Big Tax Changes Are Coming: How to Protect Your Family Wealth from Inheritance Tax
What’s Changing in 2027?
Currently, most defined-contribution pensions are outside your taxable estate. If you die before 75, they can be inherited tax-free. After the age of 75, only income tax applies.
However, the government plans to remove this protection. Pensions will no longer be IHT-free. Therefore, if your total estate, including your pension, exceeds the £325,000 threshold, your beneficiaries could pay 40% tax on the excess.
Why This Could Cost Your Family Thousands
Consider this example:
- Home value: £400,000
- Pension value: £300,000
- Total estate: £700,000
Even with the residence nil-rate band of £175,000, your family could face a large Inheritance Tax bill. As a result, tens of thousands could go to HMRC instead of your loved ones.
5 Ways to Protect Your Family Wealth from Inheritance Tax
- Review and update pension beneficiaries-Read More Here
Keep your nomination forms up to date. This ensures your pension is paid to the right people in a tax-efficient manner. - Consider accessing your pension earlier
Using your pension under the current rules can reduce the taxable value of your estate in the future. - Use annual gifting allowances
You can give away £3,000 each year. Additionally, other exemptions may also help reduce IHT. - Set up life insurance to cover future IHT
A whole-of-life policy in trust can provide funds for your heirs to pay the tax bill. - Seek professional financial advice
An Independent Financial Adviser can create a personalised plan to protect your wealth.
The Bottom Line
The 2027 Inheritance Tax changes could significantly affect the wealth you pass on.
However, by acting now, you can protect your family wealth from Inheritance Tax. This will help reduce the potential bill and ensure more of your assets go to your loved ones instead of the Treasury.
