You will want to make sure you can pass your assets down to your family (Image: GETTY IMAGES)
In the coming years, more and more families will be impacted by Inheritance Tax changes. Some rules are changing, while others are staying frozen, meaning that more people could unintentionally fall into the IHT net. Marc Perry, LV= Consumer Finance Expert, has provided some tips to help with Inheritance Tax changes.
The expert has broken down what the changes could mean for you and your family. Marc says there’s “no need to panic” but understanding how you’ll be impacted is crucial. With some simple planning and a clear understanding of what is changing, you can ensure you’ll be able to pass down your assets to your family.
There are several changes incoming in the next few years, with some already implemented (Image: GETTY IMAGES)
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Why is inheritance tax affecting more people?
One big reason IHT is becoming an issue for more people is that the main tax-free allowances are expected to stay frozen until at least 2031.
As property values, savings and investments continue to rise, it’s easier than ever for an estate to cross the tax threshold – even for those who may not consider themselves as wealthy.
At the same time, the Government is making changes to how certain assets are taxed, which may catch some people by surprise.
There will be a major change ahead for pensions and inheritance tax which is one of the most significant updates.
From April 6 2027, most pension savings will start being included in a person’s estate for IHT when they die. For years, pensions were exempt, so this marks a major shift in the rules.
There are some exceptions – these include:
Certain workplace death benefits
Even so, pensions will now need to be considered alongside other assets when planning how to pass wealth on.
There will also be changes to how business assets are treated. From April 6 2026, the rules around passing on business and farm assets will tightened. Currently, many of these assets can be passed on without being subject to inheritance tax.
Some smaller company shares will also receive less tax relief
There is a helpful adjustment, though: married couples and civil partners will be able to use any unused allowance from their spouse, which could help to soften the impact for some families
Inheritance tax planning doesn’t need to mean drastic changes. Often, small, sensible actions – reviewed regularly – make the biggest difference, LV= says.
It adds that professional advice can be invaluable and a qualified financial adviser can help you to understand the rules and avoid decisions that could cause problems later.
The government are making changes to how certain assets are taxed (Image: GETTY IMAGES)
LV have provided five small steps that could help:
Gifting money during your lifetime
Where the income isn’t needed to support personal lifestyles, some people may choose to take pension income earlier and to gift their money to loved ones while they’re alive.
Remember the “seven-year rule” – gifts usually need to be made at least seven years before death to fall outside IHT.
Making use of small annual allowances
The £3,000 annual gifting allowance lets people gradually reduce the size of their estate without affecting their everyday finances.
There’s also a small gifts allowance, which allows people to gift up to £250 per person each tax year, completely free of Inheritance Tax.
Just keep in mind that the small gift allowance can’t be used if someone has already received part of your £3,000 annual allowance.
Keeping access to funds while reducing IHT
There are some arrangements that allow people to keep access to their money while ensuring any future growth sits outside your estate.
Considering Equity Release
For some, turning part of their home’s value into a loan means they can gift money while still living there. Because the loan reduces the value of the estate for beneficiaries, it can help with IHT planning.
(But it’s not suitable for everyone – so receiving professional advice is essential.)
Using insurance to cover a possible tax bill
Some products, such as life insurance or Gift Inter Vivos policies, can help protect beneficiaries if you die within seven years of making a gift.