HMRC is set to share draft legislation on new inheritance tax (IHT) pension proposals later this year. These changes are expected to have significant implications for pension planning and estate management. We were expecting draft legislation earlier than this, but the government need time to devise the new rules after further consideration of the impact whilst digesting industry views and concerns.
Under the new proposals, the value of pensions will be included in the estate for IHT purposes starting from April 2027. This means that pensions, which were previously exempt from IHT, will now be subject to the same tax rules as other assets in the estate. As a result, careful estate planning will be essential to manage potential IHT liabilities and maximise the benefits for beneficiaries.
The current basic nil-rate band (NRB) for IHT is £325,000 per individual. Any value above this threshold is subject to a 40% tax rate on the chargeable value of the estate, after deducting any liabilities, reliefs, and exemptions that apply. Additionally, a residence nil-rate band (RNRB) was introduced in April 2017, which provides an additional threshold of up to £175,000 for the main residence passed to direct descendants. However, this threshold is progressively reduced for estates valued at more than £2 million.
It is important to note that the draft legislation will be shared later this year, and HMRC will also provide a response to the issues and views raised during the consultation period. This response will address any concerns and provide further clarity on how the new rules will be implemented. It is crucial for individuals to stay informed about these developments and seek professional advice to ensure their estate plans are up-to-date and compliant with the new regulations.
Industry experts have expressed concerns about the potential impact of these changes. They worry that including pensions in the estate for IHT purposes could lead to significant tax liabilities for beneficiaries, potentially reducing the overall value of the inheritance. Additionally, there are concerns about the complexity of the new rules and the administrative burden they may impose on both individuals and financial advisors.
Reviewing your estate plans and considering the impact of these upcoming changes on your financial situation is essential. Consulting with a financial adviser can help ensure that your estate is structured in a way that minimises IHT liabilities and maximises the benefits for your beneficiaries.
Get in touch
For further information or advice on how the changes may impact you, please contact our financial planning team by emailing financialplanning@pmm.co.uk or calling 01254 679131.
A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.