Autumn Budget 2024: Pensions subject to Inheritance Tax from April 2027 – but most still won't pay

MSE_Molly_G

Pensions will be subject to Inheritance Tax (IHT) from April 2027, the Chancellor has announced, though the vast majority of estates will still not pay IHT despite the changes.

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Autumn Budget 2024: Pensions subject to Inheritance Tax from April 2027 – but most still won't pay it

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CSL0183

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

uss_hamish

There's a big gap between 6% paying IHT (now) and 51% paying IHT (what would be needed for "most still won't pay it" to be false!). People who read this board are highly unrepresentative.

kimwp

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

According to the article, roughly 50,000 estates a year will need to pay IHT a year.

Over 600,000 people die a year in the UK. It's not hard for 10% of the population.

Keep_pedalling

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

If you have children the with the RNRB that rises to £500k or £1M for a married couple. £1M of tax free unearned wealth is not something most people get. 

Bolt1234

From MSE re inherited pension from 2027

Though if you're passing on your pension to your spouse or civil partner, this can be inherited tax-free, as with any other assets left to a spouse or civil partner.

CSL0183

What about death in service life assurance benefits? 

Everyone paying into a DC scheme I suspect will have some sort of death in service life assurance policy attached? 

My own pays a 5x multiple of my pensionable salary plus the contents of my pension pot at the time of my death. 

I am 40yrs old and still have a long way to retirement but my current pension pot plus 5 x my salary is worth around £700k today, right now. (£80k pensionable salary x 5 = £400k + £300k in pension pot) 

I appreciate I am a fairly high earner but surely it wouldn’t take much for anyone on a decent salary to breach £325k if death in service benefits are also included in the maths for IHT?

Someone on a more average £40-£50k pa at a reasonably young age would break this £325k no problem with (5x salary) life assurance benefits?

Or am I misunderstanding death benefits?

CSL0183

Keep_pedalling said:

CSL0183 said:

I can’t see how most won’t pay? 

It’s not hard to leave an estate worth over £325k with pension pot and house. 

If you have children the with the RNRB that rises to £500k or £1M for a married couple. £1M of tax free unearned wealth is not something most people get. 

Yes I suppose. I never thought about it like this. 

How does the £1m married couple scenario work?

I die, leave everything to my wife, she then dies and because the 2 of us have gone, there’s now a £1m threshold. The £500k would only relate to me if I was single and leaving a house yes?

zagfles

This bit is interesting:

Generally, pensions fall into two types: defined contribution pensions (also known as 'money purchase' schemes) and defined benefit pensions (known as 'final salary' pensions). The changes to IHT apply to both types of pension"

Really? Usually DB pensions have spouse/minor child provisions on death but otherwise stop at death. Sometimes benefits to unmarried partners. Obviously spouse would be covered by the spouse exemption, but is this saying that if provision was made for a dependant's scheme pension for a minor child or unmarried partner, the pension would be subject to IHT? As a charge on the capital value at death? 

BTW DB pensions aren't just final salary, they're mostly CARE (career average) these days. 

ETA: having just checked Technical consultation - Inheritance Tax on pensions: liability, reporting and payment - GOV.UK  dependants scheme pensions are not in scope of IHT, only lump sums. May be worth clarifying in the article. 

Grumpy_chap

CSL0183 said:

What about death in service life assurance benefits? 

Everyone paying into a DC scheme I suspect will have some sort of death in service life assurance policy attached? 

I think that would only be the case for employment- linked DC pensions.  AIUI, it is not common for SIPP DC pensions.

kimwp

CSL0183 said:

What about death in service life assurance benefits? 

Everyone paying into a DC scheme I suspect will have some sort of death in service life assurance policy attached? 

My own pays a 5x multiple of my pensionable salary plus the contents of my pension pot at the time of my death. 

I am 40yrs old and still have a long way to retirement but my current pension pot plus 5 x my salary is worth around £700k today, right now. (£80k pensionable salary x 5 = £400k + £300k in pension pot) 

I appreciate I am a fairly high earner but surely it wouldn’t take much for anyone on a decent salary to breach £325k if death in service benefits are also included in the maths for IHT?

Someone on a more average £40-£50k pa at a reasonably young age would break this £325k no problem with (5x salary) life assurance benefits?

Or am I misunderstanding death benefits?

I wouldn't have thought DIS would count as part of your estate, as you'd never personally benefit, but I don't know for sure.

"Someone on a more average £40-£50k pa at a reasonably young age"
- I think you need to educate yourself on what averages ages are. The median was £27k, all ages, not very long ago.