I will be 75 in February, 2025. In relation to my pension of around £1.5 million it would be a good idea to die before then although I would rather not.
If I departed this world before age 75 my pension fund can be inherited by my chosen beneficiaries free of Inheritance Tax and Income Tax.
Prior to the last Budget I could die after age 75 and my beneficiaries would not be subject to Inheritance Tax on their inherited pensions although withdrawals which they make from my pension fund will be subject to Income Tax at their highest marginal rate.
The recent Budget has changed this. Effective from 6 April 2027 most pension funds and death benefits will be subject to Inheritance Tax as part of my Estate. Pension plans will be aligned with other assets for Estate taxation. On top of this my beneficiaries could face Income Tax on withdrawing from my pension fund. Three out of four of my children are paying Higher Rate Tax so another 40% tax burden on top of the Inheritance Tax 40% tax burden.
The rules do not come into force until 6 April 2027 therefore Estate planning has to start now.
My children, based on the current value of my pension fund, would have received £1.5 million and after 6 April 2027 they will receive just £900,000.
We have to wait another few weeks to see whether the Budget changes are implemented without amendment. This seems likely.
We will shortly be outlining our suggestions to remove this enormous tax burden.
Trevor Downing FPMI FPFS
