
A recent study by Canada Life has revealed a staggering lack of awareness about upcoming changes to pensions and Inheritance Tax (IHT).
Starting in April 2027, new rules will bring pensions under the scope of IHT, a move that is expected to double the number of estates liable for the tax by 2030.
According to the study, around 8.5 million people remain unaware of these changes, which were announced in the Autumn Budget.
What does this mean for your estate?
The Government’s decision to include pensions in IHT is projected to generate an additional £1.46 billion for the Treasury by the 2029/2030 tax year.
This change could see one in 10 estates subject to IHT by 2030, yet only six per cent of people have updated their financial plans in response to the rules.
For those aged 55 or older, the lack of action is particularly concerning, as pensions often form a big part of retirement and estate planning.
While some individuals have responded by spending more, gifting wealth, or withdrawing lump sums, the vast majority remain unprepared.
Misunderstood gifting rules
The research highlights widespread confusion about gifting, which can be a key strategy for reducing IHT liabilities. For example:
- Annual small gifts – Up to £250 per person can be gifted annually to an unlimited number of individuals without incurring IHT, yet nearly eight in 10 Britons are unaware of this.
- Gifts from income – Regular gifts made from surplus income are also exempt from IHT, but again, this is unknown to the same proportion of people.
- Spousal exemptions – Almost seven in 10 people do not know that gifts between spouses or civil partners are tax-free.
- The seven-year rule – Gifts made more than seven years before death are exempt from IHT, but half of those surveyed were unaware of this.
- Unused exemptions – Nine in 10 people don’t know that unused annual exemptions (£3,000 per year) can be carried forward one tax year.
What should you do next?
These findings underline the importance of proactive planning when it comes to your finances and estate.
Here are some steps you can take:
- Understand the changes – Speak to our team about how the inclusion of pensions in IHT might affect your estate. Early action can help mitigate potential tax liabilities.
- Review your Will and estate plan – Ensure your will reflects your current wishes and consider updating it to account for these changes. For example, you may wish to explore strategies like trusts or gifting.
- Maximise gifting allowances – Take advantage of gifting rules, such as the £250 per person rule, the £3,000 annual exemption, and gifting from surplus income. Understanding and using these allowances effectively can help reduce your taxable estate.
- Plan ahead with pensions – If your pension forms part of your estate, explore whether withdrawing lump sums, spending savings, or gifting funds may help minimise the IHT burden.
If you would like to know more about how these changes might affect you or need advice on estate planning, speak with us today.