House of Lords<\/a> Economic Affairs Committee report on the inheritance tax measures being introduced: \u201cThis removes distortions resulting from changes that have been made to pensions tax policy over the last decade, which have led to pensions being openly used and marketed as a tax planning vehicle to transfer wealth, rather than as a way to fund retirement\u201d.\n<\/p>\n\n It does appear somewhat perverse that individuals could draw capital and income from other assets whilst leaving pensions deliberately untouched (purely motivated by their favourable inheritance tax treatment). With the design and the intent at odds, in such a scenario, it does make government intervention look like fair game.\n<\/p>\n
\n But on the other hand, it does feel grossly unfair that many more ( not just those looking to exploit the favourable inheritance tax treatment in the extremis) will now find themselves potentially facing an unexpected inheritance tax bill, for simply following long-standing rules only to have the goal posts moved many years, if not, decades down the line.\n<\/p>\n
\n Some will no doubt argue that they would have entirely different decisions had they not been working off misplaced trust \u2013 after all they kept up their end of the bargain by saving for their own retirement, so it is only reasonable to expect the same from the government.\n<\/p>\n
\n This would also appear to fly in the face of the government\u2019s own \u2018predictability and stability\u2019 principles when it comes to deciding tax policy.\n<\/p>\n
\n Worse still, income tax can also apply to unused pensions on death. When death occurs at age 75 or above, pensions will be taxed at the beneficiary\u2019s marginal rate in addition to any inheritance tax. It is not difficult to image that many will find this potential double taxation particularly aggravating.\n<\/p>\n
\n With the cause established, the effect will naturally be more and more attention turning to estate planning. Demand for advice in this area has already significantly ramped up since the inheritance tax changes to unused pensions on death were announced at the Autumn Budget in 2024.\n<\/p>\n
\n An added complication to estate planning is that it is not only an individual\u2019s property, money and possessions that are in scope of inheritance tax, but lifetime gifts made within seven years of death are also included (unless an exemption applies).\n<\/p>\n
\n But it is important to note that gifts to spouses and civil partners are exempt (assuming they are a UK long-term resident).\n<\/p>\n
\n Otherwise, where the nil rate band is exceeded, gifts made within three years of death attract inheritance tax at the standard 40% rate. Taper relief reduces the rate on a sliding scale for each additional year thereafter, until seven years have passed (at which point the gift has become a successful potential exempt transfer).\n<\/p>\n
\n However, where it can be shown that a gift is normal expenditure out of income it qualifies for an exemption provided it leaves the individual making the gift with sufficient income to maintain their usual standard of living.\n<\/p>\n
\n Pension income, including tax-free cash, counts as income for this purpose. So, this offers an option for those facing a potential inheritance tax liability.\n<\/p>\n
\n Pensions have essentially gone from a safe haven to potential liability from an inheritance tax perspective. In turn, twenty years on since the introduction of pensions simplification, pensions and the decision making around them has never been more complex.\n<\/p>\n
\n But key here, as it is with any difficult task, is not putting it off. Those who make proactive adjustments or identify the need to seek professional advice in early course will be best placed to avoid inadvertently contributing to the growing inheritance tax take.\n<\/p>\n
\n Lee Halpin is head of technical services @sipp<\/p>\n","protected":false},"excerpt":{"rendered":"An ageing population and increases to asset values are factors at play here, as is fiscal policy: frozen…\n","protected":false},"author":2,"featured_media":549860,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,4174,4175,56,54,55],"class_list":{"0":"post-549859","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-personal-finance","11":"tag-personalfinance","12":"tag-uk","13":"tag-united-kingdom","14":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/549859","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=549859"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/549859\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/549860"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=549859"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=549859"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=549859"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}