There could be further tax changes in the Autumn Budget
Families could soon see their pension tax bills go up by many thousands of pounds. A new 40 percent tax is coming in that will apply to pensions, with the date set for when the new levy will come into force.
Penny Cogher, partner at law firm Irwin Mitchell, reminded families that changes to inheritance tax to make pensions liable for the tax are “in the pipeline”. The 40 percent tax applies to any total inherited assets above certain thresholds.
At present, pensions are not considered part of your estate for inheritance tax purposes. But Chancellor Rachel Reeves announced in last year’s Autumn Budget that they would become liable, from April 2027.
Ms Cogher said: “The legislation has been drafted. There is plenty of consultation going on – as expected for a whole new tax regime. If this is an issue for you (and it does only seem to be a problem for the minority of the population) then start taking action now.
“There’s still time to do some planning before April 6, 2027, which is the current start date. Everything else is just speculation.” George Williamson, CEO at family loans firm Level Group, said there could be further changes to inheritance tax announced in this year’s Autumn Statement.
Chancellor Rachel Reeves will present her budget before Parliament on Wednesday, November 26. Mr Williamson said: “There’s wide speculation that the budget will see increases to the amount of inheritance tax raised through variety of methods.”
He said such changes could include reducing the tax-free allowances, such as the individual £325,000 you can pass on when you die without paying inheritance tax on this amount. There could also be cuts to the additional £175,000 allowance you get when passing on your main residence to a direct descendant.
You can pass on any unusued allowances to your partner, meaning they could get up to £1million in allowances. Mr Williamson said there could also be changes to the gifting allowances, whereby you can give away certain amounts tax-free.
He said: “Another potential change could see an update to the ‘7-year rule’, where any gifts to relatives must be seven years in advance of death, otherwise the gift will be subject to tax. The number of years could be lowered to increase the number of gifts subject to tax.”
You can also give away up to £3,000 a year divided between any number of people. There is also the option to give any number of gifts of up to £250 to different people, provided you haven’t used any of your other allowances on them already.
Mr Williamson said: “There’s been further speculation around introducing bands of taxation, too. The current rate of tax sits at 40 percent, but a staggered approach of 30 percent, 40 percent, 45 percent and so on could be introduced depending on the value of the estate, as opposed to the current 40 percent figure in isolation.”
There is one way to get a reduced rate under the current rules. If you give away at least 10 percent of your estate to charity, the remainder of your taxable estate may qualify for a 36 percent rate.
