What You Should Do About Pension and Tax Changes

There’s been a lot of chatter lately about changes to Inheritance Tax (IHT) and pensions – following Chancellor Rachel Reeves big announcements in last year’s Budget.

Starting in 2027, pensions will count towards your estate for IHT purposes.

And, it’s fair to say this news has caused quite a stir!

So, if you’re like many other Teessiders planning to retire soon, you might be wondering how to protect your hard-earned savings and ensure your loved ones aren’t hit with a hefty tax bill. But don’t worry, Joslin Rhodes is here to help clear things up.

In this blog, we’ll tell you what’s changing, how it could affect you, actions you might want to consider, and why speaking to an expert Financial Adviser could make all the difference for you and your family.

What’s Changing?

From April 6, 2027, new rules will change how pensions are treated for Inheritance Tax (IHT). Here’s a simple breakdown:

• Pensions Will Count Towards Your Estate – Most unused pension pots and death benefits will soon be included in your estate for IHT purposes.
• You Could Face 40% Tax on Amounts Over the IHT Threshold – If your total estate (including your pension) exceeds the IHT threshold (£325,000 for individuals or up to £500,000 with the residence nil-rate band), any excess will be taxed at 40%.
• Inherited Pensions Could Face Up to 67% Tax After Age 75 – If you pass away after 75, your loved ones might have to pay both income tax and IHT on any pensions they inherit, meaning tax rates of up to 67%.
• Which Pensions Are Affected? – Both Defined Contribution (DC) (sometimes called money purchase) and Defined Benefit (DB) pensions (also referred to as Final Salary Pensions), plus lump sums paid at trustees’ discretion, will now be included in your estate for IHT.

How Are People Responding?

Understandably, this news has left many scratching their heads. And, according to recent research.

• 26% of investors plan to withdraw pension funds early to reduce their tax burden.
• 21% intend to gift money to family members to avoid Inheritance Tax.
• 18% are looking to spend their pension pots faster to lower the value of their taxable assets.

While these might sound like quick fixes, they come with long-term consequences if you’re not careful. That’s why more people are turning to Financial Advisers to help them understand their options and make decisions that work for the specific circumstances. So, if you want to avoid paying the tax man more than necessary, we always recommend speaking to a local expert.

Steps to Protect Your Wealth

As the old saying goes ‘nothing is certain except death and taxes’ – but it’s not all doom and gloom.

Here’s a few steps you can take now to protect your legacy:

• Review Your Estate Plans:
  Now’s a great time to check that your Will and estate plan reflect your current wishes. Are you using all available tax allowances, such as the nil-rate and residence nil-rate bands? If you don’t have a Will yet, there’s no better time to get started. Find out why it’s so important here.
• Explore Lifetime Gifts for Your Loved Ones:
  Even with a robust plan in place, it’s important to regularly review your pension strategy to ensure it aligns with your wishes and the latest tax rules. With the changes coming, you might decide you’d like to give away some of your assets to your loved ones while you can watch them enjoy it! This could be achieved through Lifetime Gifts, but the rules around what can be gifted can be confusing. If you’d like to explore this option, get in touch.
• Consider Setting Up Trusts:
  Trusts, such as pension and property trusts, are a great way to protect your assets and make sure they go to the right people at the right time and may potentially reduce your Inheritance Tax exposure.

Why Speak to a Financial Adviser?

We know tax rules are complicated and seemingly ever-changing, but you don’t have to figure them out on your own. At Joslin Rhodes in Stockton-on-Tees, we’re here to help you make sense of it all.

What we can do for you:

Break It All Down: We’ll explain exactly how the changes affect you and your family, without any jargon or confusion.

Tailor A Plan to Your Needs: We’ll work together to create a plan that protects your wealth and reduces your tax bill, all while keeping your retirement goals at the forefront.

Help You Avoid Missteps: We’ll guide you away from common mistakes, like withdrawing money too soon or cutting contributions, so you don’t risk your financial future.

Give You Peace of Mind: With a solid plan in place, you can relax and focus on enjoying life, knowing everything’s taken care of.

Let’s Chat

The key to making informed decisions is getting the right advice at the right time. At Joslin Rhodes, we’re here to take the stress out of retirement and estate planning and help you make the best choices for not only your future but that of your loved ones.

If you’d like to chat about how these changes affect you, get in touch today.

*Stats sourced from Charles Stanley Direct

Joslin Rhodes Pension & Retirement Planning – Real Advice, For Real People