Changes to Inheritance Tax – Labour’s First Budget

As we await further details on the recent Autumn Budget, here’s an overview of what we know so far about how it could impact later-life financial planning. These changes could completely reshape estate planning strategies, especially for those with substantial pension savings and inheritance tax concerns.

Pensions  

Currently, unused pension savings are usually exempt from inheritance tax (IHT). This means that, unlike other assets, your pension plan is not included when calculating the value of your estate for IHT purposes.

However, from 6th April 2027, it is proposed that pension savings will no longer be exempt from IHT. This shift could lead to a considerable increase in IHT liabilities for estates impacted by the new rules.

Anyone with significant unused pension savings who were previously hoping to pass them to future generations free of tax may need to completely reconsider this estate planning strategy.

ISAs

Previously, if you invested in an Alternative Investment Market (AIM) ISA, the ISA was entirely exempt from IHT if held for at least two years. Under the new rules, AIM ISAs will now be subject to a reduced IHT rate of 20%. This change impacts many estates that were relying on AIM ISAs as part of their tax-efficient inheritance planning.

Inheritance Tax Free Investment Plans

IHT-free investment plans that invest in Business Property Relief (BPR) qualifying assets provide 100% IHT relief provided they are held for at least two years. This valuable exemption remains, however under the updated regulations, a new cap of £1 million will be established above which inheritance tax will now be charged at a reduced rate of 20%.

IHT Threshold Freeze

The current freeze in the standard nil rate band (£325,000) and residence nil rate band (£175,000) will continue to at least 2030. Meaning more and more estates will be subject to IHT in the future as asset prices rise over time.

Attend Our Later Life Financial Planning Under Labour Seminar   

The new IHT rules and other updated financial planning considerations are complex. However, as always there are things you can do. Planning and taking action now could make all the difference.

We are running two seminars - one on Wednesday 29th January and one on Wednesday 5th February (both will have the same content) 1.30pm – 2.30pm at Stoke Lodge, Shirehampton Road BS9 1BN. Get in touch to book your place and find out more about how the budget impacts your situation. Call 0117 3636 212 or email marketing@haroldstephens.co.uk.