As unused pension pots enter the inheritance tax orbit, Oliver Smyth, director at YorWealth, explains the implications of the changes and potential tax mitigation options
When Rachel Reeves announced large scale changes in the 2024 Budget last autumn, much of the focus at the time centred around the changes to the level of National Insurance contributions to be paid by employers.
Whilst understandably being the headline-grabbing change with economic growth being one of the many major challenges facing our economy, one of greater concern within the financial planning industry was the introduction of pension assets to an individual’s estate from April 2027.
Pensions are primarily a tool to fund an individual’s retirement however, they have also been used as a means of transferring wealth through generations.
Current defined contribution pension scheme pension rules dictate that, if death occurs before age 75, the pension can be passed on to a nominated beneficiary as a tax-free pot, to be retained as a pension investment, or drawn as an income and/or lump sum. If death occurs after age 75, the pension can be passed on subject to the receiving individual’s marginal rate of income tax on any drawings.
