The announced changes to pension taxation on death will drag thousands more families into the IHT net – HMRC itself estimates more than 10,000 families will be affected.
It’s now common to see pension pots worth several hundred thousand pounds being inherited. With the IHT threshold effectively being £1m for a married couple, the addition of a pension pot of that size is going to see a lot more estates paying IHT.
This change will also mean more estates will be worth £2m or more, where the IHT threshold falls sharply. This is going to further increase IHT bills.
We’re likely to see a lot more older people make greater use of gifting and drawing down their pensions in full. That can help make sure that money is enjoyed by their heirs rather than the taxman.
Making AIM shares liable to 20% IHT will also impact the tax planning of a lot of older people. AIM shares are eligible for IHT relief after just two years, compared to seven years for gifts. That means they are often owned by people who worry that they may not live another seven years.
The Budget gives people another very good reason to think about gifting early in retirement rather than later.
