The inheritance tax rules set to come into effect in April 2027 under the prospective Labour government led by Andy Burnham are prompting many households to reconsider their retirement financial strategies. The planned changes, originally introduced under former Chancellor Rachel Reeves, will mark the first time unused defined contribution pensions fall within the scope of inheritance tax.
Recent research by Hargreaves Lansdown highlights that savers are already taking action ahead of these reforms. A survey conducted by Opinium, involving 300 participants, found that one in four individuals intend to withdraw their pension tax-free cash to pass it on to family members, aiming to reduce the size of their taxable estate.
Additionally, over a quarter of those surveyed expressed plans to seek advice from financial advisers before making any decisions in response to the upcoming policy shift.
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Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explained the change in attitude: “Prior to the announcement, many people aimed to spend down other assets first, preserving their pension so it could be passed on free of inheritance tax. However, the new rules have led to renewed consideration of ways to reduce estate value and mitigate tax liabilities for families.”
She added, “This might involve making a one-off gift, such as towards a house deposit or a wedding, or contributing regularly into a Junior ISA to assist with future university costs. It is crucial, however, not to give away too much too quickly, as running short of funds later can create serious difficulties.”
The forthcoming tax change is encouraging individuals to rethink their estate planning, with many considering gifting money to loved ones while still alive. This approach not only potentially lowers inheritance tax burdens but also allows individuals to witness the benefits of their generosity.