Wealthy Brits are failing to notice that they will be hit by IHT changes
Many high net worth Brits are unaware that their pensions will soon be liable for inheritance tax, leaving families exposed to significantly higher levels of tax.
Nearly 20 per cent of high net worth individuals (HNW) aged 55 and over reported having no knowledge that their unused private pension pot will fall under the scope of IHT in under two years, despite the Chancellor confirming an overhaul of the controversial tax in the 2024 Autumn Budget.
Meanwhile, over 50 per cent confirmed that although they were aware of looming changes, they did not know exactly what they were and how they would be affected, according to an analysis by wealth management firm
An increasing number of estates have found themselves subjected to IHT in recent years, as frozen allowances, matched with increasing house prices and inflation, has pushed more people over the threshold, regardless of whether they considered themselves wealthy.
The inheritance tax threshold, which stands at £325,000,is set to be frozen until 2030. But leftover pension pots will no longer be allowed to sit outside IHT rules as of April 2027.
The government estimates that the decision will raise a total £1.5bn for the Treasury by 2030, bringing in roughly 1.5 per cent more estates on top of the current 4 per cent.
Not taking action
Among savers who are aware that they will be hit by the changes, a quarter have alarmingly opted not to take any action.
Elsewhere, 13 per cent have not yet taken action but plan to do so, while 8 per cent do not know what they can do to lessen the damage of the new IHT system.
Industry figures have called for savers to consider reducing their IHT bill through methods including early gifting and changing their long term financial plans to account for additional taxes.
For those bracing themselves to be slapped with higher taxes, 15 per cent said they are spending money to reduce their tax liability, while 14 per cent have shifted their focus to other tax-efficient savings vehicles, such as ISAs.
Others altered their financial plans or sought professional advice, as wealth managers report receiving an influx of queries in the run up to the November Budget, with estate planning a large concern.
Harry Bell, director of financial planning at Charles Stanley, said: “Pensions are among the most valuable assets people hold, yet many remain unaware of how upcoming reforms could affect their estate planning.
“While there’s no need for knee-jerk reactions…these changes alter long-standing assumptions about retirement planning, so taking advice now is crucial to avoid unexpected tax bills.”