Home · Business · Sep 14 archive
I have a £550,000 pension at 65, but want to limit my inheritance tax bill
Developing
In Short: Inheritance tax thresholds in the UK have been frozen since 2009, leading to increased interest in lifetime gifting to reduce tax bills.
According to Rachel Vahey, head of public policy at investment platform AJ Bell, the rules around pensions and inheritance tax are changing in April. 'Inheritance tax is one of the UK’s most unpopular taxes,' Vahey explains. 'The standard inheritance tax allowance is £325,000 and has been frozen since 2009.
With a £550,000 pension pot at 65, a reader with no children but wanting to leave money to a nephew faces a significant inheritance tax bill. 'I know you can’t give advice, but is there a way I can structure my pension to cut the inheritance tax bill on it?' the reader asks.
Financial planners are seeing a rise in interest in lifetime gifting, not just because of the rising cost of living and high house prices, but also due to tax efficiency. 'With these thresholds frozen until at least 2031, more estates are falling into the net of inheritance tax,' says Inews. 'If you’ve built up substantial savings or pensions, and own your home, the frozen thresholds and inclusion of pensions mean the chances of a portion of your wealth being subject to 40 per cent IHT is increasing.
A poll by the investment platform Wealthify found that 61 per cent of parents planning to leave cash gifts to children would consider giving inheritance before death. 'The Bank of Mum and Dad doesn’t just help loved ones—it can be incredibly tax-efficient,' says Inews. 'It reduces the size of an estate, reducing a future inheritance tax bill.
Early inheritance from grandparents can make a significant difference. 'The twins say they would never have been able to buy their two-bedroom flat in North London without an early inheritance from their grandparents,' according to Inews. This example underscores the practical benefits of lifetime gifting for both the giver and the receiver.
What's still developing
- Nothing material beyond the confirmed record.