Last week’s budget finally provided clarity on inheritance tax (IHT) changes, marking a significant shift for estates and beneficiaries across the UK. Chancellor Rachel Reeves confirmed that, starting April 2027, unused pension funds and death benefits would be subject to IHT. This move aimed to close a “loophole” that allowed tax-free inheritance of pension wealth, aligning it with other inherited assets.
What This Means for Estates
Prior to this announcement, pension freedoms and the abolition of the Lifetime Allowance enabled individuals to accumulate unlimited pension savings without IHT, making pensions a useful tool for wealth transfer. However, with the new policy, most unused pension assets will no longer be exempt from IHT, requiring a rethink in estate planning strategies.
The Main Areas of Change
- IHT Thresholds – Thresholds remained unchanged, but the projected £2 billion savings signalled a strategic shift.
- Inherited Pensions – From April 2027, defined contribution and benefit schemes passed on after death would face IHT.
- Business and Agricultural Relief – Adjustments were announced, with further details expected.
Next Steps for Estate Planning
These changes call for a re-evaluation of estate planning strategies. If you’re considering how last week’s announcements might impact your plans, our advisors at Soteria Planning are here to help you navigate this evolving landscape. Contact us or book a FREE consulation with one of our advisors.
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