There's been a lot to digest since the Chancellor unveiled her Budget.
I am sorry to say that the predictions in my earlier article - Will Inheritance Tax Increase? - were correct.
On 30 October, the Chancellor announced sweeping changes to Capital Gains and Inheritance Taxes.
I intend to cover the relevant changes in future articles.
But first, let’s look at pensions.
The Budget 2024: Pensions
The Budget introduced a total change to the way pensions are treated for Inheritance Tax.
The change will take effect on 6 April 2027.
It only applies to “pension policies,” officially known as defined contribution pensions, i.e., a policy you hold with a pension company such as Aviva, Legal & General, etc.
It does not apply to final salary or “career average” schemes.
Under current laws, if you die with money left in your pension policy, it passes to your beneficiaries free of Inheritance Tax.
If you die on or after 6 April 2027, the Inheritance Tax rules will apply to your pension policy.
How Will This Impact Your Pension?
To help determine what this means in practice, we need to evaluate your current situation.
Firstly, if you are married or in a civil partnership, there will be no IHT to pay if your pension policy goes to your spouse or civil partner when you die.
Secondly, if you leave your pension policy to anyone else, the value of your pension policy will be added to the value of your estate.
The combined value above your Nil Rate Band threshold will be taxed at 40%.
The Nil Rate Band is a complex area, but the maximum for a single person without children is £325,000; for a single person with children, it’s £500,000; for a married couple without children, it’s £650,000; and for a married couple with children, it’s £ 1 million.
For example, Janet and John have been a couple for 20 years but are not married.
John’s half of the estate is £325,000, and his pension policy is £200,000.
John dies and leaves everything to Janet in his Will.
Under the current rules, John's estate will be passed on to Janet without any IHT paid.
But, if John dies on or after 6 April 2027, there will be £80,000 of IHT to pay.
Let Monan Gozzett Help
What can you do about this change?
Well, that very much depends on your individual circumstances.
Options could include lifetime gifts, transferring assets between a couple, changing how you fund your retirement, and getting married.
At Monan Gozzett LLP, we offer a free appointment to professionally review your circumstances and the options available to you personally.
These meetings can take place in our Arundel office (1 Tarrant Street), at your home, or as a video call (Teams, Zoom, or WhatsApp).
To arrange an appointment, please call the Arundel office on 01903 927055, or email me: ssampson@monangozzett.com
If you would like to speak to our expert legal team about this, or any related subject then please contact our team by phone on 0207 936 6329, Email or by completing our Quick Contact Form below.