Q: I have put as much as I have been able to into my pension pot to fund my retirement. Now, just when I am thinking about retiring, it seems that what’s left of that pension pot when I die could be taxed at 40% rather than being passed on to my wife in full. Do I need to update my Will and include my pension in it?
A: The first thing to say is that everyone should review and, if necessary, update their Will at regular intervals throughout their lives, as circumstances and tax rules can change.In the Autumn budgetit was announced that current IHT thresholds will be frozen until 2030, but from April 2027 pensions will no longer be exempt from IHT. Instead, pensions will be added to the deceased’s estate and therefore included in the calculations to establish the amount of IHT due where the estate value exceeds the exemption threshold of £325,000.
Currently a spouse or civil partner can pass on their assets to the surviving spouse or civil partner when they die, without attracting IHT, and any remaining nil rate band allowance can be transferred to the survivor. This effectively doubles the amount the survivor can pass on before IHT is due when they die. In addition, there is an extra £175,000 that each half of the couple can pass on free of IHT if they pass on their home, or the proceeds from the sale of it, to direct descendants including children, stepchildren and grandchildren. This is called the residence nil rate band. These rules do not apply to couples who are not married or in a civil partnership.
The new regulations around pensions and IHT are yet to be finalised, but you might want to start looking now at ways to reduce the effect the changes may have on your estate planning, and depending on that outcome it may be prudent to update your Will.
This question has been answered by Ulia Choudhry, a Partner with GHP Legal. If you would like to speak to someone about this or any other legal matter, please visit our website www.ghplegal.com and use the contact us form, or call us on: Wrexham 01978 291456, Llangollen 01978 860313, Oswestry 01691 659194
