Inheritance Tax Thresholds
We already knew that the previous Government froze inheritance tax thresholds until April 2028. This means the first £325,000 of any estate can be inherited tax free, rising to £500,000 if the estate includes a residence passed to direct descendants. For a married couple or civil partners, the inheritance tax free threshold can mean £1,000,000 is free of inheritance tax.
Rachel Reeves in her first Budget announced that the freeze on inheritance tax thresholds will be extended for a further two years until April 2030.
Inheritance Tax on Pensions
Rachel Reeves also confirmed that from April 2027 inherited pensions are to be brought into the inheritance tax regime. There was no guidance on this measure released following the Budget.
Pensions are currently exempt from inheritance tax and not included as part of an estate when someone passes away. This is a significant change that may impact upon retirement planning. Adding pensions to estates could substantially increase the number of estates which become subject to inheritance tax, perhaps to well above the current 6% level.
As this change is not due to be implemented until April 2027, this will allow all the current uncertainties to be resolved and provide individuals with an opportunity to carry out some planning prior to April 2027.
When there are any announcements or further guidance issued, we will provide an update.