Inheritance tax warning: Pension savers risk being ‘caught in the net’ of Reeves’s tax reforms
Savers are becoming increasingly concerned about the inheritance tax (IHT) raid on pensions, according to new research from Standard Life.
Three in ten UK savers believe recent Autumn Budget changes will reduce the amount they can leave to loved ones in inheritance, a survey conducted by the firm found.
The findings come after last month’s announcement by Chancellor Rachel Reeves, which confirmed pension savings will become liable to pay IHT.
Said changes are prompting savers to reconsider their retirement and inheritance planning strategies, as they anticipate being caught in the inheritance tax net.
Reeves’s changes are expected to affect 10,500 estates with inheritable pension wealth in the 2027-28 tax year.
An extra 38,500 estates will face increased inheritance tax charges, with an average of £34,000 in additional tax due to pension assets being included in estate valuations.
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Savers are anxious over paying more inheritance tax, according to a new survey
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The measure represents a significant shift in how pension wealth is treated for inheritance tax purposes, with an estimated 1.5 per cent more UK deaths becoming liable for the tax.
These changes have prompted savers to explore various strategies to manage their pension assets and potential tax liabilities. In response to these changes, savers are actively exploring different approaches to manage their inheritance planning.
Some 21 per cent are considering taking out an annuity in retirement to navigate the new tax landscape. Meanwhile, nearly a third of savers are contemplating making more regular financial gifts to family members as a strategy to avoid inheritance tax charges on their pensions.
Mike Ambery, Retirement Savings Director at Standard Life, emphasised the importance of effective pension asset management following the Budget changes.
“Pension and inheritance tax changes in the Budget have put renewed focus on the need for people to make sure they are effectively using their pension assets throughout retirement,” the Pensions Minister said.
“The changes could mean more savers expect to be caught in the IHT net and will begin looking for ways to navigate this to reduce the value of the inheritable funds.”
He noted that annuities could offer a practical solution for some savers.
“As you don’t need to use the full pension pot when buying an annuity, this approach would allow retirees to provide themselves with a guaranteed income to live on while lessening any IHT bill,” Ambery explained.
More pensioners are at risk of paying extra tax GETTY He stressed that people should seek professional guidance when making retirement decisions, as the Budget changes will affect individuals’ finances differently.
Alastair Black, Abrdn’s head of savings policy. compared the changes to IHT rules to the current status quo.
Black shared: “Currently, most pensions are passed on after the age of 75, at which point those inheriting the pension need to pay income tax on the money they receive.
“Adding IHT on top of this could see the estate and the recipient paying tax twice between them on a proportion of the same pounds “It certainly adds new complexity to estate planning, and will increase demand for advisers’ help in developing more sophisticated strategies.”
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