There is much to think about after the government announced that the value of pensions would fall into the inheritance Tax (IHT) calculation from April 2027. This is possibly the biggest change we’ve seen in recent years affecting individuals and families planning for retirement.
From April 2027, the value of your unspent pension will form part of your estate, which means it could add to your inheritance tax (IHT) bill.
But this was not the only measure the government announced in the October 2024 Budget. It also slashed the limits of Business Property Relief and Agricultural Property Relief, and restricted relief for AIM-listed shares from April 2026.
These new changes only add to the immensely complex landscape that is financial planning. At PWM, we have seen individuals are often discouraged from planning based on several reasons, many of which originate from concerns over the giving up of capital or income, changes in circumstances, complexity of the financial planning landscape, or simply lack of knowledge.
But here’s how to take control of your planning and tackle your IHT liability:
Use your allowances to the maximum
This includes the different types of gifting for which you have an allowance and make full use of other tax-efficient tools such as your ISA allowances.
Remember: any gifts of capital over the annual limit are subject to IHT, which is valid for seven years after the gifting and may be triggered if the individual passed away in that period.
Protect your family against any surprise bills
There are numerous efficient financial products in the market that offer protection against specific events. For instance, protection in the form of whole-of-life assurance can be a powerful tool to meet the IHT liability.
Similarly, it’s extremely important to have measures in place to help you cover any critical illness costs, for which there are useful policies available.
Invest
Even though the government is tightening the belt on Business Property Relief (£1m limit, then 50% relief on the remaining balance with IHT charged at 20%), there are still opportunities to leverage the tax efficiencies relative to these tools.
Spend it
Any money you spend will not be part of your estate. So if there’s a holiday you’ve been dreaming of, why not consider it?
Of course, none of these estate planning steps are linear, which is why your adviser should add enormous value – and particularly because they can:
- Work in collaboration with your solicitor and other advisers to deliver a comprehensive financial plan that is tailored to your circumstances
- Establish how much money you will need throughout your lifetime so that you can afford to gift and set aside money in trusts
- Design the most appropriate solutions to best meet your needs, at the most competitive rates
- Conduct regular reviews to ensure your planning remains true to your ambitions.
Talking to our clients and managing their money is our passion. If you have any questions or concerns about your individual circumstances or how the forthcoming IHT changes could affect your wealth, please call 020 7444 4030 or email us.
Please note that this article is intended for educational purposes only and should not be taken as investment advice. Tax rules are subject to change and taxation will vary depending on individual circumstances. The value of investments can go down as well as up and you could get back less than you invested. Investment in funds will not be suitable for everybody and you should make yourself aware of the risks before investing and if you are unsure, you should seek professional advice.