Pensions come under Inheritance Tax rules from April 2027

Pensions are set to be drawn into the Inheritance Tax (IHT) net from April 2027, in a major change to the current rules, which means you need to know what to expect so you can prepare accordingly.

Currently, you can pass your pension onto your beneficiaries in its entirety without it being caught in the IHT net as part of your overall estate on death. But from April next year, this is set to change, and your pension may be subject to IHT if the value of your estate is high enough. The beneficiary who receives your pension may also face an income tax charge on any income they draw from it.

Pensions passed directly to spouses or civil partners will continue to be free of IHT. But any other beneficiary may face IHT on the pension that is passed on when you die, depending on the value of your estate.

What changes can we expect if passing on a pension fund?

The biggest change is that any pension passed onto a beneficiary other than a spouse or civil partner may be subject to IHT at 40% if the total value of your estate breaches the IHT threshold. This is currently made up of a nil rate band of £325,000, with an additional £175,000 residence nil rate band, which can be applied if you pass your home on to direct descendants. This means you have up to £500,000 each, if you have children that you can pass your family home onto.

If one spouse or civil partner dies before the other, and doesn’t use all their IHT allowances, then the surviving spouse or civil partner can use the remaining amount. This gives a total of up to £1m before IHT is applied, depending on the remaining allowance available.

Once these limits are exceeded, any amount above this level is subject to IHT at 40%. Given the average UK house price in January 2026 was £300,077, according to data from Halifax, and that the pension pot will be included in the estate from April 2027 onwards, it will be easier to breach. This means more estates are likely to be affected.

What happens to any death-in-service benefits?

Death-in-service benefits – which are paid from the pension scheme if you die while still working – will be outside of IHT. But any other death benefits paid, such as a lump sum from the pension fund, or any remaining pension to be passed on, will generally be included in the estate for IHT.

If you die before you reach 75, then anyone who you pass your remaining pension pot to, can usually draw money from the pension without income tax, but it may still be subject to IHT, unless it is passed directly to a spouse or civil partner or your overall estate is below the threshold.

If you die after age 75, then as well as IHT, any income drawn from the pension by the beneficiary will also be subject to income tax. If it is passed to your spouse or civil partner, it won’t be subject to IHT, but he or she will still pay income tax on withdrawals in this case.

How can you reduce the impact of rule changes next year?

The best way to reduce the impact of these changes when you’re passing on your pension fund, could be to start drawing down more of your pension and ‘gifting’ money to those you want to receive it. But there are rules you need to consider before you do this.

For example, you are allowed to make regular gifts of any amount of money to someone, providing it doesn’t affect your standard of living. You can also make a larger, one-off gift, but you must survive the gift by seven years for it to be fully outside of the IHT net. This is known as a Potentially Exempt Transfer. Taper relief may reduce the IHT payable if the death occurs between three and seven years after the gift is made, until it is excluded from IHT entirely.

You can also gift up to £3,000 a year in total without it being subject to IHT, even if your estate exceeds the threshold on death. If you missed gifting £3,000 in one year, you could double up in the next year. But this allowance can only be carried forward for one year.

Outside of this, you can gift up to £250 per person per year to as many people as you want, but you can’t combine this with the £3,000 gift. If you have a child getting married, you can gift up to £5,000 without the spectre of IHT, or £2,500 for a grandchild, or £1,000 to anyone else.

These rules can be helpful, but you should only do this if you are able to live comfortably on the income you have remaining from your pension, or from other sources. It is always best to take advice before you make any of these decisions, to ensure you’re doing the right thing and not breaching any rules or creating problems for those left behind.

Contact us

If you would like to find out how these rules may affect you from next year, and how to deal with them effectively, then please get in touch with us and we will explain what you need to know.

Does your family know where to find your will? Or pension?

Thousands of people die each year without a will, as more than half of us don’t have one. But even for those who have written a will, there is a good chance your loved ones won’t know where to find it when you die.

Nearly half of all couples don’t know where their partner’s will is, according to research by Canada Life, and nearly 60% of us wouldn’t know how to locate our parents’ pension policies when they are gone. These two facts have the potential to leave millions of people at risk, facing unnecessary delays to probate, and even penalties at a time of bereavement. When it comes to siblings, nearly nine in 10 (87%) wouldn’t be able to locate their brother or sister’s will.

Pensions make up the second largest part of a household’s wealth, according to data from the Office for National Statistics, second only to the value of your property. Yet nearly two in five people (37%) in a relationship wouldn’t even know where to find their partner’s pension documents in the event of their death.

Why does this matter?

If these documents can’t be found when someone dies, it means executors or personal representatives face delays in getting the information they need to deal with probate efficiently, slowing everything down at a time when emotions are high.

Pensions will become part of the inheritance tax (IHT) net in 2027, and personal representatives of the deceased will be responsible for tracking down the policies. So, not knowing where to lay hands on these documents also increases the potential risk for penalties from HMRC, if an IHT bill isn’t paid on time.

However, these are just two of the important documents a partner or family member couldn’t find. Four in 10 people couldn’t find a partner’s life insurance policy, and almost half (47%) say they couldn’t find a partner’s debt or loan agreements.

What should people do to prevent these problems?

The easiest way to make sure everyone who needs them can find documents in the event of your death is to create a specific list explaining where everything is, and to tell the relevant people – your children, partner, trusted friend and so on – where to find that list. If you leave instructions about how to deal with all your assets when you die in a will, you will save your loved ones a lot of trouble.

Liz Hardie, Tax, Trusts and Estate Planning Specialist, Canada Life said: “It’s easy to put off conversations about where important documents are kept, but the consequences of not knowing can be serious, particularly as previous Canada Life research has shown that the most common problem encountered by executors of a will is tracking down policy documents.

“Whether it’s delays in accessing funds, missing out on benefits, or facing unexpected liabilities, families could be left in a difficult position simply because they didn’t have the right information at hand.

“Make time for the conversations that matter. Knowing where key documents are kept isn’t just about being prepared for the worst, it’s about making life easier for everyone, whatever the future holds.”

We can help you meet your obligations

If you want some help with making sure your affairs are in order and that your family will be able to find all the information they need when you’re no longer here, then please get in touch and we would be happy to give you the guidance you need.

Are we seeing the end of the ‘Bank of Mum and Dad’?

Children hoping they will get financial help from their parents as they get older may find they’re disappointed, as more than one in 10 retirees are cutting back on gifting, according to research from wealth manager Quilter.

Rising financial pressures, such as the cost-of-living crisis, are prompting an increasing number of retirees to reduce the support they are prepared to give to younger generations, raising questions about how wealth will be passed down.

The Quilter Retirement Lifestyle Report found 13% of retirees plan to cut back on the amount they are gifting to children. It rises to 16% when you look at younger retirees with above-average incomes, and 15% for those with lower incomes. This research could show a sea-change in the way younger generations will be financially supported by their parents.

What amounts are typically passed on?

The average retiree currently spends more than £2,500 each year supporting younger family members, the survey of 5,001 retirees found. This is made up of £1,323 in gifts and £1,175 paid towards education.

Some retirees, especially those with higher disposable incomes, pay significantly more than this each year, with many exceeding the £3,000 annual gifting allowance. For example, younger retirees with higher incomes, gift an average of £4,836 to relatives, and pay £5,280 towards education each year.

Shaun Moore, tax and financial planning expert at Quilter, said: “Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes. If the bank of mum and dad, or even the bank of gran and grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy.”

What happens if you gift more than the annual allowance?

If you breach the gifting annual allowance under the Inheritance Tax (IHT) rules, you won’t immediately trigger a tax charge, but if you die within seven years of the gift, then your estate could face an IHT charge, but this will depend on what your overall estate is worth and whether it will be subject to IHT at all.

Any gift above the annual allowance would then become part of the Potentially Exempt Transfer (PET) rules, where there is an inheritance tax charge that tapers down depending on how many years you survive the gift by. This creates complexity for the people who are left behind as your executors, who then need to determine whether gifts made were survived by more than seven years.

The gifting allowance of £3,000 has stayed the same in more than 40 years. If this figure had kept pace with inflation, it would currently be £12,000. Quilter is calling on the Government to uprate this figure to at least £9,000 to allow families to transfer wealth with greater confidence and flexibility. With the Autumn Budget happening on November 26, it remains to be seen whether any changes to this allowance, or any other aspect of IHT, are made.

Mr Moore said: “The rumour mill is already in overdrive as we near the Chancellor’s upcoming budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for IHT purposes, and the potential for a further freeze on the nil rate band all debated.

“A modernised allowance would support financial planning, reduce reliance on the state and help unlock economic potential. With pensions soon falling within the IHT net, generating a considerable uplift in revenue, this reform would be a modest concession for meaningful economic gain. If the government’s goal is to foster a high-growth, investment-led economy, then reducing friction around intergenerational wealth transfer is not just aligned with that vision, it is essential to it.”

We can help you

If you want advice on how to pass your wealth to the next generation, whether through regular gifting or inheritance tax planning, then please contact us and we will do everything we can to assist you.

Inheritance tax receipts up £800m in a year – how to beat the bill

Inheritance Tax (IHT) receipts from April 2024 to March 2025 have risen by £800m compared to same period the previous year. This is largely a feature of the nil rate band – the amount you can have in your estate before you must pay IHT – and the residence nil rate band (RNRB) – an extra amount that allows you to pass on at least some of your home to your direct descendants IHT free – failing to rise in line with inflation for many years now.

Currently the nil rate band sits at £325,000, while the RNRB is £175,000 for each of us, meaning a maximum of £500,000 per person can be passed on free of IHT outside of the spousal exemption. There is no IHT between spouses or civil partners, so anything passed between them on death does not face an IHT charge. Also, if one spouse doesn’t use the entirety of their nil rate band or RNRB on death, any remaining amount can be used by the second spouse at the time of their death, which could increase the amount that is passed without an IHT liability in that instance.

Tim Snaith, Partner at law firm Winckworth Sherwood, said: “IHT revenues continue to steadily rise due to the prolonged freeze on IHT thresholds. The nil-rate band (NRB) and the residence nil-rate band (RNRB) have not been adjusted for inflation or rising property values, which means more estates are becoming liable for the tax as asset values increase. It remains a persistent and unavoidable inheritance tax planning issue, and one that should not be ignored.”

Will the IHT thresholds increase soon?

Unfortunately, the IHT thresholds are due to be frozen until at least 2030, which means even more families will find themselves caught in the IHT net at a time when they are facing the grief of losing a loved one. As property prices continue to rise, even more families, especially in London and the south east, will face IHT bills unless the person who is deceased has taken the time to plan ahead and mitigate the number of assets that they leave behind that will face IHT.

This is one of the most disliked taxes, particularly as many people’s estates will face a 40% tax charge for the first time after their death. People often think IHT is something only wealthy people need to think about. But this is no longer the case, and things are about to get worse for those left behind.

Shaun Moore, tax and financial planning expert at Quilter, said: “Property prices have grown rapidly in recent years, particularly in areas such as London and the south east, which in many cases will leave little to no room for additional assets to be left to loved ones before the tax is applied. Additional policy changes, including restrictions on Agricultural Property Relief and Business Relief from April 2026, as well as unused pensions falling within the scope of IHT from 2027, will place additional strain on families.

“Tax bills are becoming increasingly difficult to mitigate, and this will only worsen as the freeze on the various thresholds continues and as policy changes set in. Seeking professional financial advice will be key to ensuring no more of your money goes to the taxman than is absolutely necessary.”

Mitigating your IHT bill

You won’t be the one worrying about paying the IHT bill as you will have left this mortal coil, but for those left behind, a lack of planning to mitigate IHT applied to your estate can create serious problems. They may be forced to sell assets to cover the costs, which might include the family home if there is no other way to pay for any IHT due.

However, there are some ways you can reduce the amount your beneficiaries would need to pay. This includes giving away some assets within your lifetime, providing it doesn’t affect your standard of living. You can also write some assets into trust, which places them outside the IHT net. This is particularly useful if you have a life insurance policy, as writing this into trust enables your family to receive that money much faster after you have died, and it is not subject to IHT. Most insurers can write this kind of policy into a trust for you, and it is definitely worth asking about.

One of the most important things to do is keep your will up to date. This can not only ensure the right people get the things you want them to receive, but it can also reduce the IHT bill on death.

Mr Snaith said: “To avoid unexpected financial burdens, it is crucial for individuals to regularly review their wills and estate planning, with professional legal advice, to manage their wealth efficiently.”

We can help you meet your obligations

If you would like to know more about how to reduce your IHT liability within the rules, then please get in touch and we would be happy to give you the guidance you need.

IHT thresholds frozen to 2030 and pensions in by 2027

Inheritance tax is one of the most unpopular taxes in the UK, as many people will pay 40% tax for the first time after they have died. The confirmation in the Budget that the IHT threshold of £325,000 will be frozen until 2030, and that any unused pension that is being passed on to beneficiaries will be included in the IHT net from 2027, has created a range of issues that should be addressed.

The basic IHT threshold is £325,000 with the Residence Nil Rate Band adding an extra £175,000 if you are gifting your home to a direct descendant. Yet despite this, IHT is increasingly catching those of us with more modest means, especially as they average house price in the UK is now £293,399 according to Halifax.

In fact, HMRC collected an additional £285m from IHT investigations in the past year to March 31, 2024, up 14% on the previous year. This is despite the number of investigations dropping by 4% in the same period.

However, some changes being brought in – including the need to include unused pension pots and farms that are being passed down through families – are causing consternation among those likely to be affected.

What is going to happen to farms?

Currently, if a farm is passed on to a younger relative, the transaction would pass free of IHT as the Agricultural Property Relief (APR) which applies to land, growing crops, farmhouses and the value of milk quota associated with the land, among other things and it currently has no limit. Items such as farm machinery and livestock would not be covered by APR but may be covered by Business Relief along with some of the other elements that make up a farming business. But from April 2026, APR and Business Property Relief (BPR) as it is referred to in the Budget briefing document, will be limited to £1m, and any amount above this would come into the IHT net, which could create a charge that would be very hard for the family to pay without selling the farm, or at least some of the assets to cover that cost.

From April 6, 2026, the combined 100% APR and BPR currently available for IHT would be reduced to 50%, so any amount over the £1m threshold would benefit from 50% relief for both APR and BPR, which would leave assets above this with an IHT charge. As IHT is charged at 40%, there could be a significant increase in the charges some farmers are facing.

There are ways to mitigate these costs, including taking out a life insurance policy which is written in a trust – which most life insurance companies will do without additional charge. It would also be possible to pass assets to the people you want to inherit them before you die. By doing this, and then surviving seven years, you would have removed these items from the IHT net.

However, you should not do this without advice. The Government has said it will bring in anti-forestalling measures from October 30, 2024, to April 6, 2026, which mean anyone making a lifetime gift and dying on or after October 30, 2024 and within seven years of the gift, the £1m APR will apply.

There has been a significant backlash from the farming community against these changes, and with some time before they come in, they could be removed altogether. If not, then these rules will apply from April 6, 2026.

What is happening when passing on pensions?

Those with defined benefit pensions are not typically able to pass on their unused pensions to beneficiaries. But those with defined contribution pensions can usually pass on their unused funds to their beneficiaries, and at present these are passed without any IHT liability.

However, what has been considered low-hanging fruit for some time now has finally been plucked by this Government, and from April 2027, these pensions will become part of the IHT net. But there are a few things you can do to reduce any IHT liability for the person who gets your pension.

For example, if you maximise your tax-free lump sum – which is 25% of your pension up to a maximum of £268,275 – then you can gift this to the person you would want to receive your pension on death. Surviving this gift by seven years will take it outside of the IHT net.

You can also take extra income out of your pension and give that away too. Regular gifts of money that you don’t need can be immediately free of IHT, but you will have to pay income tax on your pension income if you need to. You can also leave your pension to your spouse or civil partner, and because there is no IHT to pay between spouses or civil partners, this will enable you to pass it on without IHT becoming payable.

No matter what you choose to do, the most important thing is to ensure you have kept your nomination form up to date. Trustees have the discretion to pay your death benefits to the person you have nominated. So, any change in nominee from when you joined your pension must be updated to ensure the person you want to have your pension when you die is the person who actually receives it.

We can help you meet your obligations

IHT is complicated, and it is easy to make a mistake. So, please contact us and we will help you with your IHT planning, especially considering the proposed changes announced in the Budget.

How to deal with an estate on death as lifetime gift clawbacks rise

Dealing with someone’s death is never easy, and unpicking their affairs once they have gone, especially if there has been no forward planning for this inevitable event, can be very hard on those left behind. This isn’t helped if there are taxes to pay on the estate from gifts made during the person’s lifetime, a problem that is on the rise. Data from HMRC shows that the average tax payable by beneficiaries on lifetime gifts was £171,186 in 2011/12 but reached £196,923 in 2020/21 according to data obtained by Evelyn Partners via a Freedom of Information request.

So, the tax charged to beneficiaries on big lifetime transfers from the deceased has risen considerably, especially in relation to the Potentially Exempt Transfer (PET) rules, which state you can make any size of gift you like in your lifetime, but you must survive this by seven years for it to be free from inheritance tax (IHT). If you don’t, then it is considered to still be part of your estate and could be taxable at as much as 40% as a result.

If this is the case, then the beneficiaries would be the ones chased for the payment, as they would be the ones who had received the gift while their loved one was alive, and this could come as a real shock, especially if they have invested the gift in something illiquid, like a property for example.

How does this work?

The PET rules are straightforward, but there could be a problem if someone is, say, in good health when they make the gift but then die suddenly in an accident, or from a condition they may not have known they have. If a gift is made under the PET rules, then there is a reducing percentage that would need to be paid depending on how many years the gift is survived by.

The different rates in this Taper Relief as it is called that would apply are currently:

Three to four years between the gift and death – 32% tax

Four to five years – 24%

Five to six years – 16%

Six to seven years – 8%

Seven or more years – 0%

Source: HMRC

A gift can be any type of asset, such as a property, land, shares and so on. But if the person who is giving the asset away retains a benefit, this will still be deemed to be inside the estate and is known as a ‘gift with reservation’. If the gift is from an estate worth less than £325,000 for an individual or £650,000 if the first spouse to die did not use any of his or her IHT allowance, then there would be no tax to pay at all. There are additional allowances of £175,000 each to pass on property to direct descendants for those who have children.

Telling HMRC about someone’s death

When someone dies, you must let all relevant organisations know about their death. For the Government organisations, which includes HMRC, there is a service called Tell Us Once, which means you tell one Government department about the bereavement and they will inform all other departments so you don’t have to tell each one separately.

You can also now use a form P1000 to inform HMRC about who is going to be dealing with the deceased’s estate. The form, which can be found on Gov.uk, allows you to give details of the person who has died, along with information about any agents who will be handling their tax affairs up to the point of their death and for income tax and capital gains of ‘informal’ administration periods.

The aim is to help speed up the time it takes to deal with an estate, but this will be kept under review. But it doesn’t replace any other means of giving information to HMRC about someone who has died, or about their estate.

We can help you meet your obligations

Dealing with a death is a tough, emotional time, and it can be difficult to get to grips with the necessary admin. If you would like us to help you at such a distressing time, please ask us for advice and we will do what we can to help.

Bona Vacantia – what happens when an estate is unclaimed?

Many people find themselves facing their highest marginal tax rate after they have died, with Inheritance Tax at 40% for any amount over the £325,000 nil rate band, or up to £500,000 if you include the Residence Nil Rate Band and you have children. There are ways to reduce your liability by working with a solicitor or will writer to design your will in the most efficient way.

However, estimates suggest that more than half of UK adults don’t have a will, increasing the likelihood they will die intestate. When this happens, it is the State that decides who gets what from your worldly goods, and there is no guarantee they would go to who you want to have them.

What are the intestacy rules?

The intestacy rules dictate who gets what from someone’s estate if they die without a will. People often think of a will being important to ensure the right person gets their belongings when they die. But it is equally important to ensure the wrong person doesn’t get your belongings by virtue of being a blood relative, if you have someone close that you would want to disinherit.

Under intestacy, if the person who died was married or in a civil partnership and they had no children, then the spouse or civil partner will receive the entire estate, once any IHT liability has been accounted for. If they did have children, then the spouse or civil partner would inherit all property and possessions, the first £325,000 of the estate, and half of anything that remains. Any children will inherit what remains, although this doesn’t apply automatically to stepchildren, and the remainder will be split equally between all other children.

If there is no spouse or civil partner, then the estate will be divided equally among all children including adopted children. If there are no children, then surviving parents will inherit, if there are no surviving parents, then it will go to full siblings. If full siblings have died, then their children will inherit ahead of any half siblings.

If the person who died has no surviving parents, children, siblings or half siblings, then any surviving grandparents will inherit. Without living grandparents, whole aunts or uncles will inherit, or their children if they have already died. When there are no surviving family members, the estate passes to the Crown, and is known as ‘Bona Vacantia’.

Where can I find out about unclaimed estates?

The Government publishes lists of unclaimed estates online, so if you think you may be entitled to an inheritance as the only living relative of someone whose estate is Bona Vacantia, then you have the right to notify the Government and make a claim. First, you would need to check that you are the right person in the order of intestacy rules to make a claim. Then you can apply for a share of the estate.

Some genealogy companies will scan the unclaimed estates lists and then work towards finding claimants, who will then pay them a proportion of their inheritance in return. But you don’t need to use one of these companies to make a claim on an estate you think you are entitled to. You can go to the relevant page on Gov.uk and begin the process yourself for free.

Remember, someone doesn’t only have to die without a will to be intestate, they can have a will that is invalidated for some reason, such as they created it under duress or while they weren’t of sound mind. So, when you make your will, ensure you use a good solicitor or will writer who will do everything you need to do legally to make your will watertight. This will also help to prevent any family squabbles once you’re gone.

We can help you meet your obligations

The sooner you write your will, the sooner your estate will be protected – after all, none of us knows when we will leave this mortal coil. You will need to know the value of all your assets, especially if you have a company. So, please ask us for advice and we can explain everything you need to know.

Inheritance Tax at record levels, but Business Relief can help

Inheritance Tax (IHT) has reached a record level in the UK, with £7.5 billion flowing into Treasury coffers in 2023/24, up from £7.1 billion the previous tax year. One key reason for this growing tax take is rising property prices – the average house price in the UK has reached £288,949 according to Halifax – which, coupled with the lack of increase in the basic IHT thresholds since 2009/10, means more people are being pulled into the IHT net.

Currently your estate will face IHT at 40% if it exceeds £325,000. There is another allowance – the Residential Nil Rate Band – which gives you an additional £175,000 which can be used to pass your home to a direct descendant, such as your child or grandchild. This means you have a maximum of £500,000 that you can have in your estate before IHT is applied if you have children. But you can also use any of your spouse’s allowance that has been left unused if they died before you do.

Aside from this, there are numerous ways you can reduce your IHT liability during your lifetime, including making financial or asset-based gifts to relatives, using trusts effectively, and even surviving a gift you make by at least seven years. But one other way you can reduce your IHT liability is by using Business Relief.

How does Business Relief help to reduce IHT?

Business Relief is available for business owners, and on investments in companies that qualify for it. These shares can be within private companies, or companies listed on Alternative Investment Market (AIM) – the exchange for fledgling companies. Since these companies are smaller and often less established than those on the larger stock exchanges, such as the FTSE100 or the FTSE250, there is a higher risk of losing any investment you make. It may be harder to sell the shares in a private or smaller company if you needed to.

But on the plus side, any investment in a qualifying company is outside of the IHT net after just two years, rather than the seven years required for Potentially Exempt Transfers.

Will the investment always qualify for Business Relief?

You need to be holding the qualifying investment to get Business Relief when you die. But if the company has been successful and is listed on a larger exchange, such as the FTSE100, then it will no longer qualify for Business Relief. So, you need to keep a close eye on these investments if you want to be able to use them for IHT planning. You might need to invest in another company which will then need to be held for a further two years to qualify.

Another major benefit of using Business Relief is that the investment will be in your name, and if you need to have access to that money, then you can get it – if you are able to sell your shares in the company. This way you are not relinquishing control of your own assets while you are still alive.

What about if I am a business owner – what can I do?

If you own a business, then you can benefit from Business Relief on your own business if you die while you still own it. If there is a property associated with the business, there are a range of reliefs you can access. For example:

For deaths and transfers, on or after 6 April 1996, the categories of property which can qualify as relevant business property are broadly as follows with rate of relief:

• Property consisting of a business or interest in a business: 100% relief.
• Control holdings of unquoted securities in a company: 100% relief.
• Unquoted shares in a company: 100% relief.
• Control holdings of quoted shares in a company: 50% relief.
• Land, buildings, machinery or plant used by a company controlled by the transferor or by a partnership of which the transferor was a member: 50% relief.
• Settled land, buildings, machinery or plant in which the transferor had an interest in possession and used in his business (This applies to lifetime transfers only): 50% relief.

Source: M&G Wealth

There are various other ways business owners’ estates can benefit from Business Relief, but it is a complex area. You can find more information on Business Relief and how it works on GOV.UK. But the best way to maximise any benefit is to speak to your accountant, who can explain everything to you to ensure you don’t fall foul of the rules.

Contact us

If you are a business owner, or you want to know how Business Relief could help you with your IHT planning, then please get in touch with us and we would be delighted to help you understand what you can do to reduce your liability.

Make sure your will is up-to-date and you have planned for IHT

Many of us will die without a will because it is something that we fail to get around to, often because we don’t want to think about our own demise. Around half of UK adults don’t have a will, with a third of those over 55 in this position, according to research from Canada Life. Anyone dying without a will is leaving the State to dictate how their assets are split when they die, and it could even mean the State taking your money. This would mean the people you want to receive the things you leave behind may not receive them.

Your ‘last will and testament’ is essentially your final wish for what happens with your worldly goods when you die. Without a will, there is a specific set of rules by which the State will divide up your estate, In England and Wales, these are:

• Your married spouse or civil partner – even if you have separated and are yet to divorce – will inherit your whole estate and your personal possessions.
• If there are any children, grandchildren or great grandchildren, then your spouse or civil partner will inherit:
• The first £322,000 of the estate.
• All the personal possessions of the deceased,
• plus, half the remaining estate.

The rules vary in Scotland, and you can find more information here.

Writing a will is by far the best way to ensure your estate is divided in the way you want. You must keep it updated whenever you have any changes in your life, such as having a child, getting married, divorcing or a change in your net worth. If you are simply living together, your partner will have no legal access to any of your possessions without a will, and would potentially face a big IHT bill.

What do I need to think about when writing my will?

One of the reasons people might be reluctant to write a will is not knowing who they want to leave their possessions to. But the sooner you think about this and make those decisions, the sooner you will be sure that the State will have no look in when it comes to the division of your estate.

You can always update your will once it is created, so you don’t need to think of this as a one-time deal. Over time, you may find that you change your mind about who you want to receive what, and you also will have different assets over time too.

Choosing who gets what when you die isn’t easy. You may need to provide letters to explain your decisions if you think some of them may be contentious. Also, you may have a favourite charity you would like to leave a legacy to, and if this is the case, you should be aware that it will get its share before any of your loved ones, so think carefully about how you do this.

What is the most efficient way to separate my assets?

How you leave your assets and to whom is a very personal thing, and you can speak to your will writer or solicitor about this to make sure you are achieving what you want. There may be people, for example, that you want to ensure don’t receive anything when you die, and this may also need to be spelt out in your will.

You may find that leaving things in percentage terms, rather than monetary values, will also prevent you having to make changes on a more regular basis as your net wealth goes up and down throughout your life. In the case of a charity, this would mean it would only get the percentage you leave to it, and not the entire estate if your net worth had fallen significantly before you died.

For example, let’s say you are worth £650,000 including your property, you have children, and your spouse or civil partner has died previously without using any of their inheritance tax allowance. This would mean your entire estate could be passed without IHT as you can use your deceased spouse’s £325,000 allowance along with your own.

If you had previously been worth much more, say £2m, then you may have left £500,000 to a charity which would be 25% of your assets at that point. But if your estate had fallen to £650,000 when you die, then the charity would take the first £500,000, leaving just £150,000 for the remaining beneficiaries.

If instead you left 25% of your estate to the charity, then at £650,000 the amount it would be entitled to would be £162,500, leaving £487,500 to your other beneficiaries. This is an important consideration, and it might be worth using percentage values for all of your beneficiaries, so any significant change in your net worth will not mean one person or organisation getting much more than you had intended.

Is the Chancellor expected to change IHT in the upcoming Budget?

There have been rumours that the Chancellor will be making changes to IHT in the Budget, but this is something that has often been mooted before a Budget or an Autumn Statement. Yet there have been no significant changes to IHT in recent years. Even the threshold has been frozen at £325,000 bringing more people than ever into the IHT when they die thanks to rising property prices.

We won’t know for sure until Jeremy Hunt delivers the Budget on March 6, but if you don’t have a will, you should look to get one sorted as soon as you can anyway as no-one knows when the worst will happen. It can always be changed later and should be reviewed once a year at least to make sure it is still correct.

We can help you

If you are interested in estate planning to make your legacy as tax efficient as possible, then please get in touch with us and we will be happy to help you.

Make the most of the new tax year by acting now

The new tax year started on April 6 and while many people will wait until the last minute to maximise the tax benefits available to them, there is a lot to be said for starting your tax housekeeping sooner rather than later.

There are many ways we can benefit from the tax breaks available each tax year. But trying to cram everything into the month before the tax year ends means you are likely to miss out on some of them. Planning ahead from the start of the tax year means you can mop up any allowances you can access.

Use your ISA allowance early

One of the most beneficial allowances to start using early in the tax year is your Individual Savings Account (ISA) allowance. Each tax year – which runs from April 6 to April 5 – we all have the option of putting up to £20,000 into an ISA. You can put as much as you want into any type of ISA, providing you don’t breach the £20,000 threshold in a single tax year. The money grows free of Capital Gains Tax and Income Tax, plus in a cash ISA you will not pay any tax on savings interest.

Using your ISA allowance at the beginning of the year can generate significant benefits, even if you can’t put the whole £20,000 in at once. For example, if you calculate the difference in the value of an ISA with just £3,000 invested at the beginning of every tax year since 1999 compared with the same amount invested on the last day of the tax year over the same period, the early birds will have more than £9,000 extra in their pot based on the performance of the average global equity fund.

If you and your spouse have both used up your £20,000 allowance and you have children, you can also put up to £9,000 for each child into a Junior ISA. This is a perfect way to put money aside throughout their childhood to pay for school fees, university or even to build a deposit to help them buy their first home.

Use your Capital Gains Tax allowance

This tax year – 2023/24 – the Capital Gains Tax allowance has been more than halved, from £12,300 in 2022/23 to just £6,000. So, anyone crystallising gains of more than £6,000 in this tax year will need to pay CGT on any amount above this limit. The rate you pay will depend on your marginal rate of income tax and what type of asset the gain has been crystallised on.

As we all have the same CGT allowance, it is possible for spouses to shelter up to £12,000 from CGT this year, but that will take some planning. So, speak to your accountant to make sure you are making the right decisions at the right time.

Maximise your Inheritance Tax planning by using your annual allowances

Inheritance tax (IHT) is often considered to be a tax just for the rich. But as house prices have risen and the threshold for paying this tax has remained static at £325,000 since 2009, and is likely to remain at this level until 2028, more people than ever are paying IHT. In fact, the latest figures released by HMRC show IHT receipts have soared by £1 billion to £7.1 billion from April 2022 to March 2023, largely due to house price increases, especially in the South East of England.

So, if you own your home, you may want to think about how you can use the annual allowances to reduce your liability when you pass away.

Any amount you have in your estate at death above this Nil Rate Band – which includes all your assets such as your home, cars, antiques, jewellery, collections and so on – will be taxed at 40%. There is an additional allowance of £175,000 per person, called the Residence Nil Rate Band, if you are passing your home to a direct descendant, such as a child or grandchild. But this is not available to those without children.

Spouses or civil partners passing assets between them on death will not be subject to IHT. So, any unused allowance remaining can be used by the second spouse or civil partner on their death, giving a maximum threshold of £1m if none of the Nil Rate Band or RNRB was used on the first death. The allowance can be passed automatically, you would just need to let the executor of the estate on the second death know this as they would need to make the claim when they apply for probate. So, a letter with your will would be a good way to do this, or by discussing this with the person who writes your will with you.

If your estate would still exceed this level, then you can legally reduce your estate’s value each year by making gifts to loved ones. For example, you can make gifts of up to £3,000 each year which will be free of IHT when you die.

You can also make other gifts of any amount you like, and providing you survive those by seven years, they will no longer be within your estate for IHT purposes. But the rules can be complex, so get advice from your accountant if you think you could be affected by IHT.

Contact us

These are just a few of the ways you can reduce your tax bills this tax year. We can help you make the most of these and other allowances before you lose them. So, please get in touch with us and we will help you make the right financial decisions for you and your family.

Autumn Statement – what you need to know about upcoming changes.

You could be forgiven for thinking Budget statements are a bit like buses lately – we don’t have one for ages, and then three come along almost at once. While the latest financial proclamation from the Government is known as the Autumn Statement, it is a Budget just the same, and there are some changes you need to be aware of that will be implemented in the coming tax year, which begins on April 6, 2023.

Not only has the highest income tax bracket of 45% remained in place, but the point at which you start paying the 45% tax will be lowered from £150,000 to £125,140 from next April, bringing thousands more people into this highest tax bracket. Estimates suggest it could be as many as 250,000 more hitting the 45% level for the first time. The Chancellor also announced that he is freezing all income tax thresholds until 2027/28 which means more people will be pulled into the higher tax bands and will end up paying more tax. This is known as ‘fiscal drag’ and is a way for the Government to increase its tax take without increasing the rates of income tax.

What about the help with energy bills?

Help with energy bills remains in place, but the Chancellor changed his approach by extending the term of the support to March 2024. But this additional support is less generous and is capped at £3,000 which means many people will pay more than the £2,500 which is in place until April 2023.

Those on means-tested benefits will receive an additional £900 to help pay their energy bills, while pensioners will receive £300 as a one-off payment, and those on some means-tested disability benefits will receive £150.

What else will change?

There were numerous other changes to tax allowances announced, as the Chancellor looks to increase the Government’s tax take to plug a £55 billion spending black hole. For example, the Capital Gains Tax allowance which currently stands at £12,300 will fall to £6,000 next year and then £3,000 in 2024. This will affect anyone crystallising portfolio gains outside of an Individual Savings Account (ISA) and landlords who are selling buy-to-let properties.

The dividend allowance, that will also reduce from the current £2,000 to £1,000 in 2023 and then £500 in 2024, means anyone being paid dividends either through their own business or as part of an investment portfolio, will see those using the full allowance £590 worse off in 2024.

Inheritance tax band frozen

The inheritance tax nil-rate band has also been frozen at £325,000 for the next five years until at least April 2028. HMRC received £4.1 billion in IHT receipts between April and October this year, £500m more than the same period the previous year, and we are likely to see even more money heading to the Treasury coffers via this route in the coming years.

There are many ways to mitigate IHT, so if you are likely to be affected by this tax – and remember, it is no longer just a tax for the rich given the price of the average UK house is now £292,598, according to the data from Halifax – then please get in touch and we can advise you on how to legally reduce this bill.

Some good news for pensioners

However, there was some good news for pensioners as the Chancellor confirmed that the Government would continue to maintain its manifesto pledge to keep the ‘triple lock’ on the State Pension. This means that the State Pension will rise each year in line with September’s inflation figure – which this September was 10.1%, earnings or 2.5% – whichever is highest.

So, pensioners will see their State Pension rise by 10.1% from April, which should take it to £203.85 per week from the current level of £185.15.

Contact us

There are many announcements each time there is an Autumn Statement or Budget and it can be difficult to know what the changes are, and how they affect you or your business. So, if you want any assistance to keep up with what is going on and how to protect your own or your business’s finances, please contact us and we will give you all the help, support, and information you need.

End of bulk appeals for tax fines in May

If you are unlucky enough to be fined for a late filing, then the way in which any appeal can be made changed as of May 7.

Prior to this, HMRC had temporarily reintroduced the ability to bulk appeal late filing penalties for income tax in 2020 and 2021. But from now onwards, all such appeals need to be made individually.

To be fair, if you keep in close contact with your accountant and give sufficient time for all of the paperwork to be done, then you should not be in a position where you are facing a late filing penalty. But if you have either filed paperwork late yourself or had a late filing penalty for some other reason, then each appeal now must be made individually.

Your responsibilities

Even though you use an accountant to deal with your tax liabilities, you are still ultimately legally responsible for the correct and timely filing of your returns. There are several different penalties that could apply too.

Types of penalties

For example, there is an ‘inaccuracy penalty’ which can be applied across specific taxes, including income tax, PAYE, capital gains tax, inheritance tax and corporation tax. This penalty could be anything from 0% to 30% of the extra tax due if the error occurred due to a ‘lack of reasonable care’.

If the error is considered deliberate, this rises to between 20% and 70% of the extra tax due, and if it is both deliberate and concealed, it could rise to between 30% and 100% of the extra tax due.

You could also face a penalty for a failure to notify HMRC of a change in your liability to tax. This could be, for example, if your company makes a profit and becomes liable to corporation tax. Or it could be because your business has reached the turnover for the VAT threshold (£85,000) and you have not registered for VAT.

Other penalties could include ‘Offshore penalties’ and ‘VAT and Excise wrongdoing penalties’ – so it is important if any of these could potentially apply to you, that you speak to your accountant immediately. You can find more information on the types of penalties that could apply on the GOV.UK website.

We can help you meet your obligations

If you think there is a chance that you could fall foul of any of these rules and face a penalty, or that there is any other issue you need advice on to make sure you comply with all your HMRC requirements, please contact us as soon as possible. We will help you navigate any problems that arise.

IHT receipts up by £700m – but why you should see this as a ‘voluntary’ tax

Inheritance tax (IHT) is one of the most hated taxes there is, mainly because for many people their estate faces a 40% tax rate which is higher than they would have paid during their lifetime.

HMRC’s latest figures reveal there has been a £700m increase in IHT receipts in the financial year to January 2022, with £5 billion going into Treasury coffers. Much of this additional revenue will have come from property price inflation, which has increased the value of many estates, especially as the £325,000 personal IHT allowance has stayed at the same level since 2009. Had it been left to rise with inflation, it would have been worth £428,000 in 2022/23 according to Quilter.

Transfer of allowances

Any remaining allowance can be transferred on the first death between spouses or civil partners, meaning a married couple where the first spouse or civil partner uses none of his or her NRB leaves a £650,000 allowance for the second spouse or civil partner.

The Residence Nil Rate Band (RNRB) of £175,000 is also available – and can also be transferred in the same way as above – but this has added complexity to IHT. In fact, for those who have no children, the RNRB cannot be used at all, which increases the complexity around advising on this.

However, with the average house price now at £288,000 – just £37,000 shy of the £325,000 threshold – many more people look likely to get drawn into this tax net without some prior planning.

You can mitigate this tax

Given the ways that IHT can be mitigated during our lifetimes, this can be considered a ‘voluntary tax’ and one that richer people have been planning to mitigate for years. Yet it is still considered solely a tax on the rich by many, even though those with relatively modest estates that include a property can be caught in this trap.

So, using every available way you can reduce your estate’s exposure to IHT before you pass makes sense, even if you feel you are someone of relatively modest means.

Ways to reduce your IHT liability

There are a number of ways you can lower your IHT bill, including making gifts during your lifetime to reduce your estate to below these thresholds so there is no IHT for your beneficiaries to pay.

You can make gifts to spouses or civil partners without any IHT, but you can also gift up to £3,000 a year to other people using your annual exemption. For a couple, this means they can gift up to £6,000 a year with no IHT impact.

You can also gift unlimited amounts above your normal expenditure, providing it does not alter your standard of living. If you want to make larger gifts, then providing you survive them by seven years, it will be considered a potentially exempt transfer and free of IHT.

If you die within this seven-year period, a tapered amount of IHT would be applied.

We can help you mitigate IHT

There are many more ways you can reduce your IHT liabilities, but IHT planning is a complex area, and you can easily fall foul of the rules without expert help. So, if you would like to find out more about how you can reduce your liabilities for your beneficiaries, then please do get in touch.