Rethinking your intergenerational wealth planning.

As announced in the Autumn Budget 2024, unused pension funds and death benefits will now be included in the value of a person’s estate from April 2027 and will now become liable for Inheritance Tax.  

For the vast majority of clients who will be relying on their pension savings in retirement this isn’t necessarily an issue. However, for wealthier clients, especially those who are living in areas where house prices have been inflated in recent years, this has become a real concern.

As a brief reminder, Inheritance Tax (IHT) allowances are currently £325,000 per person plus a residency allowance of £175,000, giving a total allowance of £500,000 per person.

A married couple could therefore expect a total allowance of £1m.

Any estate valued at over £1m could be taxed at 40% which is a significant amount, especially if the estate has been passed down through generations and previously been subject to IHT.

We are still not 100% clear on how this will be implemented, but there are a few hints and tips we would like to share with you which you may find useful in your estate planning.

Tie the knot! If you are already married then great, as spouse-to-spouse transfers are exempt from IHT. If you’re not married or in a civil partnership, then unfortunately your partner and beneficiaries may face a bill.

Timely gifts. Gifts that exceed the allowances permitted by HMRC could be liable to IHT if made within seven years. By making these gifts earlier, when you are in good health and likely to survive seven years gives peace of mind that IHT is not applicable.

Too much income? If you receive too much income you can give it away. The arrangement must be formalised and regular, with proof that your standard of living is not impacted.

If you are gifting from your pension and paying income tax, consider gifting to family members who are not using their tax allowances, especially pensions as suggested in our previous tax article. The tax won’t come back to you, but at least someone you care about can benefit.

Be charitable. Donations to charity are also exempt. You can choose to give in life or in death, and therefore reduce the value of the estate.

There are other investments and trusts to explore, which have a more attractive rate of 20%, but they are expensive and higher risk. So, if none of the above work for you then have a great time spending!

Call us if you have any questions about IHT and gifting.