Key Takeaways from the 2024 IHT Pension Changes

Traditionally, pensions passed on to beneficiaries were IHT-free. However, the 2024 budget changes mean that from April 2027, pensions left to beneficiaries will count toward estate value, and thus, IHT. The government's aim is to prevent pensions from being used solely as IHT-saving vehicles, ensuring they serve their intended purpose of retirement income.

For many, this new rule could double then umber of estates subject to IHT. If you have significant assets, this may also push your estate over the £2 million threshold, eliminating the residential nil rate band and increasing your taxable estate further.

What Can You Do to Mitigate IHT on Your Pension?

 1.Consider Consolidating Pensions

  -Dealing with multiple pension providers after death can create administrative delays. Consolidating your pensions into one plan may streamline the process for your beneficiaries. Since IHT-related pension reporting must now be submitted to HMRC within six months of death, a consolidated pension can ease the burden on your family.

 2.Make Use of the 25% Tax-Free Cash

  -You can withdraw the 25% tax-free amount from your pension and allocate it to atrust or invest in a family investment company. Moving funds out of your estatehelps reduce the taxable estate size and future IHT liabilities.

3.Establish a Flexible Reversionary Trust

  -Placing assets in a flexible reversionary trust allows beneficiaries to access capital while keeping the assets out of the IHT calculation after seven years. This option also offers protection for assets intended for future generations.

4. Gift through a Family Investment Company(FIC)

  -If you place funds from your pension as a director’s loan within a familyinvestment company, you can withdraw or gift the loan balance over time,potentially moving it outside of your estate if done seven years before yourdeath.

5. Explore Business Property Relief Plans

  -For those over the £1 million mark , business property relief plans are anoption. While investment risks exist, these plans remain IHT-free up to £1million, offering another avenue for mitigating IHT.

6. Consider a Drawdown Arrangement

  -With a drawdown arrangement, you can withdraw pension funds as income and pass any excess income to your children, which, if done regularly, can be excluded from your estate. An insurance policy covering the drawn-down amount may be advisable.

Act Now to Protect Your Legacy

The 2024 pension IHT changes could substantially impact your estate’s tax burden. It’s essential to get specialized advice to develop a plan that aligns your IHT and retirement income strategies. Bluebond Tax Planning offers specialized expertise for clients with estates over £1 million, with extensive resources available, including webinars and consultations.

For more insights, visit our website or join one of our free webinars to learn how these changes impact you and what steps you can take.

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