, introducing some households to the tax for the first time while increasing bills for another 38,500. The average increase in tax bills is expected to be a shocking £34,000!
Until now, pension pots were safe from those inheritance tax calculations. But from 2027, they’ll be lumped in with everything else you own, like your property and savings. The 40% inheritance tax will apply on amounts exceeding certain thresholds, currently set at £325,000 (or £500,000 when property is passed to descendants, subject to conditions).
Here’s what you need to know: The state pension is not affected—it ends upon death. These changes concern your private and workplace pensions. Also, anything left to a surviving spouse or civil partner remains exempt.
If your plans involved handing down a tidy sum to your children or grandchildren, it might be time for a rethink. One option might be making gifts to family members during your lifetime. Gifts made seven years prior to death are usually exempt, and even those made within three to seven years may benefit from reduced tax rates.
The key takeaway? It’s time to get proactive! It might be worthwhile to reassess who you’ve designated as beneficiaries on your pensions, and consider consulting a tax professional for guidance. Trusts could also play a role in your estate planning, though they come with their own complexities.
Stay informed and prepare yourself—and your loved ones—for these significant changes ahead!