How to prep your pension - and how you use it - against new inheritance tax changes

"Currently, pension savings are not used for estate valuations when calculating IHT charges when someone dies. This means money left in a pension can be passed on without worrying about generating a tax bill. But from the new tax year in April 2027, pensions will be included in estate calculations. This creates a higher chance of pushing the value of an estate above the IHT threshold, currently 325,000."

"Perhaps an individual has been drawing on other assets and leaving their pension fund untouched, but it now may be wise planning to draw on the pension income and use the other assets for estate planning arrangements. Each client will need to have specific advice on the most suitable combination of arrangements for them and for the level of risk that they are willing to take."

Significant pension tax reforms take effect on 6 April 2027, fundamentally changing how retirement savings are treated for inheritance tax purposes. Currently, pension funds are excluded from estate valuations, allowing tax-free transfers to beneficiaries. The new rules will include pensions in IHT calculations, raising the likelihood of estates exceeding the £325,000 threshold. This change coincides with inheritance tax allowances remaining frozen until April 2031, compounding the impact through fiscal drag. Financial experts recommend proactive planning during the 12-month transition period. Key strategies include reconsidering pension access timing from age 55, potentially drawing pension income earlier and using other assets for estate planning, or adjusting withdrawal strategies through annuities or drawdown arrangements. Personalized financial advice is essential to determine optimal approaches based on individual circumstances and risk tolerance.

Read at www.independent.co.uk