How the recent budget could affect your pension if you are over 75

Published:  December 2024

The recent Autumn Budget introduced significant changes to the way pensions will be treated under inheritance tax (IHT) rules from 6 April 2027, which could have meaningful implications for those over 75.

This will particularly affect those who have built up large private pensions and other savings/investments, as well as property.  The proposed changes will not affect final salary pensions where an income is already in payment.  What about annuities?

Currently, pensions are not subject to Inheritance Tax on death, but are subject to income tax if the policy holder dies after their 75^th birthday.  This is chargeable on the beneficiaries when they come to draw the benefits. However, on 30 October 2024 Rachel Reeves announced that pensions from 6 April 2027 will fall under inheritance tax rules and the value of the pension will be subject to inheritance tax at 40% if the estate value exceeds allowances.  This is in addition to the income tax that will be charged on the beneficiaries when they come to take benefits.

In the past it has usually been favoured to draw down on non-pension assets first, as this saves both income tax now and inheritance tax in the future.  However, this may no longer be the right strategy, especially if you are a basic rate taxpayer.

If you intend to leave your pension to loved ones, the impact could be substantial.

What should you do?

• Review your pension strategy.  For those over 75, ensuring your pension withdrawals are aligned with your needs and inheritance goals is crucial.
• Update your beneficiaries.  Ensure the people you want to benefit from your pension are nominated to receive the assets.
• Seek financial advice.  Tax rules are complex, and professional advice can help you minimise the tax burden for both you and your beneficiaries.

There are ways in which your liability could be reduced, and we would recommend you seek financial advice should you wish to reduce your inheritance tax liability for your beneficiaries.

Due to the impending change in rules, we would also suggest you ensure your Will remains correct and reflects your wishes on your death.

If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.

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Disclaimer

Opinions constitute our judgment as of this date and are subject to change without warning.  The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.

The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.

The Financial Conduct Authority does not regulate estate planning and tax planning.

The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing.  Levels, bases and reliefs from taxation may be subject to change.