Key changes announced in the Autumn Budget for Pensions and Inheritance Tax

Many of us will undoubtedly feel that today’s Budget announcement by the Chancellor, Rachel Reeves, was not just the most significant of the last few years but the most significant of several decades!

In recent times, pensions announcements within Budgets have been somewhat vanilla, with the exception of the abolition of the Lifetime Allowance by Jeremy Hunt in the Spring 2023 Statement. That measure meant pensions became one of the most beneficial assets in which individuals can invest.

Pensions will now be included in the value of your estate

From April 2027, the government will bring inherited pensions into the scope of inheritance tax.

In simple terms the value of a person’s pension will be included in the value of their estate for the purpose of calculating the inheritance tax liability.

Presently, non-pension assets (such as cash, ISAs, bonds) are potentially more favourable to access first in order to meet an individual’s ongoing financial needs. This is due to their inclusion in the taxable estate calculation. Whilst pensions are more likely to be accessed later in life due them being considered excluded assets by HMRC in the inheritance tax calculation.

How will the changes affect me?

From April 2027 this inheritance tax treatment between pension and non-pension assets will no longer remain, meaning a potential shift away from the current model of tax-efficiently accessing assets.

We may see an increase in individuals accessing their pensions earlier, the goal being, to mitigate what now could be a much larger estate value exposed to the inheritance tax calculation.