Pensions and inheritance tax: What is changing?
The changes to inheritance tax (IHT) and pensions announced in the Autumn Budget 2024 have generated significant discussion, particularly as most unused pension funds are expected to fall within the scope of IHT from April 2027. For many individuals, pensions have traditionally served a dual purpose: providing retirement income while also acting as an efficient vehicle for passing wealth to future generations. In this video, we explore what the proposed changes mean in practice, who may be affected, and why it is important to review existing retirement and estate planning strategies sooner rather than later.
One of the key themes discussed is the potential tax burden facing beneficiaries. While not everyone will be affected, there are circumstances where inherited pension assets could face both inheritance tax and, depending on the age of the pension holder at death and how benefits are accessed, income tax liabilities for beneficiaries, creating a potential effective rate of tax of 70%+ on receiving an individual’s pension benefits. This has led many people to question whether pensions remain an attractive long-term savings vehicle. The answer, in many cases, is yes. Pension contributions still benefit from valuable tax relief, tax-efficient growth and flexibility, making them one of the most effective ways to save for retirement and to invest in the UK.
The video also focuses on a number of planning opportunities that may help families adapt to the proposed legislation change. These include reviewing withdrawal strategies to determine whether drawing pension benefits earlier could make sense in certain circumstances, while preserving other assets for future generations. We also discuss lifetime gifting strategies, including the often-underused gifting from surplus income exemption, which can help reduce the value of an estate without impacting an individual’s standard of living. For many families, these strategies can play an important role in reducing future inheritance tax liabilities while seeing loved ones benefit from wealth during their lifetime.
Another important area covered is the review of beneficiary nominations, trust planning and the use of life insurance solutions. While no single strategy will be suitable for everyone, these arrangements can help ensure assets are passed according to your wishes and may provide valuable flexibility when managing future tax liabilities. The video also highlights the growing importance of intergenerational planning, encouraging families to have proactive conversations about wealth, inheritance and long-term financial objectives rather than leaving decisions until later in life.
Ultimately, the proposed pension and IHT changes reinforce the value of regular financial planning. Although the rules are not due to take effect until April 2027, there remains an opportunity to assess your position, understand the potential impact on your estate and consider what actions, if any, may be appropriate. Through the planning ideas discussed in this video, our aim is to help you understand the challenges ahead while highlighting practical steps that may help preserve more wealth for future generations
