Managing impact of 2025 IHT on Pension pot

Smudgeismydog

Aretnap said:

cockshootflyer said:

Thanks both for the response, these are the assumptions I have made:
The estate exceeds the £325K IHT allowance, any and all funds above this level attracts IHT of 40% 

The property has always been seen as a last resort measure and something we want to leave to our son.

Assuming you leave most/all of your wealth to your wife and when she passes whatever's left gets left to your son, then you can combine your £325,000 bands, and add another £300,000 for your main home, meaning that your son can inherit a cool million (as a mixture of property, pensions, ISAs, cash etc) before he has to start worrying about inheritance tax.

If your estate is likely to be very large then there's certainly an argument for gifting him some money now while you're still relatively young and healthy (and in a position to enjoy watching him benefit from it) to reduce the eventual tax bill. OTOH there's also a good argument for prioritizing your and your wife's comfort and financial security now over saving some tax that your estate might or might not have to pay in many years... after all if your son does eventually inherit over a million pounds he'll be doing alright in the whole, even if he does have to pay a bit of tax on it.

Just to correct;
Nil Rate Band is £325,000 each
Residence Nil Rate Band is £175,000 each

Both are inheritable, which is how you get to the £1m, but there are some caveats e.g. leaving the property to a direct descendant (which you would qualify for as it is your son), your house needs to be worth at least £350,000, as if it is less then you are restricted to the value of the property.
It is tapered when estates are over £2m.