Pensions aren’t currently included in your estate for tax purposes, but that is set to change in just over a couple of years’ time. Starting in April 2027, pensions will be treated as part of your estate, and thus liable for inheritance tax.
So if you’ve been relying on the idea that your pension won’t be taxed when you pass it on, you’ll want to take note and figure out how to minimise the amount of tax that will be due upon your passing. We’re here to help!
WHAT DOES THIS CHANGE MEAN?
If you plan to spend your pension during your lifetime, this new rule probably won’t affect you. But for those who want to leave a pension behind for loved ones, things could get complicated. Inheritance tax applies to the total value of your estate, and with pensions soon to be counted, that could mean a much higher tax bill for your family after you’re gone.
HOW TO PLAN AHEAD
While the change doesn’t take effect until 2027, right now is the best time to start planning for it. A financial advisor can help you figure out how to manage your pension while still planning to leave something behind for your heirs. They can show you how to balance your estate, so you’re not hit with a large tax bill when you pass.
You won’t be able to avoid this tax entirely, but you can certainly reduce its impact. Advisors will also guide you on how to distribute your assets in the most tax-efficient way.
WHAT WE KNOW ABOUT THE THE CHANGES
The government hasn’t released all the details yet, but the basics are clear and as explained above: after April 2027, pensions will be counted as part of your estate for inheritance tax purposes. If your pension is sizeable, this could increase the overall value of your estate and push your beneficiaries into a higher tax bracket.
If your pension isn’t large, then this change might not matter all that much. But it’s still worth being aware of how things will shift.
WHAT SHOULD YOU DO NOW?
Now is a good time to review your pension and other assets, and think about whether you want to spend your pension in retirement or leave it behind. A financial advisor can help you see the best way to use your pension while you’re alive and how to plan for passing it on. They’ll also help you with other parts of your estate plan, ensuring that the tax burden is as low as possible for your loved ones.
Whatever you decide, don’t wait for 2027 to get your estate in order. Even with a couple of years grace, it’s important to understand the upcoming changes so speak to a financial advisor about how your pension fits into your broader estate plan. With the right approach, you can make sure your pension works for you and your family, no matter the changes coming down the road.
If you want to learn more about the changes coming to pensions and inheritance tax, as well as how you can minimise how much you would need to pay, get in touch with Integritas Financial Planners today.
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